Author: Lawyer Shao Jiadian
In the past two years, with the rise of Web3, remote teams, and DAO employment models, more and more companies have begun to experiment with paying salaries to employees or contractors in stablecoins (such as USDT, USDC).
The reason is simple: fast cross-border transactions, straightforward procedures, and global circulation. These advantages have made cryptocurrency payroll increasingly popular.
On the surface, this seems like a natural trend. However, legally, this matter is far more complex than simply "changing the way salaries are paid."
From a regulatory perspective, issuing coins for payroll touches on multiple systems, including currency exchange, payment settlement, anti-money laundering, labor law, and tax compliance.
If not handled properly, it can easily shift from "innovation" to "violation."
Three Main Models of Cryptocurrency Payroll
From Mankiw's practical observations, there are currently three main models for cryptocurrency payroll:
- Self-initiated and self-paid
The company holds its own stablecoin wallet and directly pays salaries to employees' wallets.
- Third-party delegation
The company hands over salaries (in fiat or stablecoins) to a payroll platform, which then distributes the payments.
- Hybrid model
The company converts fiat currency into stablecoins through overseas entities or payment partners before distributing them to employees.
While these three models may seem similar, the regulatory implications are entirely different:
Self-initiated and self-paid: Relatively simple, but requires handling tax and labor law risks;
Third-party delegation: Service providers may trigger VASP (Virtual Asset Service Provider) or MSB payment license requirements;
Hybrid model: Involves cross-border payments and anti-money laundering regulations.
The regulatory implications of these three paths are completely different, and the key question is—are you "handling cryptocurrency assets for others"?
Regulatory Basis in Various Regions: Legal Boundaries of Cryptocurrency Payroll
1. Hong Kong: No "Cryptocurrency Payroll" License Framework Yet
Currently, Hong Kong does not have a specific regulatory system for "cryptocurrency payroll." The existing two main frameworks—MSO (Money Service Operator License) and VA License No. 1—cannot directly cover this type of business.
First, MSO cannot touch on virtual assets.
According to the "Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance" (Cap.615) and the licensing guidelines from Hong Kong Customs, MSOs can only operate the exchange and remittance of legal tender. Virtual assets (including USDT, BTC) do not fall under "currency," so MSO license holders are prohibited from engaging in any cryptocurrency exchange, transfer, or payroll services. The current practice of some OTC traders exchanging USDT under the MSO identity has drawn regulatory attention, and the FSTB and SFC are planning to establish a separate "virtual asset OTC license" system.
Second, the VA License No. 1 does not cover payroll services.
The VA License No. 1 issued by the SFC mainly targets virtual asset brokerage or trading platform services, with its authorization limited to facilitating transactions or executing buy/sell orders for clients, excluding payment scenarios such as salaries and bonuses. If a broker pays employees in USDT on behalf of a company, it will be considered exceeding the permitted scope of business.
Conclusion: As of now, there is no existing license in Hong Kong that can legally support "cryptocurrency payroll." If a company wants to conduct cryptocurrency payroll in Hong Kong, it should choose the self-initiated and self-paid route (the employer pays stablecoins, priced in Hong Kong dollars in the contract) or the overseas delegation route (executed through entities regulated by Singapore's PSA-DPT, the EU's MiCA-CASP, or the US's MSB), while strictly addressing labor law, tax, and anti-money laundering issues.
2. Singapore: PSA Covers Core Aspects of Cryptocurrency Payroll, DPT License Required
Singapore has a clear regulatory framework for cryptocurrency payments. The "Payment Services Act" (PSA) defines virtual assets as "Digital Payment Tokens" (DPT), and businesses engaging in DPT buying, transferring, custody, or exchange must obtain a license from the MAS (Monetary Authority of Singapore).
Therefore, if a company or service provider exchanges fiat currency for stablecoins and pays salaries in Singapore, this activity is classified as DPT service and requires applying for a standard or major payment institution (SPI/MPI) license.
Additionally, while the "Employment Act" does not prohibit paying salaries in cryptocurrency, employers must still price salaries in fiat currency and obtain written consent from employees, while also fulfilling income tax reporting obligations.
Conclusion: To provide cryptocurrency payroll services in Singapore, one must hold a DPT license under the PSA or collaborate with a licensed institution; otherwise, it constitutes illegal payment business.
3. United States: Cryptocurrency Payroll Subject to Multiple Regulations, Delegated Institutions Need MSB and State Licenses
The United States does not prohibit companies from paying salaries in cryptocurrency, but the regulatory requirements are complex.
First, the "Fair Labor Standards Act" (FLSA) and most state labor laws require wages to be paid in cash or negotiable instruments that can be redeemed at face value.
