Mankiw Study | Cryptocurrency Payroll: Is It Really Just "Paying Salaries in a Different Way"?

In the past couple of years, with the rise of Web3, remote teams, and DAO employment models, more and more companies have started experimenting with paying employees or contractors in stablecoins (such as USDT, USDC).
The reason is simple: cross-border payments are fast, procedures are straightforward, and these coins are globally circulating. These advantages have made crypto payrolls quickly popular.
On the surface, this seems like a natural trend. But legally, it’s far more complicated than just “paying wages differently.”

From a regulatory perspective, issuing tokens and paying salaries touch on multiple systems: currency exchange, payment settlement, anti-money laundering (AML), labor laws, and tax compliance.
Missteps can easily turn “innovation” into “violation.”

01 The Three Main Models of Crypto Payroll
Based on practical observations, there are three main approaches to crypto payroll:

1. Self-Payment
   The company holds a stablecoin wallet and directly transfers wages to employees’ wallets.
2. Third-Party Payroll Platforms
   The company hands over wages (fiat or stablecoins) to a payroll platform, which then disburses payments on their behalf.
3. Hybrid Model
   The company converts fiat through an offshore entity or payment partner into stablecoins and then pays employees.

While these three may seem similar, their regulatory focuses are entirely different:

• Self-Payment: Relatively simple but involves tax and labor law risks.
• Third-Party Payroll: Service providers may trigger licensing requirements such as VASP (Virtual Asset Service Provider) or MSB (Money Services Business).
• Hybrid Model: Involves cross-border payments and AML regulations.

The key regulatory question is whether you are “handling crypto assets for others.”

02 Regulatory Frameworks Around the World: Legal Boundaries of Crypto Payroll

Hong Kong: No “Crypto Payroll” License Framework Yet
Hong Kong currently lacks specific regulations for “crypto payroll.” The existing licensing schemes—MSO (Money Service Operator) and VA1—do not directly cover such activities.

• MSO: Cannot involve virtual assets. Under the Anti-Money Laundering Ordinance (Cap. 615) and HK Customs licensing guidelines, MSOs are limited to currency exchange and remittance of fiat money. Since virtual assets like USDT or BTC are not considered “money,” MSB licensees cannot operate crypto exchange, transfer, or payroll services. Some OTC traders using MSO licenses for crypto exchanges have attracted regulatory attention. The Financial Services and the Treasury Bureau (FSTB) and Securities and Futures Commission (SFC) are planning a “Virtual Asset OTC License” regime.
• VA1 License: Mainly for virtual asset brokerage or trading platforms, limited to matching trades or executing buy/sell orders. It does not cover payroll payments. Using USDT to pay employees would be beyond the scope of the license.

Conclusion: Currently, Hong Kong has no license explicitly supporting “crypto payroll.” Companies wanting to pay in crypto should consider self-payment (employer pays stablecoins in HKD terms) or offshore solutions (via licensed entities in Singapore, EU, or US), while carefully managing labor, tax, and AML compliance.

Singapore: PSA Covers Core Crypto Payroll Activities, DPT License Required
Singapore has a clear regulatory framework. The Payment Services Act (PSA) defines virtual assets as “Digital Payment Tokens (DPT).” Businesses involved in buying, transferring, custody, or exchange of DPTs must obtain MAS (Monetary Authority of Singapore) licensing.

• If a company or platform converts fiat to stablecoins and pays wages on behalf of clients, this is considered DPT service and requires a standard or major payment institution license (SPI/MPI).
• The Employment Act does not prohibit paying wages in crypto, but employers must pay in fiat, obtain written employee consent, and report income for tax purposes.

Conclusion: Offering crypto payroll services in Singapore requires holding a DPT license under PSA or partnering with licensed entities. Otherwise, it’s illegal.

United States: Multi-Regulatory Oversight, Third-Party Distributors Need MSB and State Licenses
The US does not prohibit paying employees in crypto, but the regulatory landscape is complex.

• The Fair Labor Standards Act (FLSA) and most state labor laws require wages to be paid in US dollars or equivalent negotiable instruments.
• To pay in crypto, companies must ensure employees are paid at least minimum wage in USD and have written consent to convert part of their net pay into crypto.
• If a company uses its own crypto assets directly, it’s considered a “user” activity, not requiring a license.
• If a third-party acts as an intermediary—collecting fiat, converting, and disbursing virtual currency—they must register as an MSB with FinCEN and obtain state Money Transmitter Licenses (MTL).
• For example, Bitwage is registered with FinCEN and complies with BSA AML rules.
• Tax-wise, the IRS treats virtual currency as property. Employers must calculate wages based on the USD market value at the time of payment and withhold taxes accordingly.

Conclusion: Crypto payroll is permitted in the US but requires compliance with labor, tax, and AML regulations. Unlicensed third-party providers operate illegally.

