Paying wages in cryptocurrencies comes with complications
By Kristina Vassilieva/Peninsula Canada
Many companies are currently operating remotely, and some might make the switch to this work model permanent after the pandemic ends.
With broader access to talent through remote work arrangements, employers are no longer limited to hiring candidates within their area or country.
Some employers might want to avoid currency conversion and simplify paying staff by using cryptocurrencies.
However, Andrew Caldwell, advisory team lead at HR consultancy Peninsula Canada, warns that paying Canadian workers and workers who are living abroad in cryptocurrency comes with some complications.
What are cryptocurrencies?
Cryptocurrencies are digital currencies that do not have a physical paper form and are not regulated by banks or governments.
While the most popular cryptocurrency is Bitcoin, there are many others including Ethereum, Tether and Polkadot. The benefits of cryptocurrencies are that they are globally recognized, and are a secure, fast and inexpensive way to transfer money.
For example, remittance in a fiat currency could take days to clear and is subject to bank rules and fees. Cryptocurrencies can be transferred instantly as no banks are involved.
Meeting your tax and reporting obligations
There are some challenges when it comes to paying staff this way. Cryptocurrencies are not legal tender in Canada, meaning that only the Canadian dollar is considered an official currency. Using cryptocurrencies also does not exempt users from Canadian tax obligations.
“Employers using cryptocurrencies to pay staff in Canada will have to make sure they meet all their tax and reporting obligations,” said Caldwell. “Since the Canada Revenue Agency considers cryptocurrency as a barter transaction for income tax purposes, employers will have to comply with rules on remittances, deductions at sources and report employees’ wages in Canadian dollars.”
What to consider when paying staff with cryptocurrencies
Cryptocurrencies’ value can greatly fluctuate, sometimes increasing or dropping significantly in one day.
“Employees receiving wages in a cryptocurrency would have to convert it into their fiat currency right away to avoid losing the value in their wages,” Caldwell explained.
“Tax implications and the changing values of cryptocurrencies could also cause confusion and lead to the employer paying staff less than the minimum wage,” he said.
“To ensure that they are compliant with employment standards legislation and complying with the CRA’s rules, employers are advised to get expert help when paying workers with cryptocurrencies.”
Employers should note that some cryptocurrencies, like Bitcoin, require users to create passwords to access their wallet address. Since the currency is decentralized, there is no way to change your password. If a user forgets their password, they won’t be able to access their Bitcoins.
As paying workers in cryptocurrency becomes more common, employers should consider the pros and cons of this system before implementing it in their workplace.
To trial how it will work in their company, employers can start with paying only a portion of an employees’ wages in this way.
Kristina Vassilieva is an HR writer for Peninsula Canada in Toronto.
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