Interest in receiving wages in crypto has remained on a steady incline. In a survey by deVere Group, it was found that more than a third of Millennials and half of Gen Z would be happy to receive half of their salary in crypto.
To remain competitive and appeal to the demographics that are soon to constitute 75% of the workforce, companies must integrate crypto compensation options into their payroll.
Can I Pay W2 Employees in Crypto
The IRS issued a statement confirming that the payment of wages in crypto is completely legal, and subject to the same taxation as any other form of income. Despite being classified as property for tax purposes rather than as legal tender, the same withholdings are applied, just as with employees paid in fiat currency.
When crypto is used as remuneration for goods or services, both 1099 contractors and W2 employees must report their earnings based on the fair market value of the crypto at the time of its receipt. Clear guidelines for reporting crypto wages have been outlined and can be followed using the IRS’ crypto FAQ section #11:
“the fair market value of virtual currency paid as wages, measured in U.S. dollars at the date of receipt, is subject to Federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement.”
While according to the IRS it is perfectly legal to pay W2 employees in crypto, in different states its legality is subject to significant variation. As such, it can prove to be a more complex process than remuneration in fiat currency.
When making the decision to pay employees in crypto it is advisable to process payroll through an expert in these matters, or an Employer of Record (EOR).
What is an EOR
An Employer of Record (EOR) is a third-party service provider that takes on the legal responsibilities and obligations of being an employer for a workforce while the employees work for another company or client. The services most commonly provided by an EOR include payroll, taxes, and compliance.
An EOR handles all of the administrative tasks related to employment which enables organizations to focus on their core operations without the burden of HR and payroll management.
In the case of companies contracting across various countries, regions, and currencies, EOR services play a key role in ensuring that payroll follows all compliance laws. It is both costly and complicated to establish and manage payroll and HR entities on an international scale. An EOR provides localized services that comply with region-specific tax and labor laws and can be seamlessly scaled up or down with a company’s contracting needs.
For organizations paying employees in crypto, a form of remuneration that has notoriously complicated tax implications, an EOR can handle tax management, guaranteeing that all necessary withholdings, deductions, and reporting requirements are met.
How to Pay W2 Employees with Crypto
As was previously stated, while the IRS considers payments to employees in crypto as a legal form of remuneration, not all states abide by the same regulatory framework . Across jurisdictions, laws vary for how, when, and if compensation in crypto is permitted.
Therefore, when issuing crypto payroll it is critical to possess a clear and in-depth knowledge of crypto’s legality across state lines. For many organizations that decide to incorporate crypto into their payment options, the first step taken is engaging an EOR.
One of the benefits of working with an EOR is their expertise in local tax laws. This ensures that the appropriate taxes are withheld and reported for W2 employees. Employee benefits and deductions, such as healthcare and retirement contributions, will be also managed by the EOR.
Payment to W2 employees in crypto is essentially no different than payment in fiat currency, however calculating deductions and withholdings is substantially more involved. All reported income must be converted to its fair market value in fiat currency as of the date of its receipt. Accounting for price fluctuations and crypto’s high volatility will contribute to properly managing tax compliance.
By opting to partner with an EOR for crypto payroll, an organization is freed to focus on high-level decisions such as the currency in which to hold their treasury, secure storage methods, and implementing effective treasury management strategies.
Paying W2 Employees in Crypto with Rise
Rise is a comprehensive payroll and compliance solution built to streamline payment and hiring for traditional companies and web3-native organizations alike.
With an in-depth knowledge of local tax compliance worldwide, Rise ensures that payroll adheres to all regulations regardless of the country in which it is issued. When paying W2 employees in crypto, Rise provides an all-in-one platform for verifying employee identity, automating service agreements, ensuring full tax compliance and issuing instant payments in fiat and crypto.
Attract top talent today with expanded options for crypto payroll and increased flexibility with Rise’s unique infrastructure for routing between fiat and crypto. Learn more about how to pay your W2 employees in crypto with Rise as your EOR.