Therefore, if a company wishes to pay in cryptocurrency, it typically needs to ensure that employees have reached the minimum wage calculated in dollars and obtain written consent to convert part of their net salary into cryptocurrency.
Second, if a company pays employees solely with its own cryptocurrency assets, it is considered a "user" activity and does not require a financial license;
However, if a third-party institution collects fiat currency, converts it, and pays out virtual currency, it constitutes "money transmission services," requiring registration as an MSB (Money Services Business) with FinCEN and obtaining a Money Transmitter License (MTL) in each state.
For example, Bitwage is registered with FinCEN and fulfills BSA anti-money laundering obligations.
From a tax perspective, the IRS treats virtual currency as property, and employers must calculate wages based on the market value in dollars on the payment date and withhold income tax.
Conclusion: The U.S. allows cryptocurrency payroll, but it must comply with labor law, tax law, and FinCEN regulatory requirements; unlicensed delegated institutions are operating illegally.
4. European Union: MiCA Clearly Defines CASP Licensing Obligations, Cross-Border Payments Remain a Regulatory Focus
The EU's "Regulation on Markets in Crypto-Assets" (MiCA) will be implemented in phases starting June 2024:
Stablecoin issuance (ART/EMT) will take effect on June 30, 2024;
Crypto service providers (CASP) will be fully applicable by December 30, 2024.
Article 60 of MiCA states that "transferring crypto assets on behalf of third parties" is one of the CASP activities.
Therefore, if a company or platform provides services to pay employees in cryptocurrency in the EU, it must obtain CASP licensing and comply with anti-money laundering and travel rule requirements.
Labor laws in member states still require wages to be paid in legal tender; if paying in cryptocurrency, it must be priced in fiat currency and with written consent from employees.
From a tax perspective, employers must convert and withhold individual income tax and social security based on the market price on the payment date, and employees must pay capital gains tax if there is appreciation upon selling.
Conclusion: Operating Crypto Payroll in the EU requires CASP qualification, and salary payments can only serve as supplementary incentives; pricing in fiat currency and tax reporting remain core compliance points.
5. Mainland China: Cryptocurrency Payroll is Considered Illegal
Mainland China explicitly prohibits any form of cryptocurrency payment. According to the notice issued by the People's Bank of China and ten other ministries in 2021 regarding further prevention and handling of risks related to virtual currency trading speculation, "virtual currencies must not circulate in the market and must not be used as currency."
Article 50 of the "Labor Law of the People's Republic of China" and Article 5 of the "Interim Provisions on Wage Payment" require wages to be paid in Renminbi and not replaced with physical goods or negotiable securities.
Therefore, if a company pays employees in USDT or BTC, it may be deemed a violation of labor law and foreign exchange management regulations, and in severe cases, constitute illegal business operations.
In practice, some Web3 projects pay domestic employees through contracts signed with overseas entities and issuing tokens abroad, but this model still carries risks of capital flight and criminal liability.
Conclusion: Directly paying salaries in cryptocurrency within China is illegal; if involving overseas structures, contracts and exchange paths must be carefully designed to avoid crossing regulatory red lines.
Five Core Compliance Risks
Cryptocurrency payroll is a complex activity that spans finance, tax, labor law, and foreign exchange. If the operational path or legal classification judgment is incorrect, companies can easily fall into gray areas or even violations. The following five types of risks are realities that any company wishing to "issue coins for payroll" must face.
1. Regulatory Attribute Risk: Has Payroll Become a "Financial Business"?
The most common misunderstanding about cryptocurrency payroll is that companies believe "it's just paying salaries," and regulators will not intervene. However, if a company or its service provider collects fiat currency on behalf of the employer, exchanges it for stablecoins, and then transfers it to employees' wallets—this constitutes "fund transfer or payment services" in most jurisdictions.
In Singapore, under the "Payment Services Act" (PSA), this is classified as DPT service and requires a license to operate.
In the U.S., this role is considered a Money Transmitter and must register as an MSB and hold state-level licenses.
In the EU, according to Article 60 of MiCA, this falls under CASP services.
The conclusion is straightforward:
If you are "issuing coins for others," you are already engaging in financial business.
Regardless of how simple the starting point is, the "license" issue must be resolved first.
2. Anti-Money Laundering Risk: On-chain Transfers ≠ Regulatory Blind Spot
The cross-border flow of virtual assets can easily be misused for money laundering. If a company fails to fulfill KYC (Know Your Customer) and transaction review obligations, it may be seen as facilitating money laundering.
Common misconceptions include:
Companies or service providers not verifying employee identities or wallet ownership;
Not retaining payroll records and on-chain transaction proofs;
Not establishing a suspicious transaction reporting mechanism.
