Is cryptocurrency in payroll’s future?

Would you like your pay in dollars or in a cryptocurrency like bitcoin?

While most employers today are not asking their employees that question, it could be commonplace one day. As the world increasingly moves online, some think cryptocurrencies could eventually become a mainstream way to pay employees.

At Shakepay, that is already happening. The Montreal-based company, which offers a Visa debit card enabling cardholders to load and spend bitcoin, gives its employees the option to receive a percentage of their salary in the cryptocurrency of their choice.

“Whenever we do payroll, if someone wants to receive some crypto, they can,” said Shakepay co-founder Jean Amiouny. “It could be bitcoin, ethereum, dash or any of the other cryptocurrencies.”

Cryptocurrencies are essentially digital or virtual currencies. They exist online and not in coin or paper money form and use an encryption method called cryptography for security and to help prevent counterfeiting. Unlike fiat currencies such as the Canadian dollar, cryptocurrencies are not controlled or regulated by governments or central banks.

Bitcoin was the first cryptocurrency, appearing in 2009, and while there are now hundreds of others, it is still the best known.

“The way bitcoin works is that you have this network of computers that run around the world,” said Amiouny. “What these computers are doing is updating a ledger (called the block chain). Very much like in accounting, every time a transaction goes from one account to another account, it is recorded.”

“This is done in a very similar way, but open and running on multiple servers, so there is no central authority,” he said. “Essentially, what happens is that the bitcoin itself is living on all of these computers. What you are doing when you have a bitcoin wallet — think of it like a bank account or an email with a username and password — is unlocking the bitcoin that is stored at the account that you created.”

Users can send and receive bitcoins across the globe without having to contend with bank fees, holidays or banking rules in different countries.

“If I can store my own bitcoin, I don’t need to argue with a bank. I don’t need to open an account with them. There are no middlemen. It’s really about financial freedom. We wanted to give that to our employees,” said Amiouny.

Shakepay’s five employees can choose which percentage of their pay to receive in cryptocurrency. The proportion they choose can vary from week to week.

While it is not known how many employers pay their employees in cryptocurrency, people in the industry agree that for now it seems mostly limited to the high-tech industry.

“We find that technology companies are the early adopters and that is just expected,” said Faiz Abdulla, CEO of Rise People, which provides an HR, benefits and payroll software platform that allows its clients to pay their employees in digital currencies.

While only a small percentage of its clients currently use the cryptocurrency option, Abdulla said he expects that to change in the future.

“We are hearing more and more about it. I think that is where the world is going.”

Shrad Rao, CEO of Wagepoint, an online payroll software company, said although he sees many benefits to cryptocurrencies, they still have a ways to go before they become a common way to pay employees.

“I think it still carries some stigma from the days when it was used for more nefarious type activities,” he said. “And although that is slowly fading away, I do not believe it has made it into the consciousness of people that are not early adopters. So, for the foreseeable future, I expect the drive to adopt cryptocurrencies will continue to be led by technology companies.”

Wagepoint offered a bitcoin payroll option to its clients in 2014 and 2015 before stopping due to issues around the bitcoin exchange process it was using.

“While we did have a growing number of users of the bitcoin feature, it was still too much of a fringe feature for it to impact our operations,” said Rao.

“It will need to make its way to more marketplaces, both in the offline and digital world, before it can be seriously considered by more employers and employees with respect to payroll.”

Beyond the technology sector, Abdulla said cryptocurrencies can be attractive for employers with workers outside of Canada in faraway places.

“There is no fee for wiring or transferring money. It’s almost free, so that’s another benefit, just ease of use and ease of pay,” he said.

Before paying employees in cryptocurrency, Amiouny recommends that employers and employees learn more about it and buy a small amount of a digital currency to get used to using it.

One important aspect to understand is the tax implications. The Canada Revenue Agency (CRA) views cryptocurrencies as goods rather than actual currencies. This means that if the cryptocurrency increases in value between the time employees receive it and spend it, they will have a capital gain to report on their personal income tax return.

Employers paying workers with cryptocurrencies must still comply with CRA (and Revenu Québec, if applicable) rules for source deductions, remittances and year-end reporting.

The CRA does not accept payment in cryptocurrency, so remittances must be made in Canadian dollars. When reporting employee earnings on a T4/RL-1 or a Record of Employment, employers must report the amounts in Canadian currency.

To ensure compliance, Amiouny said he prefers to work with Rise rather than do the payroll calculations himself. Rise’s system calculates statutory deductions, determines employees’ net pay, and sends the CRA and Revenu Québec their remittances. It also transfers the percentage of net pay employees want in Canadian dollars to their bank accounts and lets Amiouny know how much to pay them in the chosen cryptocurrency.

“They will tell me this employee is supposed to get paid ‘X’ amount and this is how much is going to be received in their bank account on the pay run, so we can do that conversion and give it to them in bitcoin,” he said.

Another issue for employers to consider is whether paying in cryptocurrency complies with employment standards rules. Most employment standards laws in Canada specify that employers must pay employees in Canadian currency by cash, cheque or direct deposit to a financial institution.

“Payment of wages by bitcoin is not a method of payment of wages that is compliant with the ESA,” said Janet Deline, a media relations officer in the Ontario Ministry of Labour.

That could change with proposed amendments to the Employment Standards Act, 2000 that would allow the government to prescribe additional methods for paying employees.

“This proposed amendment recognizes that banking practices will continue to evolve and it would allow the government to permit new methods of payment in the future that are appropriate,” she said.

Others have argued that a mix of cryptocurrency and dollars would comply with employment standards as long as the cryptocurrency was only used for the portion of pay exceeding minimum wage. Employers may want to contact their employment standards board or an employment lawyer for guidance.

The fluctuating price of cryptocurrencies is also important for workers to consider.

“I think employees need to be mindful of the volatility in the digital currency world,” said Abdulla, noting that in a three-day span in September, for example, the price of bitcoin dropped from C$6,000 to $4,000.

“When it drops 33 per cent over a three-day span, there is volatility. People need to be aware of that. If you get paid in that currency and it drops overnight by 33 per cent, you just lost (part of your pay),” he said.

Amiouny said employees should also be aware of the importance of their private password for accessing the currency.

“If you lose your password, there is no ‘I forgot my password, please email it to me’ on the block chain. Once it’s lost, if you haven’t written down or stored it as a backup somewhere, no one will be charitable enough to give those (bitcoin) back to you,” he said. “Those funds are lost forever.”

While cryptocurrencies are not used in most workplaces today, Abdulla said he can foresee a time when they may be more popular than dollars, especially with a growing number of millennials in the workforce.