Getting paid in crypto isn’t easy. Employees and employers alike have several legal hoops to jump through, but it’s getting simpler as courts and businesses recognize the benefits.
On Aug. 15, a Dubai court ruling recognized crypto assets as a valid means of salary payment.
Issued by the Dubai Court of First Instance, the judgment came in response to a dispute between an employee and employer over unpaid wages (a portion of which was denominated in crypto tokens).
The court ruled in favor of the plaintiff, ordering the employer to pay the owed salary in crypto. The decision starkly contrasted with a similar case from 2023, where the same court dismissed an identical claim due to valuation issues with the digital assets in question.
According to Irina Heaver, a partner at United Arab Emirates law firm NeosLegal, the decision seems to have set a positive precedent, encouraging others to follow suit and support the continued symbiosis of digital currencies with existing traditional finance systems:
“It is reassuring to see the court recognize that wages, whether paid in fiat or cryptocurrency, are the rightful entitlement of the employee for their agreed-upon work.”
That said, the UAE is not the only country where crypto remittances have gained traction in recent years. Nations such as Japan, the United States and Australia, among others, have also created frameworks to facilitate crypto transactions.
Crypto compensation in action
Tomi Fyrqvist, co-founder of the decentralized social app Phaver, told Cointelegraph that, given the option initially, almost 100% of the firm’s contractors opted to get their salaries in crypto.
“However, this percentage has become lower due to current off-ramp solutions not supporting certain CEX withdrawals. Otherwise, the demand would undoubtedly been higher,” he added.
Similarly, Patrick Mullin, the CEO and co-founder of real-world asset (RWA) tokenization platform Mantra, told Cointelegraph that he, too, has observed a steady increase in the number of employees choosing crypto payments over traditional currency.
Both companies attributed the trend to their staff’s natural alignment with Web3’s ethos of decentralization and transparency, as well as the fact that they were already somewhat accustomed to managing a wide array of assets onchain. Fyrqvist added:
“When building in Web3, it is natural for people to manage their personal funds onchain. Therefore, there has been a natural demand to receive salaries from our end in crypto, with our employees choosing to handle reporting and other requirements themselves.”
That said, the appeal of crypto salaries extends beyond mere familiarity with blockchain technology. Mullin stated that crypto transactions usually offer faster processing times, especially for cross-border remittances, which typically take days or sometimes longer with traditional banking methods like SWIFT.
Legitimate challenges still persist
Despite its many upsides, offering crypto salary options on a large scale remains challenging. Both Fyrqvist and Mullin said that regulatory compliance is a significant hurdle.
To alleviate such bottlenecks, Phaver partnered with a firm specializing in crypto payroll, allowing it to support employees across more than 10 countries while maintaining regulatory compliance.
“To ensure we adhere to local laws while still building the necessary crypto-compatible payroll systems, many from our team were moved to third-party providers to have compliance/accounting/tax buttoned up, even if it meant some people getting their salaries in fiat, even though they might have preferred crypto remittances,” Fyrqvist highlighted.
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Similarly, the Mantra team told Cointelegraph that they had conducted thorough legal reviews of all the jurisdictions they were operating in to ensure compliance with local and international regulations.
Both companies noted that people in certain countries were more willing to accept crypto salaries.
Fyrqvist said that employees from Hong Kong and Turkey showed the highest demand for crypto salaries at his company.
He attributed this trend to technological savviness alongside economic motivators such as inflation. In Turkey especially, United States dollar-pegged stablecoins have recently become preferable to the local lira because, through 2023 alone, the latter lost 37% of its value against the dollar.
Lira to US dollar in 2023. Source: Exchange-Rates
Mullin also noted high instances of salaries being paid in crypto in the UAE, particularly in Dubai.
“The Dubai International Financial Centre and the Abu Dhabi Global Market also have regulatory frameworks that support crypto compensation provided there’s due diligence and compliance, making cryptocurrencies an attractive choice for our team members who live in the region,” he said.
Both companies told Cointelegraph that they routinely educate their employees about crypto compliance.
Despite the complex regulatory compliance measures, Mullin believes the benefits outweigh the costs, as crypto can provide faster international payments and better conversion rates.
Crypto salary popularity varies by country
As things stand, the legality and adoption of crypto salaries vary significantly from region to region. For instance, in the US, paying employees in crypto is possible, but it is imbued with a complex web of regulatory and tax considerations.
The US Internal Revenue Service (IRS) treats digital currencies as property for tax purposes. This means that wages paid in crypto are taxable to both the employer and employee and must be reported on Form W-2 in US dollars based on the cryptocurrency’s fair market value on the day of payment.
Moreover, employers must also ensure they have sufficient liquidity to handle income and payroll tax withholdings in US dollars. Despite these potential deterrents, many high-profile Americans have opted for crypto salaries.
In 2022, NBA All-Stars Klay Thompson and Andre Iguodala announced they would take part of their salaries in Bitcoin (BTC) through a partnership with Jack Dorsey’s Cash App.
They joined the ranks of other sports stars, such as NFL players Aaron Rodgers and Odell Beckham Jr., who had made similar arrangements.
In early 2021, Sacramento Kings owner Vivek Ranadivé announced that all of the franchise’s staff, including players, would have the option to receive their salaries in crypto.
In Hong Kong, local employment ordinances require wages to be paid in legal tender, i.e., Hong Kong dollars, and there are no restrictions on residents holding or transacting in cryptocurrencies.
This allows companies to include crypto as part of a broader compensation package, even if it doesn’t always replace the mandatory payment of wages in the required legal currency.
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Canada and Australia have also opened the door to crypto salaries. Both countries treat crypto as a commodity or property for tax purposes, requiring careful reporting and taxation procedures. All official transactions and withholdings are still conducted in their respective national currencies.
Japan — long recognized as a leader in cryptocurrency adoption — allows companies to pay their employees in digital currencies. However, like America, these arrangements must comply with Japan’s tax and labor laws, including proper reporting and tax withholding in Japanese yen.
A crypto-powered future?
For companies considering offering crypto salary options to their employees, the road ahead remains fraught with complex legal and tax implications — from ensuring robust compliance measures to educating their employees about the risks and responsibilities associated with receiving compensation in digital currencies.
However, despite the many perceived challenges, the future of work could very well be crypto-powered since it offers an unprecedented level of financial flexibility and innovation for employers and employees alike.