This article is reprinted with permission from Mankun Blockchain Legal Services, author: Lawyer Shao Jiadian, copyright belongs to the original author.
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 using stablecoins (such as USDT, USDC).
The reason is simple: fast cross-border transactions, simple procedures, and global circulation. These advantages have made cryptocurrency payroll rapidly popular.
On the surface, this seems to be 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."
From Mankun'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.
- Entrusting a third party for payment
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, and then pays employees.
While these three models may seem similar, the regulatory implications are completely different:
Self-initiated and self-paid: relatively simple, but requires handling tax and labor law risks;
Entrusting a third party: 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 entirely different, and the key question is whether you are "handling crypto assets for others."
- Hong Kong: No "crypto payroll" license framework yet
Currently, Hong Kong does not have a specific regulatory system for "cryptocurrency payroll." The two main existing frameworks—MSO (Money Service Operator license) and VA License 1—cannot directly cover this type of business.
First, MSO cannot touch virtual assets.
According to the "Anti-Money Laundering and 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 providing any services related to the exchange, transfer, or payroll of crypto assets. The current practice of some OTC traders exchanging USDT under the MSO identity has attracted regulatory attention, and the FSTB and SFC are planning to establish a separate "virtual asset OTC license" system.
Second, the VA License 1 does not cover payroll services.
The VA License 1 issued by the SFC mainly targets virtual asset brokerage or trading platform services, with the scope 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 beyond the permitted scope of business.
Conclusion: As of now, there is no existing license in Hong Kong that can legally support "crypto 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 payment 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.
- Singapore: PSA covers core aspects of crypto 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 trading, transfer, 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 on behalf of clients in Singapore, this behavior 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 crypto assets, employers must still price salaries in fiat currency and obtain written consent from employees, while also fulfilling income tax reporting obligations.
Conclusion: To provide crypto payroll services in Singapore, one must hold a DPT license under the PSA or collaborate with a licensed institution; otherwise, it constitutes illegal payment operations.
- United States: Crypto payroll subject to multiple regulations, payment agencies 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 at face value.
Therefore, if a company wishes to pay in cryptocurrency, it typically must first 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 crypto assets, it is considered a "user" behavior 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 USD market price on the payment date and withhold income tax.
Conclusion: The US allows crypto payroll, but it must meet labor law, tax law, and FinCEN regulatory requirements; unlicensed payment agencies are operating illegally.
- European Union: MiCA clarifies 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 Asset 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 salaries in cryptocurrency on behalf of clients in the EU, it must obtain CASP licensing and comply with anti-money laundering and travel rule requirements.
Labor laws in each member state 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 personal 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 and tax reporting remain core compliance points.
- Mainland China: Crypto 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, "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 to be replaced by 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 operations.
In practice, some Web3 projects pay domestic employees through contracts 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 regulatory red lines.
Crypto payroll is a complex behavior that crosses finance, tax, labor law, and foreign exchange. Once operational paths or legal classifications are misjudged, 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.
- Regulatory attribute risk: Has payroll become "financial business"?
The most common misunderstanding about crypto 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 US, this role is considered a Money Transmitter, requiring registration as an MSB and holding 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.
No matter how simple the starting point is, the "license" issue must be resolved first.
- 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 assisting in money laundering.
Common misconceptions include:
- Companies or service providers not verifying employee identities or wallet ownership;
- Not keeping payroll records and on-chain transaction proofs;
- Not establishing a suspicious transaction reporting mechanism.
Regulators worldwide have included crypto 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 US's FinCEN requires MSBs to establish a suspicious activity reporting system (SAR).
Recommendation: Even for self-initiated payroll, basic KYC and record-keeping systems should be established to provide evidence of compliance during tax, audit, or banking inquiries.
- Tax risk: Issuing coins ≠ tax exemption, price fluctuations increase errors
Regardless of the type of currency, "salary" must still be priced in fiat 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 US, 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 USD market value.
In the EU and Singapore, employers must also convert based on the exchange rate on the payment date and withhold personal income tax and social security.
If a company pays with its own crypto assets, it must also confirm whether capital gains are generated.
Practical issues are even more complex:
Price fluctuations may lead to instability in salary amounts in accounting, and discrepancies in employee reporting and company accounting times can create mismatched tax burdens.
Recommendation:
- Standardize pricing in fiat currency, with crypto serving only 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.
- Labor Law Risk: Employee Consent Does Not Mean Legality
In most jurisdictions, the method of salary payment is subject to mandatory regulations.
Mainland China and most states in the US require wages to be paid in legal tender;
The Hong Kong Employment Ordinance also requires salaries to be priced in Hong Kong dollars or the currency agreed upon in the contract;
Cryptocurrency, if not legal tender, is typically not directly considered as wages.
Therefore, unless there is written consent from the employee, and it is ensured that the payment is priced in fiat currency and the proportion is reasonable, the employer may still be deemed to have failed to pay wages in accordance with the law.
Common disputes:
Employees claim "inadequate payment" due to a drop in currency value;
Social security and provident fund cannot be calculated based on crypto 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.
- Cross-Border Funds and Foreign Exchange Risk: On-Chain Freedom ≠ Financial Freedom
Crypto 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;
Banking risk controls are tightening, and once "frequent on-chain withdrawals by the company" are identified, accounts can easily be frozen.
A common gray area 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:
Try to 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 crypto salaries from domestic accounts.
In summary:
On-chain can be borderless, but funds always have borders.
Crypto payroll is not an untried "regulatory no-go zone," but has already entered a controlled pilot and compliance innovation stage in some jurisdictions.
The following representative institutions and cases demonstrate how companies worldwide achieve the legal issuance of crypto 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.
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 barriers":
Licensing barrier — Does your business model constitute a regulated service?
Anti-money laundering barrier — Can the source and flow of funds prove their legitimacy?
Labor law and tax barrier — Can your payment method be recognized as "wages"?
Compliance is not an obstacle, but a passport.
In today's environment of tightening regulations and strengthened banking risk controls, compliant issuance of tokens for payroll is not an option, but a bottom line.
Related: Miami Mayor Francis Suarez claims his Bitcoin (BTC) salary has increased by 300%
Original text: “Mankun Research | Is Cryptocurrency Payroll Really Just ‘Another Way to Get Paid’?”
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