How to get paid (or pay wages) in cryptocurrency

Crypto has significant benefits over the legacy banking system, especially when it comes to working across borders. It’s not always easy to integrate those payments into businesses and HR processes. There are many factors to consider when paying and getting paid in crypto, but services like PaymentX make it much easier and safer.

Blockchain’s first use case, and still by far the most popular, is money. Cryptocurrencies like Bitcoin make it extremely fast and easy to get paid, no matter where the different parties are in the world. But crypto operates on a very different paradigm to the banking sector and conventional financial services, and it’s important to know your way around the different quirks, features and software that allows workers to get paid in bitcoin – or, for businesses, to run a bitcoin payroll.

The benefits of bitcoin payroll

The way cryptocurrency networks operate means there are several advantages to using them for payments, for both employers and workers, and especially where the parties are located in different countries. The benefits arise from the lack of middlemen, resulting in low costs, high speed and the high reliability of blockchains.

Benefits for businesses

Businesses operate in a global environment, and small businesses in particular are subject to fierce competition from larger corporations. For technology businesses, there may be a lack of local skills, or else key competencies might be in such high demand that they are too expensive.

These skills may be available remotely, and at a good price, but accessing remote workers can be difficult – not least due to the problems of sending money overseas. This can be a costly, time-consuming and unreliable process. Some workers with the right skills simply won’t have access to the banking infrastructure or services that allow them to accept money from overseas employers.

By paying in bitcoin or other cryptocurrencies, you can access a global labour market of digital nomads and highly-skilled workers. Thanks to the efficiencies of cryptocurrency, it is extremely cost-effective to transfer funds, no matter where your freelancer lives – so you won’t have to worry about one or other party absorbing the costs of remitting money, which can be considerable when using regular money transmission services. Transaction fees for bitcoin are low – typically far less than $1 – for any amount of money, so you can commission small jobs or break a piece of work into short tasks. This will help establish trust and whether the contractor has the right skills and fit for your company. There are also digital agreements that can streamline the process of organising work remotely.

Benefits for individuals

The advantages of accepting crypto payments for individuals are considerable, and arguably greater than for businesses (which, of course, makes implementing bitcoin payroll processes a compelling proposition for companies that need to hire in skills remotely).

• Getting paid in bitcoin or other crypto is fast and efficient. While banks and money transmitter services can take several working days, and/or a hefty fee – as well as the implicit fees associated with the unfavourable currency exchange rates they impose – with crypto you’ll receive your pay in minutes or even seconds, without any unnecessary deductions.
• Crypto payments open up a world of remote work, since you’re no longer restricted by where you can receive money from. That means it’s possible to sell your skills on the global market, finding opportunities with overseas businesses or even decentralised organisations that have no geographic headquarters. With that additional demand comes the ability to access higher rates of pay and more interesting jobs.
• Crypto allows users to transact small amounts of money cost-effectively. That means you can take lots of small jobs, even if they pay a few dollars each, without getting hit by the fees that would eat away at such transfers when using other services. (Cryptocurrencies like Litecoin allow transactions for just $0.02–0.03.)
• Cryptocurrency is still a new and emerging asset class. Millennials and the younger generations have adopted it enthusiastically. Getting paid in crypto gives you the flexibility to hold some funds in digital assets, while cashing out whatever you need to pay bills.

Legal status of crypto payments

Paying, or getting paid, in crypto is secure, fast and efficient, but there is another dimension to consider: the degree to which your country or jurisdiction supports or prohibits bitcoin payments.

Most jurisdictions have now adopted broadly neutral or favourable regulation towards cryptocurrency use, though some countries are still lagging behind. In addition, there are certain countries that have either banned cryptocurrency use entirely or placed heavy restrictions around it. These include Egypt, Pakistan and several other countries. The picture is complicated by the fact that there can be different legal treatments for mining bitcoin, the commercial use of crypto, and the extent to which the banking sector is allowed to interact with crypto businesses. Since the situation is complex and often fluid (regulation is constantly being introduced and updated), it is worth checking this carefully before you implement bitcoin payroll processes as a business, or accept crypto payments as an individual.

Moreover, you will need to be aware of the tax treatment of cryptocurrency in your jurisdiction, such as whether the law treats it as a currency or a commodity. This will vary, and will have different tax implications. You should clarify the situation for income tax, VAT and capital gains tax, depending on your circumstances.

Tax treatment of cryptocurrency in Australia

As an example, take the way that Australia deals with cryptocurrency payments. Australia has generally adopted a thoughtful, progressive approach to crypto, making it one of the more favourable jurisdictions for blockchain businesses.

Crypto is recognised as a legal form of investment in Australia, following a recent court judgment. A New South Wales court allowed a defendant to use their cryptocurrency exchange account as security for legal costs. Despite the volatility of the assets, Judge Judith Gibson stated that ‘this is a recognised form of investment’.

The Australian Tax Office’s treatment of cryptocurrencies emphasises the importance of keeping good records for the purposes of capital gains tax. Regular payments (i.e. income) are typically treated like normal income, valued according to the price at the time you receive it – though this is something you should clarify with the ATO or an accountant.

For cryptocurrency businesses, the rules are different: ‘If you hold cryptocurrency for sale or exchange in the ordinary course of your business the trading stock rules apply, and not the CGT rules. Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible.’ Detailed and straightforward rules can be found on the ATO’s website, including paying salary or wages in cryptocurrency.

