Cryptocurrencies, particularly Bitcoin, are on the verge of widespread mainstream adoption, and companies that want to move into crypto payroll have a chance to get ahead of the curve.
However, for large organizations to make crypto payroll a robust, scalable process, there are several factors to consider.
In this guide, we’ll answer some of the commonly asked questions about crypto payroll. We’ll also go into some of the not-so-obvious challenges that lie ahead for enterprise payroll departments wishing to branch into digital currency.
Business benefits of crypto payroll
Efficient cross-border payments
One of the side-effects of the Covid-19 pandemic has been the increasing decentralization of workforces.
With remote working the new norm, including the trend towards “work from anywhere”, many large-scale companies have employees and contractors scattered across the globe.
When paying employees in foreign countries using fiat currencies, payments often filter through third parties such as correspondent banks. This means they can take several days to show up in the employee’s account.
The fees for such payments are not always obvious upfront. They may include a percentage of the overall payment value, a one-off fee and/or a markup on the exchange rate.
Fee transparency and flexibility
Cryptocurrencies such as Bitcoin, on the other hand, can be sent around the world relatively quickly and without the need for intermediaries.
The average confirmation time for a Bitcoin transaction is 10 minutes. This is the the time taken to add it to the distributed public ledger of the Bitcoin blockchain.
Bitcoin transaction fees are are set by the party making the payment. The amount the payer pays in fees determines the speed at which the transaction is confirmed on the blockchain. Paying a higher fee will mean it has a higher chance of being confirmed by the network more quickly.
The amount required in fees for a transaction to be confirmed on the network is also impacted by its size. By this we mean the amount of information it contains rather than its value.
You can read more about how transaction size affects fees in our article on UTXO management.
Overall, the party sending a Bitcoin transaction has far more control over the fees than in a traditional international funds transfer. They can make a decision based on a trade-off between speed and cost.
So-called layer 2 solutions like the Lightning Network are another way that Bitcoin transactions can be sped up.
Another benefit of offering a crypto option for payroll is that it can attract employees who would prefer to be paid in crypto.
At this point in time, there is a high demand for crypto pay, and yet very few companies are offering to pay even partial salaries using cryptocurrencies.
Offering this option will give early adopters an edge when attracting those job seekers who are interested in being paid in cryptocurrency.
Why employees want to get paid in crypto
Crypto as an investment opportunity
Just as an employee may opt to receive part of their salary in company stock options, crypto payments could soon become a normal part of flexible compensation packages. As CNBC reports, this is particularly attractive to younger workers.
In fact, asking to be paid in crypto is already a growing trend. A number of public figures have recently announced they will be taking a crypto wage, from New York City Mayor-elect Eric Adams to a number of professional athletes.
Crypto payments are increasingly widespread
The future of crypto payments is already here. PayPal now offers its users the ability to buy and sell with crypto, as does Venmo. Apple has announced it will be enabling crypto “tap to pay” payments by the end of 2022.
Meanwhile, companies from AXA Insurance to Microsoft and even Starbucks are among the ever-growing list of multinational corporations embracing crypto. And according to an October 2021 survey, 32% of US small businesses accept payment in cryptocurrency.
Many of these developments have happened during the last year, showing the ever-growing pace at which cryptocurrencies are becoming mainstream thanks to a surge in consumer demand.
Challenges presented by crypto payroll
Adding crypto to an organization’s payroll system presents several challenges that simply don’t exist with fiat payroll systems. These challenges need to be carefully considered and balanced against the benefits.
Let’s start by outlining two of the more obvious challenges presented by paying employees with crypto — the added cost, and taxes.
Crypto payroll has added overhead costs
It goes without saying that legacy payroll systems were not designed to operate with crypto. For any enterprise to safely store and transact crypto, especially at scale, additional software and human resources will be required.
Crypto taxes and regulations
The requirements for business and personal taxes in relation to crypto are evolving so fast, that it is beyond the scope of this article to cover them in detail.
Since tax regulations already vary considerably from country to country, it is important for businesses to seek tax advice from a trusted expert in their jurisdiction.
However, one predictable requirement is the need for robust and transparent reporting when it comes to paying employees in crypto.
A specialist digital asset treasury operations platform like Fortris can help enterprises integrate a payroll solution into their existing operations in a seamless way. With Fortris, it’s easy to track payments and produce reports that are compatible with leading financial management and accounting software.
Some less obvious challenges with crypto payroll
In addition to the commonly considered questions about crypto payroll, there are several considerations that are not so obvious and need to be pointed out.
Crypto wallet security
- Companies that already use cryptocurrency as an operational asset will likely be familiar with best practices around cryptocurrency wallet security. But for businesses new to crypto, it can present a steep learning curve.
- In order to maintain a high level of security, finance departments may wish to keep one or more payroll wallets separate from other crypto wallets in the organization.
- Depending on the software being used to store and process crypto funds, this could result in additional overhead expenses and bottlenecks.
Managing payment authorizations
Unlike banks, blockchains can’t return funds that have been sent inadvertently or maliciously. It’s important that businesses have checks and balances to ensure that payment authorizations have robust security built in.
For example, with a multi-signature strategy and authorizations divided among a number of individuals, it becomes virtually impossible for a single employee to transfer a large sum of money to an anonymous address and then disappear.
Bitcoin wallet addresses are not like bank account numbers
When paying employees with fiat currencies, generally deposits go into the same bank account every pay period.
However, with cryptocurrencies such as Bitcoin in particular, the best practice is to use a different wallet address for each transaction for greater security and privacy.
Because of this, employers paying staff in Bitcoin may wish to have a protocol for constantly updating the employees’ wallet addresses, unless they have a software solution that securely automates this.
Scalability of crypto payroll
For larger organizations, having to manually convert, calculate, and input the correct salary amount as well as confirm the wallet address each time for each employee could be time-consuming and tedious.
This approach would make scaling the process difficult for larger organizations.
Fluctuating exchange rates
Most salaries are negotiated and paid in the local fiat currency, not in cryptocurrency. The exchange rate between the particular cryptocurrency and the agreed-upon fiat salary will vary every time payroll is processed.
Making matters more difficult, the exchange rate can even vary widely over the course of sending out payments. Moreover, the calculated exchange rate must be transparent and verifiable by all parties.
Managing crypto payroll with Fortris
Key features include:
- Fund segregation
- Multi-user management
- Reporting integration
- Managing fees and exchange rate fluctuations.
Want to learn more? Book a demo today.