What was once a concept restricted to DAOs and crypto companies has become a global phenomenon. Across industries, the choice to get paid in crypto and stablecoins continues to gain popular support. From illustrators to content creators to coders, the ease and accessibility of crypto compensation aligns seamlessly with the demands of an increasingly digital economy.
At present, there are two main branches of crypto compensation, which are token compensation and hybrid crypto payroll. Within these two models, there is significant room for variation. Token compensation encompasses but is not limited to restricted token awards, token options, and restricted token units whereas hybrid crypto payroll can involve compensation in fiat, native tokens, crypto, and stablecoins, or a combination of all four.
When deciding which system to employ for your company’s payroll, it is crucial to understand the intricacies of each to determine which model aligns best with company and employee needs.
Token Compensation Basics
First employed by DAOs, token compensation has its roots in giving contributors the ability to participate in the direction of a project and align their personal goals with an organization’s success. On top of these fundamental principles, confidence in the project or protocol being built translates to the belief that the native token will eventually appreciate in value, thus representing a meaningful financial incentive for contributors.
While many DAOs use token compensation as the main means of paying contributors, other crypto-native companies use it as a form of issuing bonuses or rewards in lieu of equity. This can be an innovative way of giving employees ownership in a project or a substantial benefit while avoiding high taxation. In the case of restricted token awards, because they are granted before the token is officially released, for tax purposes, recipients in the US can file a form acknowledging token receipt pre-release and will thus pay significantly lower taxes.
Hybrid Crypto Payroll Explained
While hybrid crypto payroll shares some of the same foundational principles as token compensation, it diverges in that it offers employees greater flexibility. Rather than having one option for how to get paid, hybrid crypto payroll typically allows employees to choose across fiat currency, crypto, and stablecoins.
When employing hybrid crypto payroll solutions such as Rise, greater freedom is granted to both the employer and the employee. While a company is able to choose how they want to fund payroll, whether in USDC from a digital wallet or in fiat from a traditional bank account, employees can choose how they take their payout, from a selection of over 100 cryptos and/or fiat currencies. In this scenario, employees can opt to receive payment in a project’s native token if that is their preferred payout, or in a combination of digital and fiat currencies.
Comparative Analysis of Flexibility and Accessibility
Token compensation is a meaningful way for companies to give employees ownership over a project, and is a powerful pledge of support for the product that is being built. Because it is based in confidence that a token will increase in value, it allows for employee and company visions to be in alignment. The downfall of compensation entirely in tokens, however, is the lack of choice given to employees.
Rather than providing a wide selection of currencies from which to choose one’s payout, token compensation typically offers exclusively the project’s native token. While there are instances where this may be advantageous for specific employees, the majority of workers prioritize increased flexibility and choice.
Financial Implications and Market Volatility
A main advantage that hybrid crypto payroll provides is the ability for companies to fund payroll and offer employees the option to receive payout in stablecoins. For many web3-native companies, holding a partial treasury in stablecoins is an important hedge against market volatility. This same strategy is harnessed by many employees of web3 companies as well as workers in unstable economies where saving in stablecoins is a more secure bet than in fiat currency.
For web3 organizations, holding stablecoins is a key element of effective crypto treasury management and an assurance of liquidity in the case of market fluctuations. In this scenario, the ability to seamlessly fund payroll in the currency already held in one’s treasury removes the costly step that conversion can incur and simplifies the payment process.
Contrasting this security and stability, payment in a project’s native token is inherently risky. While confidence in the upward trajectory of a project’s worth is key for success, it is also not a guarantee that a token will appreciate in value. If receiving a significant portion of one’s wages in a native token, employees run the risk of losing everything in an instant.
Taxation and Legal Compliance
When looking at token compensation, another layer of risk is introduced when it comes to compliance. Depending on the way in which token compensation is issued, it can be classified differently for tax purposes. As mentioned earlier, in the case of restricted token awards, because the tokens are being issued pre-release, individuals can file a 83(b) election form acknowledging the receipt for tax purposes even if restrictions are still in place. In this particular scenario an 83(b) will lower the eventual taxes owed on the tokens granted. However, in other cases, the filing process varies significantly, and using this form might be considered noncompliant, posing potential risk for individuals. As a result, when either issuing or receiving token compensation, companies and individuals need to proceed with extreme caution to avoid noncompliance.