Regulators worldwide have included cryptocurrency payroll under AML regulations:
The EU's TFR rules require the transmission of identity information of both parties in a transaction (i.e., the "Travel Rule");
Singapore's MAS and Hong Kong's FSTB require virtual asset service providers to perform ongoing due diligence;
The U.S. FinCEN requires MSBs to establish a suspicious activity reporting system (SAR).
Recommendation: Even for self-initiated payroll, establish at least the basic KYC and record-keeping systems to demonstrate compliance during tax, audit, or banking inquiries.
3. Tax Risk: Issuing Coins ≠ Tax Exemption, Price Fluctuations Increase Errors
Regardless of how the currency changes, "salary" must still be priced in fiat currency for tax purposes.
If a company fails to determine the exchange rate on the payment date or does not withhold taxes, it may constitute tax evasion or inaccurate accounting.
In the U.S., the IRS treats virtual currency as property, and wages paid in cryptocurrency must be reported on W-2 and income tax withheld based on the dollar value.
In the EU and Singapore, employers must also convert based on the exchange rate on the payment date and withhold individual income tax and social security.
If a company pays with its own cryptocurrency assets, it must also confirm whether capital gains are generated.
Practical issues are even more complex:
Price fluctuations can lead to instability in salary amounts in accounting, and discrepancies in employee reporting and company accounting timelines can create mismatched tax burdens.
Recommendations:
Standardize pricing in fiat currency, treating cryptocurrency merely as a medium of payment;
Record payment time, amount, and exchange rate;
Hire accountants familiar with virtual asset tax systems to handle annual audits and tax filings.
4. Labor Law Risk: Employee Consent Does Not Imply Legality
In most jurisdictions, the method of salary payment is subject to mandatory regulations.
Mainland China and most U.S. states require wages to be paid in legal tender;
Hong Kong's "Employment Ordinance" also requires salaries to be priced in Hong Kong dollars or the currency agreed upon in the contract;
If cryptocurrency is not legal tender, it usually cannot be directly considered as salary.
Therefore, unless there is written consent from the employee, and it is ensured that the payment is priced in fiat currency and the distribution ratio is reasonable, the employer may still be deemed to have failed to pay wages in accordance with the law.
Common disputes:
Employees claim "inadequate salary payment" due to a drop in cryptocurrency prices;
Social security and housing funds cannot be calculated based on cryptocurrency assets;
Labor arbitration does not recognize on-chain transaction proofs.
Recommendations:
Establish a compliance foundation with the "fiat currency pricing + employee consent + supplementary agreement" trio.
At the same time, retain transfer records and original agreements to ensure that the salary amount can be restored in case of disputes.
5. Cross-Border Funds and Foreign Exchange Risks: On-Chain Freedom ≠ Financial Freedom
Cryptocurrency payroll often involves cross-border teams, but cross-border currency transfers do not equate to legal remittances.
In mainland China, any overseas currency transfer that bypasses the banking system may be regarded as capital flight or illegal payment;
In Hong Kong and Singapore, if the salary recipients are overseas, companies must still fulfill source of funds declaration and AML obligations;
Banks are tightening risk controls, and once "frequent on-chain withdrawals by the company" are identified, accounts can easily be frozen.
A common gray operation in practice is "overseas parent company issuing tokens on-chain → domestic employees receiving tokens," which seems flexible but simultaneously triggers foreign exchange, tax, and criminal risks.
Recommendations:
Whenever possible, execute payroll through regulated overseas entities (PSA-DPT, MiCA-CASP, MSB, etc.);
Retain source of funds, transaction hashes, and employment contracts;
Avoid directly exchanging, remitting, or receiving cryptocurrency salaries from domestic accounts.
In summary:
On-chain may be borderless, but funds are always bound by borders.
Global Compliance Reference Cases
Cryptocurrency payroll is not an untried "regulatory no-go zone," but has already entered controlled pilot and compliance innovation stages in some jurisdictions.
The following representative institutions and cases demonstrate how companies worldwide are legally issuing cryptocurrency salaries within regulatory frameworks.
Their commonalities are: licensed, traceable, verifiable, and accountable—this is the only path for Crypto Payroll to truly step out of the gray area.
Conclusion: Cryptocurrency Payroll is a Trend and a Regulatory Challenge
The future of cryptocurrency payroll is undoubtedly bright—it will become the mainstream payment method for cross-border employment.
However, to exist long-term, it must first pass through "three gates":
Licensing gate—Does your business model constitute a regulated service?
Anti-money laundering gate—Can the source and flow of funds self-verify?
Labor law and tax gate—Can your payment method be recognized as "salary"?
Compliance is not an obstacle, but a passport.
In today's environment of tightening regulations and strengthened bank risk controls, compliant issuance of cryptocurrency for payroll is not an option; it is a baseline.
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