Why employees want to be paid in crypto
Getting paid in crypto is convenient for employees who have a long-term view to investing in crypto. One very practical way of getting exposure to crypto is through repeated monthly, fortnightly or weekly purchases, where a portion of a paycheck is set aside to buy crypto. It makes perfect sense for the individual’s convenience, to skip the unnecessary fiat to crypto conversion and instead take the salary directly in crypto when possible.
Paying your employees with crypto can have benefits for your business
There are several benefits to paying your employees in crypto:
- Distinguish your business and attract talent
- Increase employee satisfaction and retention
- Streamline payments to overseas employees or contractors
For local employees, offering crypto as a salary or bonus has largely non-tangible benefits, as the same value is more readily payable in AUD. Despite this, payments in crypto offer a unique way for a business to distinguish itself, build positive culture in the workplace and provide a cost-effective way to reward and retain valued employees.
For overseas employees, offering crypto as a salary can offer genuine cost savings and may be a preferred payment method for your offshore team. Payments in crypto can streamline and improve the efficiency of your business in this circumstance.
For crypto and blockchain businesses, offering the option to take crypto as salary is often the expected norm.
Tax implications of paying employees in crypto
The tax implications of paying employees in crypto varies from little to significant, depending how you choose to distribute crypto to your employees. It is important to fully consider all the methods available and the resulting tax treatment before implementing a strategy for your business.
The ATO has also provided some limited guidance on Paying salary or wages in crypto assets.
Crypto bonuses and one-off payments
If it is just a one-off, you may choose to pay a bonus to one or more of your employees directly in the form of crypto. The crypto bonus is treated as a fringe benefit and, therefore, is subject to the provisions of the Fringe Benefits Tax Assessment Act 1986. This means your business will pay a FBT tax of 47% on the taxable value of these payments.
Some not-for-profits may be exempt from FBT on crypto bonus payments to employees, making this approach more attractive in those circumstances.
If the crypto is a gift or other minor benefit and less than a cumulative $300 per FBT year, it may be exempt from FBT tax.
Salary sacrifice agreement with crypto
Employees may opt to sacrifice a portion of their salary (salary packaging) in favour of receiving crypto. Where a valid (effective) salary sacrifice agreement has been formed, payments in crypto are treated as a fringe benefit. Therefore, you will need to comply with the Fringe Benefits Tax Assessment Act 1986. The benefit will be a property benefit whose value is established at the time of provision of the benefit. A valid salary sacrifice agreement means that:
- the arrangement should be entered into before the employee performs the work, as a salary sacrifice agreement cannot be retroactive.
- there should be a formally documented agreement between you and your employee that details the salary sacrifice agreement. Once prepared, the document should be signed by the employee and employer.
- sacrificed salary must be permanently foregone. This means that the employee must not cash out the salary sacrifice remunerations during the period of the arrangement. If cashed out, the amount is treated as salary and is subject to PAYG withholding rates.
Where no valid salary sacrifice agreement has been made, you will be required to meet your PAYG obligations based on the AUD value of the crypto at the time of payment.
Wage paid in an equivalent amount of crypto on employee’s request
A simpler arrangement involves maintaining a conventional employment contract denominated in AUD but having the employee request to be paid the equivalent amount in crypto. The employer can then follow the employee’s instruction and arrange for this conversion to occur. The employee or employer can decide to revert to AUD payments in the future. There is no FBT tax in this arrangement and the payments are instead subject to regular PAYG obligations.
Third party payment processor
Perhaps the best way to simplify the entire process is to engage with a third-party that can handle the fiat to crypto transactions for you, isolating your business entirely from the administrative burden. These services operate by redirecting part of your employee’s normal payroll to their service, and then converting and delivering the crypto to the employees designated wallet. This means your business does not have to hold crypto directly or worry about the tax implications of making payments in crypto .
In Australia, services such as Get Paid in Bitcoin exist to streamline the process for you.
What crypto can be used to pay employees
Bitcoin, along with most other crypto assets are okay to make payments to employees. However, some care must be given to the nature of the asset and what it represents. Consider the following factors that may impact the legality and tax implications of offering crypto to your staff:
- Does the crypto asset represent debt or equity in a company?
- Is the crypto a financial product?
These considerations should be of particular concern for crypto and blockchain startups who are remunerating employees in their own tokens.
If you are not sure – we would recommend you check with your tax and legal advisor.
Valuing crypto payments to employees
The ATO accepts valuations from reputable exchanges. To determine the value of the cryptocurrency, observe the rate from a reputable digital currency exchange at the time the payment was made. If the exchange uses a foreign currency or other digital currency, convert the amount into AUD.
The ATO does not provide any list or guidelines for what constitutes a “reputable exchange” for the purposes of cryptocurrency valuation. Therefore, any exchange which offers an accurate reflection of the value of the cryptocurrency at the time of payment can be used for valuation. As of today, this would likely include any of the well-established digital currency exchanges located domestically in Australia or internationally.
Record-keeping
The ATO requires you to keep the following data for cryptocurrency transactions. This applies to anyone in possession of crypto:
- the date of the transactions
- the value of the cryptocurrency in AUD at the time of the transaction (which can be taken from a reputable online exchange)
- what the transaction was for and who the other party was (even if it is just their cryptocurrency address)
In practice, all businesses will use software for tracking and recording crypto transactions. This could be a simple spreadsheet, conventional accounting software or choosing a specialised crypto tax calculator software.
Using specific crypto tax calculator software such as Syla has a number of advantages:
- AUD market values are automatically calculated and applied
- Tax calculations are automatically performed and optimised for tax
- Streamlined imports and syncing from crypto data sources
If you are also relying on the software to perform tax calculations, then it’s important to ensure that it is designed specifically for Australian tax law and not for any other tax jurisdictions. Getting the tax calculations wrong will create a lot of unnecessary risk for your business.
Key Takeaways
Paying employees in crypto can help distinguish your business, reward employees and retain talent.
Making crypto payments to employees can be done tax effectively. Be careful to ensure your chosen approach does not attract unnecessary FBT, as the added tax can have a large impact. We recommend getting written advice from a tax professional to confirm your approach does not incur FBT and reduce your compliance risk.
Make sure you have an appropriate crypto record keeping system such as Syla, so you can keep track of the tax obligations from having crypto in your business, or otherwise outsource the crypto payments to a third-party to eliminate the compliance burden.