Hybrid crypto payroll on the other hand provides a straightforward solution to compensation in crypto with guaranteed compliance. With a solution like Rise, total compliance is guaranteed and simplified for both companies and employees. While payroll can be funded in USD or USDC, Rise automatically routes all payments to USD. This means that when it comes to tax reporting, all taxes can be reported in fiat currency and thus abide by all normal regulations. Once received, employees then have the choice to convert their wages into their preferred currency, all without leaving the Rise platform.
Impact on Employees
In every aspect of work, whether it involves choosing to work from home or at an in-person office, or opting for payment in crypto, fiat, or stablecoins, increased flexibility contributes to higher employee satisfaction. In the specific case of employees working in web3 and crypto, the ability to get paid not only in crypto but in fiat currency and stablecoins as well brings an important level of security to remuneration. While it is great to be bullish on a project in which one is involved, it is equally important to have a base level of financial security which is difficult to obtain when earning exclusively in tokens.
That said, along with the risks that are associated with token compensation, the potential rewards are high. This, of course, is both the draw and the drawback of crypto. Using SOL as an example, for individuals who received payment in SOL back in 2020 when one token was valued at $0.97, if tokens were HODLed, wages earned would have increased by 6,220.22% in November of 2023. On the other hand, ICP, which reached $304 per token at the date of its public release, quickly plummeted in value to a mere $4 per token.
Depending on the way in which a business is run and their strategies for treasury management, there are pros and cons of each compensation model. For a DAO that holds their treasury mainly in their native token, using token compensation is a logical choice for a more simplified means of remunerating contributors – but likely won’t satisfy the compensation preferences of all contributors. For businesses that have a more diverse treasury and for global workforces that prefer flexible payments in both cryptos and local currencies, hybrid crypto payroll is preferable.
The ability to issue payments in more than just one’s native token or a single fiat currency is a valuable means of attracting top talent. As hiring becomes increasingly remote and global, accommodating the needs of highly-collaborative and dispersed teams is paramount to success. A top way to achieve this is through offering more compelling compensation packages that give employees the freedom to choose how they want to get paid.
Future Trends and Predictions
The paradigm shift set in motion by the COVID-19 pandemic has solidified the permanence of remote work. With this have come widespread digital transformations. One of the sectors that has been highly impacted by an increasingly digital economy is payroll.
Finding solutions for borderless, cost-efficient, and instant ways to compensate a remote workforce has remained a top priority. More companies than ever before have adopted hybrid payment models in response and have begun offering options for compensation in crypto and stablecoins. Remote work and international teams are here to stay, and thus it can be assumed that borderless, digital payroll systems that include crypto will only continue to become more widely adopted.
Alongside the global shift towards hybrid crypto payroll is the ever-changing regulatory landscape. Evolving regulations will play a pivotal role in shaping the legitimacy, compliance, and broader acceptance of crypto-inclusive payroll systems.
Choosing the Solution that Aligns Best with Your Company’s Needs
As the future comes into focus and the need for crypto-friendly payroll becomes evident, the next step involves deciding whether a hybrid crypto payroll solution or token compensation is best. On the whole, token compensation may work for some DAOs with limited payout flexibility, and far less ideal for other organizations. DAO contributors often expect and hope to be compensated in a project’s token whereas in more traditional work settings, the ability to access fiat and stablecoin options is a priority.
When navigating the landscape of hybrid crypto payroll solutions, it is helpful to begin by identifying options that provide comprehensive services. Rise, for example, goes beyond payroll and provides compliance and hiring services. Through the Rise platform, a company can not only streamline crypto, fiat, and stablecoin payroll but can also verify identity and compliance through KYC checks, generate professional service agreements, and handle all tax forms.
Explore the many benefits provided by hybrid crypto payroll and its potential to enhance flexibility, efficiency, and appeal for global hiring.