What you need to know about getting paid in crypto
20 feb 2023
Over the past two years, there has been a trend for some celebrities, notably star athletes and the mayors of two major American cities, to announce they’d be converting portions of their salaries into cryptocurrency. Jumping on this bandwagon didn’t seem like a big risk at the time, given the then-increasing popularity — and value — of bitcoin and other digital currencies, bolstered by Super Bowl commercials and the booming NFT market.
Some ordinary workers have expressed an interest in doing the same too. While such benefits as retirement matching and financial planning tools remain important, a March 2022 survey conducted by SoFi, an online personal finance company, showed that 36% of workers wanted to have the ability to receive part or all of their paycheck in cryptocurrency, and 42% would like to receive NFTs as a performance reward. Then, in November 2022, a crypto winter hit, causing currency values and trading volumes to plummet amidst fears around inflation, a recession, proposed regulations, and high-profile bankruptcies that may or may not involve criminal activity. Depending on how and when people converted their salaries to the blockchain-backed currency, they could’ve ended up like New York mayor Eric Adams and have seen their digital assets lose up to 60% of their value.
That doesn’t seem to have dampened enthusiasm for getting such decentralized currencies among millennial and Gen Z workers, however, according to Nigel Green, the chief executive of the deVere Group, a financial consultancy that promotes Bitcoin. In late 2022 he told Cointelegraph: “Younger generations are still keen to receive their salaries in cryptocurrencies as they have grown up on technology. They are ‘digital natives.’ They know the future lies in tech and appreciate the inherent value of borderless, digital, global, censorship-resistant and non-confiscatable currencies.”
Why workers want this now
There are good reasons why some would still choose payment in cryptocurrency: immediate international transactions; the potential to make a profit in the future; a broader financial portfolio; and no need to rely on the banking system. The downsides remain too, including the potential for losses, complicated tax compliance, and the general complexity of having part of your money exist in crypto form only. So, if you’re considering taking part or all of your salary in a blockchain-powered currency, here’s what to know and what to watch out for.
This interest in crypto isn’t tied to the boom in its popularity, it’s part of a larger trend of workers seeking better perks from prospective employers, according to Phillip C Bauknight, a partner at the labor and employment law firm Fisher Phillips and chairman of its Cryptocurrency and Blockchain Practice Group. “A recurring theme over the last 18 months to two years is that employees want more flexibility and autonomy in all aspects of their work life,” Bauknight says. “Being paid in cryptocurrency has become a natural extension of that shift. Cryptocurrency provides the employee with more control over when, how, and in what form they receive compensation for the services, as well as the opportunity to maintain self-sovereignty over their assets.”
Hedging against volatility
When looking to attract overseas talent working remotely, it can be helpful for employers to offer payment in a cryptocurrency, according to Megan Knab, chief executive of Franklin, which works in hybrid cash and crypto payroll systems for businesses. “Employers have been able to broaden the kinds of teams that they can create and to hire workers from other countries. We definitely see that in Web3, where you have burgeoning developer communities outside the United States that are super talented, and that talent also likes having exposure to US dollars,” says Knab, adding that Argentina is a strong example. “There’s this wonderful community of web developers in Argentina and they suffer from a hyper-inflated currency that is extremely volatile,” she says. “A stablecoin [a cryptocurrency designed to have a stable price] is a very appealing way for them to take their compensation because they’re hedged against what’s going on in their macro environment.”
Bauknight agrees, saying that companies can benefit because they don’t have to consider which currency to use – yen, dollar or euro – or have to pay wire fees or bank transfers costs. Additionally, employees can get paid instantly, versus the delays and hiccups that can come with international remittances done between two banks. “Once it’s sent, it’ll be settled instantaneously,” says Bauknight. “You’re not losing compensation simply because of the administrative costs involved with transferring money. That can be very attractive to . . . potential employees and applicants.”
But what about another crypto winter?
Another part of the appeal is that any crypto assets could turn out to be lucrative in future, if the prices of, say, Bitcoin or Ethereum skyrocket. At the same time, your savings could quickly be worth a lot less than they were when you received them. While the purchasing power of fiat money – legal tender backed by governments – can fluctuate due to factors such as inflation, crypto can experience much bigger swings. “There’s going to be a difference between the cryptocurrency that you hold and the dollars in your bank account,” says Bauknight. “With cryptocurrency, the value of that could increase or decrease based on a variety of conditions. It could be higher or lower, based on what the price of that asset is on that day.”
Simply put, getting paid in crypto isn’t for the faint of heart, and it’s often not a great idea for someone who doesn’t have experience using the particular type of online wallets or exchanges needed for such transactions. “You probably shouldn’t be getting paid in crypto if you’ve never touched crypto before,” says Knab. “Operating in this atmosphere requires an extra layer of responsibility that’s perhaps not there in cash or fiat.”
How to handle the taxes
Part of that responsibility is making sure you know your way around the tax implications of having income in crypto. Laws and regulations vary by jurisdiction, and it’s important that workers know their employer is handling things by the book, usually through a third-party processor such as Franklin Payroll. “If you’re getting paid in crypto, you should be receiving, from your employer, the kinds of documents you need to file your taxes,” says Knab. “If you’re not, that’s not a great thing for your employer to be doing.”
The other thing to remember is that gains from selling crypto can make you liable for extra taxes. “If you are actively trading crypto assets, the best thing for you to do to prepare yourself for tax season is to actively manage your tax position over the course of the year,” Knab says. “That means taking a look at your trades every month, making sure you understand your gain or loss associated with those transactions, and making sure that you’re keeping proper records. It’s a common denominator in the industry — everyone complains about crypto taxes because there is so much complexity, the environment moves so fast, and there are new types of financial products being invented where there’s no guidance. The best thing you can do is have a proactive stance on it.”
The other thing to remember is that, despite the recent crypto winter, this payment option is likely to grow in popularity. Whether you’re strongly considering it or even just curious, it’s best to seek out as much information as you can ahead of time. “We’re going to have continued crypto adoption,” says Bauknight. “Ten years ago, the concept of cryptocurrency was largely inconceivable to the average person. Now it’s nearly impossible to find someone who hasn’t heard of Bitcoin, cryptocurrency, or blockchain technology. The biggest thing is: you have to do your own research [into] the technology, the currency [and] the exchanges that you’re going to trust to store your assets if you’re not going to store them by yourself. Safety first.”
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