Cryptocurrency Compensation for Employees  

Written by: Mary McCarthy

Virtual currencies are quickly becoming more popular around the globe, and companies have begun to explore incorporating digital assets into their employee compensation plans. Stock vesting has long been a standard practice, particularly among startup corporations, but the concept of token vesting is a bit more complex than traditional stock plans. One major allure for employees is the possibility for extreme appreciation of virtual assets, but there is also the risk of depreciation. Crypto is highly volatile, and investor protections are slim. Chairman of the Securities and Exchange Commission, Gary Gensler, has long been vocal in his support for more comprehensive investor protection in the digital asset arena.  

Cryptocurrency compensation packages can attract certain employees to companies, enabling some international employees to be paid almost instantly. Crypto assets can be dispersed to employees differently than physical currency. Token-based compensation can be distributed to employees via computerized “smart contracts,” wherein transactions are automated and built explicitly via code lines. Allowing employees to diversify their investment portfolios easily is a major draw, but cryptocurrency’s regulatory confusion could conceivably expose both employer and employee to a legal minefield.  

For federal tax purposes, cryptocurrency is considered property. Compensation in digital assets would be subject to payroll and income taxes, and employees would be taxed on any gains a virtual investment would accrue. Employers looking to incorporate cryptocurrency compensation into their business models should consider state and federal regulations and the degree of risk involved. As regulations and guidelines evolve, the legitimacy of cryptocurrency and its use in corporate America will inevitably be elevated. 

Sources: 

Blockchain Tokens: Best Practices for Using Them as Compensation. EFPR Group. (n.d.). https://efprgroup.com/news/article-publication/tax-services/blockchain-tokens-best-practices-for-using-them-as-compensation/.  

Cryptocurrency Clamor: Paying Employees in Bitcoin Has Reached the Mainstream. JD Supra. (n.d.). https://www.jdsupra.com/legalnews/cryptocurrency-clamor-paying-employees-1276795/.  

Frankenfield, J. (2021, June 10). Smart Contracts: What You Need to Know. Investopedia. https://www.investopedia.com/terms/s/smart-contracts.asp.  

Insider, T. (2021, May 27). Crypto Goes Corporate: Litigation Sure To Follow. Forbes. https://www.forbes.com/sites/insider/2021/05/26/crypto-goes-corporate-litigation-sure-to-follow/?sh=1a0f047b42d1.  

Ivin Phillips Barker . (2021, January). Think Twice Before Paying Employees in Cryptocurrency . www.ipbtax.com.  Zaller, A. (2021, May 18). Can Employers Pay Employees in Cryptocurrency? California Employment Law Report. https://www.californiaemploymentlawreport.com/2021/05/can-employers-pay-employees-in-cryptocurrency/.

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