European Union: MiCA Mandates CASP Licensing, Cross-Border Payments Are a Focus
The EU’s Markets in Crypto-Assets Regulation (MiCA) will be phased in starting June 2024:

• Stablecoin issuance (ART/EMT) begins June 30, 2024.
• Crypto service providers (CASPs) become fully regulated by December 30, 2024.
• Article 60 of MiCA states that “transferring crypto assets on behalf of third parties” is a CASP activity.
• Companies or platforms offering crypto payroll services in the EU must obtain CASP licenses and comply with AML and the Travel Rule.
• Labor laws still require wages to be paid in fiat currency, with crypto payments only permissible if denominated in fiat and with employee consent.
• Taxation involves calculating the market value at the time of payment, withholding income tax and social contributions, and potential capital gains tax upon sale.

Conclusion: Crypto payroll in the EU requires CASP licensing, and crypto payments should be supplementary, with fiat currency remaining the primary method for wages and tax compliance.

Mainland China: Crypto Payroll Is Illegal
China explicitly bans all forms of crypto payments. According to the 2021 notice from the People’s Bank and other authorities, virtual currencies are not to circulate or be used as currency.

• The Labor Law and Wage Payment Regulations require wages to be paid in RMB, not in kind or securities.
• Paying employees in USDT, BTC, or other cryptocurrencies is considered a violation of labor and foreign exchange laws, potentially constituting illegal operation.
• Some projects use offshore entities and foreign currency issuance to pay domestic employees, but this involves risks of foreign exchange violations and criminal liability.

Conclusion: Direct crypto payroll within China is illegal. Offshore arrangements must be carefully designed to avoid regulatory violations.

03 Five Core Compliance Risks
Crypto payroll involves complex intersections of finance, tax, labor, and foreign exchange laws. Mistakes in operation or legal interpretation can push companies into gray areas or violations. The five key risks are:

1. Regulatory Attribute Risk: Is paying in crypto considered a “financial service”?
   Many companies mistakenly believe that “just paying wages” isn’t regulated. But if a company or service provider handles fiat-to-crypto conversions or transfers for others, it likely constitutes a regulated financial activity—requiring licenses in most jurisdictions.

• Singapore: DPT service under PSA.
• US: Money Transmitter under MSB.
• EU: CASP activity under MiCA.
  Bottom line: If you’re “paying on behalf of others,” you’re doing a financial service. Licenses are mandatory.

2. AML Risks: On-chain transfers are not risk-free
   Cross-border crypto flows can be used for money laundering. Without proper KYC and transaction monitoring, companies risk being complicit.

• Common pitfalls include failing to verify employee identities, wallet ownership, or transaction records; lacking suspicious activity reporting mechanisms.
• Regulations in the EU, Singapore, Hong Kong, and US all require AML compliance, including the Travel Rule, ongoing due diligence, and suspicious activity reports.
  Advice: Even if paying yourself, establish basic KYC and record-keeping to defend against audits or investigations.

3. Tax Risks: Paying in crypto ≠ tax exemption; price volatility complicates matters
   Wages must be valued in fiat currency at the time of payment.

• If a company doesn’t lock in the exchange rate or withhold taxes, it risks tax evasion or inaccurate accounting.
• In the US, IRS treats crypto as property; wages paid in crypto must be reported at fair market value and taxed accordingly.
• In the EU and Singapore, similar rules apply.
• Using crypto assets directly may trigger capital gains considerations.
  Practical tip: Use fiat as the primary currency, record the date, amount, and exchange rate, and consult with tax professionals experienced in virtual assets.

4. Labor Law Risks: Employee consent alone doesn’t guarantee legality
   Most jurisdictions require wages to be paid in legal tender.

• China, US states, and Hong Kong mandate payment in fiat currency.
• Paying in crypto without proper legal basis may be deemed non-compliant.
• Disputes may arise if employees claim underpayment or if social security contributions cannot be calculated in crypto.
  Best practice: Use a “fiat + employee consent + supplemental agreement” approach, keep detailed records, and ensure legal compliance.

5. Cross-Border and FX Risks: Chain transfers ≠ free capital movement
   Cross-border crypto payments can be mistaken for illegal foreign exchange or remittance.

• In China, any bypass of banking channels for cross-border transfers may be considered illegal.
• In Hong Kong and Singapore, companies must declare cross-border fund flows and AML compliance.
• Excessive or suspicious on-chain activity can lead to account freezes.
  Tip: Prefer using licensed offshore entities (e.g., licensed DPT or CASP providers), keep detailed transaction records, and avoid direct exchanges from domestic bank accounts.

Summary:
While on-chain crypto payments can be borderless, actual funds are always subject to jurisdictional boundaries.

04 Global Compliance Cases
Crypto payroll is not an unregulated “black zone.” Several jurisdictions are experimenting with pilot programs and compliance frameworks.

• Licensed, traceable, auditable, and accountable systems are the only way for crypto payroll to move beyond gray areas.

In Summary:
Crypto payroll is both a trend and a regulatory challenge.
It’s poised to become a mainstream cross-border payment method, but long-term viability depends on passing three key hurdles:

• Licensing: Does your business model require a license?
• AML: Can you prove the source and flow of funds?
• Labor & Tax: Is your payment method recognized as wages?

Compliance isn’t a barrier—it’s the passport.
In today’s environment of tightening regulations and banking oversight, compliant crypto payroll isn’t optional; it’s the bottom line.