A growing number of progressive companies – not just tech companies – are incorporating cryptocurrencies into their compensation & benefit plans. While it can catch the eye of the best and brightest talent, it at the same time can inject a range of risks and challenges into the total rewards system.
With the Bitcoin and the hundreds of other cryptocurrencies launched in its slipstream taking the headlines worldwide, and booming to a $2.6 trillion industry in the space of just years, cryptocurrencies are very likely here to stay.
While most of the talk goes to the investment side of crypto’s, or to its technological fundament (the technology behind the Bitcoin, known as blockchain, is touted to disrupt the market for transactions and smart contracts), one trend that is increasingly materialising is the inclusion of cryptocurrencies into salary and bonus schemes.
Paul Lalovich is a partner at Agile Dynamics, a management consulting firm that among others advises leaders on their human capital strategies and related setup. In his work with organisations across the Middle East, he has signalled a growing interest in exploring primary or secondary payments in the form crypto.
Globally, there are dozens of leading organisations that already have embraced crypto-related employee benefits, and the topic recently received more momentum when New York’s newly elected mayor (Eric Adams) said that he wants his first three paycheques to be reimbursed in cryptocurrencies.
The benefits of paying partly in crypto’s are multiple. The move can position organisations as progressive, and offer an interesting avenue for differentiation in the labour market. “Especially millennials and generation Z employees can be attracted by the prospect of earning Bitcoins on top of their salary,” said Lalovich.
Meanwhile, it can offer an enhanced earning potential for employees (according to some, the crypto market is still in its infancy and prices of coins are forecasted to spiral in the coming years) and the effective implementation of crypto transfers is a process that comes with no boundaries, little costs and can be done relatively quickly.
As with any innovation, change comes with its set of challenges and opportunities. In the case of embedding cryptocurrencies into total rewards, this is no different.
“Legality is an obvious challenge to consider,” Lalovich kicked off. “Not one central bank around the world has approved cryptocurrency as a recognised form of payment, which creates a challenge for payroll departments to rely on cryptocurrency as a payment equal to traditional currencies. Additionally, cryptocurrencies are mostly unregulated (with the exception of El Salvador), and some countries even consider trading or mining of cryptocurrencies to be illegal (China, Russia, etc).”
Then comes the matter of taxation. “Taxation systems have yet to develop comprehensive guidance, rules and regulations to cover the use of cryptocurrencies in the total reward mix. As such, calculating any cryptocurrency related employment income liability and any related employer liability, becomes an issue and a potential financial risk for “underpayment” for both employee and employer alike.”
Another factor is the high price volatility of cryptocurrencies. When employers take on new employees, they agree a relatively set package of financial terms. In the case of cryptocurrencies, the valuations of currencies can be so volatile that it can for instance slash or double payments (at the time of writing, the price of the Bitcoin dropped by over $10,000 in a single week).
Lalovich adds that the same volatility can also be an issue for tax authorities. “Typically, tax regulation outlines that an employee is subject to income tax based on the ‘fair market value’ of the cryptocurrency granted to the employee by the employer, even if the cryptocurrency is not exchangeable for cash and is as such ‘liquid’. But what is a ‘fair value’ if this value can face such drastic changes?”
Further, a country’s existing labour laws may also throw up challenges. “For example, in the US according to the Fair Labor Standards, wages must be paid in cash or negotiable instrument payable at par). Cryptocurrency does not fall under either of these categories. Similar labour laws in other countries on areas including payment can pose a similar bottleneck.”
Finally, the operational side of things. For payroll departments, adding crypto’s into the payment mix is a new step. They will need to adapt to the new way of working, and implement changes in processes and systems.”
“Cryptocurrency as part of the total reward system can be appealing for employers and employees alike, especially for the newer generations. The use of cryptocurrencies will inevitably see more and more uptake in the working environment, and as a result, the concept is worth exploring for any employer,” concluded Lalovich.