Australia has recently published its National Blockchain Roadmap, which clearly shows that the Australian government is keen to explore and promote blockchain technology, recognising the benefits it brings. Businesses can also find out more and gain support by joining Blockchain Australia, the industry body that represents Australian crypto businesses and business professionals involved in the blockchain economy.

How to pay with bitcoin

For businesses seeking to pay workers in bitcoin, you will need to acquire your crypto by mining, purchasing or receiving it as part of your day-to-day business. Depending on the services your company offers, you will most likely need to buy it, and you will probably purchase only as much as you need for your immediate needs to avoid the effects of volatility.

When you pay your employees, you will need to send a dollar-equivalent amount of bitcoin at the time of transfer. For example, if the exchange rate for bitcoin is $10,000/BTC and you owe them $1,000, you will need to send them 0.1 BTC.

This can all be done manually, but calculating and sending the amount you need to pay can be time-consuming and leave you open to human error, especially if you have many employees on your crypto payroll. An alternative is to use automated bitcoin payroll software, such as PaymentX. This includes an integrated crypto wallet, so you can purchase bitcoins from an exchange and withdraw them to PaymentX, then use the payroll functions to settle invoices raised by contractors. PaymentX will calculate the amount of BTC required to pay each invoice, which are also submitted through the platform. You can settle multiple invoices with one click, making the process fast and error-free.

How to get paid in cryptocurrency

For contractors who want to get paid in bitcoin or crypto, the approach is much the same only in reverse. However, you’ll need to think carefully about what you want to do with the cryptocurrency you receive, and how you will store it.

Submitting invoices

Invoices to be paid in crypto are much the same as regular invoices, with the difference that on your invoice you will need to specify an address for receiving crypto payments. The convention is that you invoice for a dollar amount, and your employer will transfer bitcoin equivalent to that sum at the time the invoice is settled. That is, you would generally not state the amount of BTC on the invoice, since there will be a delay before the company processes it, and market movements mean one or other of you could end up out of pocket.

In some instances, you may agree to be paid in tokens or a specific amount of cryptocurrency, though this is the exception rather than the rule. (If this is the case, it will generally be part of an incentives package, whereby you are paid in project tokens on the grounds that your work will increase their value, meaning it is a form of performance-related bonus.)

Once again, PaymentX enables contractors to streamline many of the processes by filling in invoice templates and submitting them to the relevant email address. You can also use PaymentX’s hosted bitcoin wallet if you want to – though you may want to explore other options if you know your way around the technology.

Receiving BTC: local wallets vs managed services

In the crypto world, security is critical. There are many hosted wallet services you can use, including PaymentX, but if you plan on holding your crypto for any length of time then you will probably want to use a local wallet and control your own private keys.

Using exchanges

If you want to cash out any BTC you receive straight away, then it makes sense to provide an exchange address for payment. After all, your crypto will end up there anyway, and you’ll save on delays and transaction fees if you have it sent there directly. As soon as the deposit confirms, you can sell it for fiat or other cryptocurrencies, if you prefer. There are even services like Uphold that enable you to convert any deposits to your chosen currency automatically. This is great for avoiding the problems of volatility and means you don’t have to be awake or at your computer when funds are deposited.

However, it is best not to leave funds on an exchange for any longer than you need to. Therefore, if you want to hold payment in crypto, you should provide an address for which you control the private key.

Own wallet solutions

There are lots of Bitcoin wallets available (or wallets for other crypto, depending on the currencies in which you are getting paid). Some people will opt to run a full node, but this is a resource-intensive activity that will require high bandwidth and storage space, and it’s not necessary for most users. Instead, you may use a ‘lite’ wallet that does not need to download the blockchain. There are desktop versions like Electrum, or mobile ones like Mycelium. These will be perfectly adequate for most people who want to get paid in cryptocurrency, and offer a combination of user-friendly experience and security.

If you are holding onto large amounts of cryptocurrency, you won’t want to take any chances. Cold storage for your crypto will ensure it stays safe, so long as you set it up correctly. You can use a service like BitAddress to generate private keys and addresses offline, then you can have funds sent to the address without the private key ever being exposed to the web. You will need to store the keys safely, offline and potentially encrypted, and in more than one place. It takes a little time and patience, but if you’re dealing with large amounts of money then you can’t be too careful. The good news is that once it’s set up, you don’t have to do anything else. Just have your invoices paid to your offline cold storage address and you can sleep easy.

Conclusion

There are many benefits for businesses that pay their employees or freelancers in cryptocurrency, and for contractors who want to get paid in bitcoin. These include fast, low-cost and secure transfers, regardless of where the parties are in the world, and access to a global market of jobs and labour. It’s a way of streamlining operations, reducing costs and finding the best talent and vacancies available.

Bitcoin payroll services like PaymentX can make the task of invoicing, sending and receiving cryptocurrency easier, by automating currency conversion and wallet handling, and providing invoice templates. When dealing with large amounts of crypto, it’s best to use a local wallet and ideally cold storage if you plan to hold funds as crypto for a long time.

PaymentX is an automated cryptocurrency payroll solution for your business. Pay the team using crypto in one click, send and receive professional invoices, set up regular payment dates – all quickly and conveniently!

Questions? Email us at help@paymentx.io

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