Does crypto currency have a role to play in employers’ pay strategies?


Need to know:

  • Crypto currency is still unusual in pay strategies with early adopters predominately technology businesses and the professional services firms that support them.
  • Crypto currency is subject to income tax when an employee receives it but could also incur a capital gains tax charge if they hold it for more than 30 days.
  • The growth of digital and micro payments over the next 10 years could see crypto currency become more common in pay strategies, especially for incentive schemes and global payroll.

Thanks to its incredibly volatile value, crypto currency has grabbed the public’s attention. And, while most people are happy to watch the roller coaster ride from the sidelines, employers are beginning to consider crypto as part of their pay strategies.

It is still very niche. Veronika Lipinska, director, share plans and incentives at BDO, has worked with firms looking to develop their own ecosystem or use an existing crypto currency. “It’s being used more for incentive schemes than to replace salary or bonuses,” she explains. “The volatility of the price means employees aren’t keen to switch from hard cash.”

Take-up also tends to come from sectors that are involved with crypto currency, whether directly or the professionals that support it such as technology, legal and blockchain firms. For these firms, it reinforces what they do but can also provide employees with an introduction to the concept.

Mainstream pay preference

This could change. Glenn Cameron, investment consultant at actuarial and pension specialists Cartwright, believes one of the currencies, Bitcoin, will become mainstream. “Bitcoin fits the digital world,” he explains. “It allows micropayments and addresses issues around fraud; no one will be using a credit card in the future. Forward-thinking businesses are already seeing it as a potential differentiator when attracting and retaining employees.”

To address this demand, he is working on an employee benefits scheme that rewards employees with Bitcoin. The scheme, which is being piloted across Cartwright’s employees and should roll out to clients in the second half of 2024, gives the option to take a monthly perk in Bitcoin.

Technology shift

As well as appealing to employees, another key benefit is the technology behind crypto currency. Through blockchain, financial transfers can be made significantly faster and cheaper than through banking networks. This has the potential to transform global payroll.

Some technology firms are using crypto currency to pay staff working in less stable parts of the world, says Alastair Swindlehurst, founder of EZHR (UK): “Where a currency is volatile, employees might prefer to take crypto currency. It’s a similar situation to the use of the US$ in Africa.”

Risk exposure

Alongside this potential, there are risks. The volatility of crypto currency means it is more of a gamble than hard currency, says David Herd, group director at Champion Accountants. “There are plenty of stories of people making lots of money in crypto but just as many of them realising large losses,” he says. “If an employee is being paid in crypto currency, they need to consider whether they can afford to lose it.”

For this reason, Cameron favours Bitcoin over other forms of crypto currency. “It’s a global asset with a value, a form of digital gold,” he says. “The other currencies behave more like small dotcoms or scams .”

Tax treatment

As it is such a new asset, the regulations and tax rules are complex too. “HMRC treats crypto currency in a hybrid way, part cash and part assets,” Lipinska explains. “It’s a bit of a Pandora’s box as it’s still grappling with what it is from a tax perspective.”

Under the rules, an employee payment in crypto will be liable for income tax and national insurance in the same way as their normal salary. But, hold it for more than 30 days and it could incur a capital gains tax charge when it is sold or exchanged. This can be a major obstacle, says Herd. “We’ve had plenty of enquiries from [employers] that like the idea of offering it to employees but once we explain the tax situation, it puts most of them off.”

Lessons in crypto

These differences and potential risks mean employee education is a must. “If an employer is going to offer crypto currency, they need to make sure employees understand what it is, how to store it securely and how to realise it,” says Swindlehurst. “It’s also sensible to provide access to the tools and platforms to help them use it.”

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He believes it will get easier as crypto currency becomes more mainstream. “We’re probably about 10 years away from it going mass market but once there’s a reason to use it, everything will change,” he says.

But, for the early adopters looking to crypto currency to stand out from the competition, providing education and guidance on everything from risk to tax is key to giving employees the confidence to embrace and appreciate this digital reward.