There are a lot of cryptocurrency fans out there. Some startups have their entire business based on it or have just invested in it and are true believers. A question we get asked often is, “should I offer cryptocurrency payroll?”. These startup founders ask because they would like to pay the employees via cryptocurrency, via payroll.
Cryptocurrency payroll is not the most significant thing to do.
Reasons not to do payroll via cryptocurrency:
- Most payroll providers do not accept or facilitate payroll through cryptocurrency.
- You must run payroll payments through a payroll service, so payroll taxes are taken out
- Not using a payroll app could cause you to incur penalties
- We recommend companies pay payroll & contractors in dollars instead of Crypto
- The value of any cryptocurrency is constantly changing
- Accounting for the payments at any point in time is challenging and intensive
- Keep an eye out! Accounting software companies are starting to get funded to build better bank feeds & accounting for cryptocurrency payments.
We work with the major payroll companies, like Rippling, Gusto, Justworks, Tri-Net, and Sequoia, which don’t either accept or facilitate paying via cryptocurrency.
What happens, companies or founders decide to send the payment via Coinbase or another mechanism like Square, Cash App, or any other different way. However, when they do so, they are not taking payroll taxes out of those payments. This is a huge no-no for the IRS.
The IRS cares about payroll taxes, and they figure out when you have not paid payroll taxes on something you should have. You can end up paying a lot of penalties. You are better off using a payroll app at all to make these payments.
Since you don’t run payroll taxes for contractors, you may pay them in direct cryptocurrency. But, you should be prepared that the accounting for all those transactions is a lot more complicated.
At Kruze, we are waiting for that magical moment when we can get the Bitcoin or Ethereum exact amounts in our accounting software. In the meantime, the way we have to do it is to treat each one of the crypto payments as a foreign currency payment. We then have to do the calculations to figure out what the actual currency was on that day or the average day or standard of the week.
Crypto accounting can make your books lot more complicated. Also, if you’re using something like bill.com, where you’re saving the invoices for those contractors, make sure the invoices are getting synced into QuickBooks. The payment in cryptocurrency outside of bill.com will not always match dollar terms with the invoices inside bill.com.
You may end up in this situation where you spend a lot of time trying to match each cryptocurrency payment. Most of the time, it is not labeled for the vendor. There are just many problems on the accounting side if you’re trying to pay payroll or contractors through cryptocurrency.
The good news is some crypto accounting software companies are beginning to get funded to solve this problem.
For example, a company called TaxBit, funded out of Utah, has raised a hundred million dollars and aims to better accounting around crypto transactions. Soon will come a day where TaxBit or someone else who also is funded has some real severe software. This capability will allow us to send a bank feed into QuickBooks that accountants like us will use to make things easy.
To conclude, I know there’s a lot to think about, but please keep it simple right now as a startup. Just use a regular startup payroll provider that gets all the taxes and numbers done right. Give the time for some of these apps to get built, for them to be bulletproof. And then, I will fully endorse paying people through crypto, whether through payroll or contractors.
Right now, focus on your company and develop your company. Let these other tool providers catch up to what you want. I hope that helps.