This is article 2 of 10 forming the second part of a series of articles dedicated to my attempt at helping Payroll & HR professionals understand the potential impact both Blockchain and Cryptocurrency may have on the Payroll & HR industries in the future.
If you missed the first article in the series – click here: Article 1: How will Blockchain, Cryptocurrency and DLT technologies affect the future of Payroll & HR
Also, look out for the next Payroll Podcast, which is with Anita Lettink, SVP of Global Alliances at @NGAHR which discusses ‘Blockchain and the Future of Payroll & HR‘, due for release on Sunday 12th August! Subscribe here to ensure you do not miss it!
Today, I would like to explore Cryptocurrency and whether or not companies will soon begin to start paying its employees in this new, exciting form of tender…
The blockchain is the most popular technology jargon of 2018 and Bitcoin; the most famous of all cryptocurrencies has become something of an investor’s buzzword too. I am sure everyone reading this have experienced being bombarded by one of the many emails and advertisements that remind us of the potential gains possible by investing in crypto.
Subsequently, among the social noise, it has become hard to separate the hype from reality, but I hope these articles may do just that.
Will companies start to payroll its employees in cryptocurrency?
It would seem a natural evolution of the workplace that businesses should start paying their employees in cryptocurrencies right?
Believe it or not, some companies already are! However, the companies who currently pay their employees in cryptocurrencies tend to be in the industry themselves. Japan’s GMO Internet announced in February 2018 that it would allow workers to take home up to $890 a month in Bitcoin [https://www.newsbtc.com/2018/04/12/gmo-internet-group-prepares-to-launch-its-bitcoin-payroll-option/]. But for many employers, the rapid fluctuations in the price of cryptocurrencies are a considerable barrier to early adoption.
There are also tax implications for being paid in Bitcoin or other cryptocurrencies, especially if you are converting your Bitcoin back to a fiat currency (fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity – https://www.investopedia.com/terms/f/fiatmoney.asp) like the British pound.
HMRC has warned that traders, investors and holders may have to pay Capital Gains Tax on any profits made [https://blocktax.uk/guide/]
For some companies that do pay employees in crypto, the cryptotokens are considered a fair exchange for perceived company value, in much the same way as stock options would be for tech workers in startups or in large firms based in Silicon Valley.
It requires a certain implicit level of trust from the employee in the viability of a cryptocurrency to accept payment in that cryptocurrency. It also follows, logically, that those who already work in the blockchain field are more likely to implicitly trust the value of those cryptocurrencies.
As of 2018, the trend is that companies are attempting to create proprietary ‘ecosystems’ of cryptocurrencies.
These ecosystems force workers and employers into a narrow field whereby the cryptotokens that makeup salary or contract payments are the same ones they can spend on goods and services.
No one cryptocurrency has achieved mainstream market acceptance and so there is a ongoing struggle for supremacy.
Consider the iOS and Android operating systems for mobile phones. Apple (for iOS) and Google’s parent company Alphabet (for Android) have total market dominance. In the UK, iOS has 49.48% market share, while Android has 47.11% market share [https://www.statista.com/statistics/487373/market-share-mobile-operating-systems-uk/] Blackberry, once a supreme force, now has just 0.81%, and Symbian, once the world’s most widely-used smartphone operating system, is at 0.02%.
The point being, no cryptocurrency wants to be Blackberry or Symbian. At this time, it’s not clear which cryptocurrency will take prominence to the exclusion of all others.
The main issue that employers face is the wild volatility in the prices of cryptocurrencies as compared to fiat currencies.
It’s not unknown for the price of Bitcoin, Ethereum or any of the better-known cryptocoins to increase or decrease by 10% to 20% in a single day.
“Say, for example, you are a Payroll Manager who is required to pay a freelancer or contractor for a single piece of work. The agreed payroll payment is £1,000. You work out how much that is in Bitcoin (BTC). As of 7th August, that equals 0.183 BTC. While the payment is going through, the price of Bitcoin rises by 20%. Your company has just paid the freelancer not 0.183 BTC, but 0.2196 BTC, equalling £1219.60″
Such volatility would make it very difficult for your company to budget appropriately, especially if this payment is repeated for multiple workers, or across multiple cryptocurrencies, each with their inbuilt variability.
The problem that employees face is that there are limited places to spend cryptocurrencies. In the UK, there are now fewer high-street shops than there were in 2017 that will accept payment in the form of cryptocurrency. This is because Bitcoin is increasingly seen as a store of value, like oil or gold, as opposed to a viable currency.
Why would it make sense to pay your employee in a cryptocurrency when there are already mainstream currencies that do the job well enough? You can already spend your British pound to buy food, flights, or any other product on the open market.
So, do I think there will ever be a wide-scale company adoption of the idea of payrolling its employees in cryptocurrency?
Despite the hype, it’s unlikely that this trend will spread into mainstream company life in the next three to five years, given the uncertainty over tax, price volatility, and country-by-country regulation of cryptocurrencies.
However, what we do know is that HMRC is already preparing for it following their warning to traders, investors and holders, so it is feasible to believe that they are also preparing for broader revenue tax implications as well, particularly if employers do start to payroll its staff in crypto.
It appears that while in theory paying employees in cryptocurrency may seem like an attractive option for employees, the benefits for employers are also not so clear-cut.
For me, this currency already does the job well enough and can be spent much easier on the open market too.
What do you think?
Future articles in the series will include:
- How will blockchain affect HR and Payroll data?
- What is a smart contracts and how will they affect payroll and HR?
- What benefits could blockchain bring to the payroll industry?
- Blockchain payroll companies
- How to build a blockchain-based payroll system
- When should businesses start planning for blockchain?
- Risks and costs
- Conclusion – is blockchain and crypto the future?
As always, whether you love payroll or love HR, love what you do, work smart and work hard – just be careful not to overdo it.
Please share and comment – I will try to interact with as many as possible!
This article was written by Nick Day, CEO of JGA Recruitment – the leading Payroll, HR & Reward Recruitment Specialists.
Nick Day | CEO
JGA Recruitment Group
Payroll, HR & Reward Specialist Recruiters
Tel: 01727 800 377