How to Pay Your Employees With Bitcoin- #109
tl;dr - A beginner-friendly guide on how you can start paying your employees, contractors and vendors in Bitcoin directly from your business.
Dear Reader,
Recently there was a Bitcoin and Blockchain summit in town and thought I’d attend, and while there I met up with a few local business owners who were curious about Bitcoin and looking to understand it a little more.
Now mind you, they weren’t involved in the tech space. They run “normal” conventional businesses and simply want to upgrade themselves by getting involved in the new Bitcoin economy.
We met up at the afterparty where I mentioned to them that I run a small business and we accept Bitcoin as a form of payment. My business also pays some of its employees, vendors and contractors in Bitcoin as well. I shared with them some of my experiences, where I succeeded and where I’ve failed, what I would have done differently and from that, I decided to break down a path for a small business interested in operating on a Bitcoin standard.
This is a beginner-friendly guide on how you can start paying your employees, contractors and vendors in Bitcoin directly from your business.
We’ll get into other methods and idea in subsequent letters, but for now…
Here’s how to pay your employees in Bitcoin
Setting the stage:
You’re a business that hasn’t accepted Bitcoin (yet), but you want to know how to pay your employees and teammates with Bitcoin. Maybe it’s a way to get exposure for them, or you’re using it as an incentive for hiring purposes. Whatever the case maybe, I hope you find this useful.
1 - Get a wallet
Wallets are apps that hold your funds. Wallets are free and open-source software (FOSS) which provide you with a Public and Private Key, meaning you have direct ownership and control of funds (aka self-custody). In short, a public key is similar to an email client. A private key is your password and signer to your email client.
Recommended desktop wallets: Exodus (novice), Blue Wallet (intermediate), Sparrow Wallet and Electrum (expert).
Recommended mobile wallets: Muun (novice), Blue Wallet (intermediate), Electrum, Zap, Phoenix and Zeus (expert, lightning network wallets).
There are hosted options too, such as Casa and exchange platforms, but that's for another post.
2 - Open an exchange account
Depending on where your business is located, you can find regulated exchanges such as Swan Bitcoin (recommended), Coinbase, Kraken, Gemini and Bianace.
Opening a corporate exchange account requires documentation and a wait period of about 5 to 10 business days.
3 - Exchange fiat for Bitcoin
Once registered, you can start exchanging fiat currency for Bitcoin by sending a wire transfer to the exchange and converting fiat to Bitcoin which clears in about couple of hours, or debit purchase which clears within 3 to 5 days.
4 - Send Bitcoin to wallet
After acquiring the desired amount of Bitcoin, it is important to remove funds from the exchange. You can do this by going to the "withdraw" option within your exchange account and sending it to your business's Bitcoin wallet.
Some exchanges, such as Coinbase, offer expense tracking to make it easier for tax reporting purposes. However, you'll notice that the exchange never provides you with your Public and Private keys, meaning they are the custodians (“owners”) of the property. For privacy and security reasons, this is not advisable.
5 - Mix coins (optional)
Receiving 1 BTC unit is similar to receiving a $100 bill. Mixing coins essentially breaks the $100 bill into smaller units such as $20, $10, $5 and $1. These are known as unspent transactions (UXTOs), and while you can spend funds from a single unit, the "change" is sent back to the wallet creating a path to your business's wallet location.
Mixing coins helps to obfuscate point of origin and forward-moving privacy for the sender and receiver.
If privacy is of no concern, then you may skip this step.
6.a - Deploying Payment (on-chain)
Buy default, your business's wallet will be hosting funds on-chain, meaning that it is on the main Bitcoin timechain.
For employees
You, or your HR and/or accounting departments, should create a secure off-line data base consisting of whitelist Bitcoin addresses* for your employees (presuming they have Bitcoin wallets as well).
Come pay day, you or accounting department, can issue payments (based on the fiat equivalent) to the addresses on the whitelist.
To stay compliant with federal tax law; employee payment should be based on net wage issuance. Check with your local, state/province accountant or tax advisor for more details.
For vendors and contractors
When submitting invoices, have vendors and contractors submit a QR code and/or their Bitcoin address somewhere on the invoice.
Unlike employees, vendors and contractors can receive full compensation in Bitcoin.
*Most Bitcoin wallets will automatically generate a new receiving address by default. Depending on the wallet, the individual should submit a minimum 5 to 10 addresses in order to maintain privacy.
6.b - Deploying Payments (off-chain)
Payments deployed on the Lightning Network (off-chain), is a second layer solution to the slower, steadier on-chain transaction time of Bitcoin.
Note: You will need a Lightning wallet in order to transact on the lightning network. Wallets such as Blue Wallet, Muun, Phoenix and Electrum have these features available. But you will need to do your own research to see which option best fits your business model.
Each employee, vendor and contractor, from their wallet, will generate an "invoice" with the amount to be paid, and then sent to you or your accounting team to issue payments.
Invoices have an expiration time any where from 1 minute to 1 day. Payments made over the Lightning Network are settled within milliseconds and often for $0.0001.
Additional tips
As an incentive and to help manage volatility (and sell fees), consider adding an additional 2-5% increase on payments.
Give the option to allow employees, vendors and contractors to accept a portion of their pay in Bitcoin as a way to ease into the process.
Employees who have a Cash App or Strike accounts are capable of accepting Bitcoin payments directly via the "Pay me in Bitcoin" feature.
That about covers the basics of how to get started.
Conclusion
As the night ended, I traded cards with the other business owners who expressed a look of ease and enlightenment. I try my best to keep it simple and show that sometimes we get in our own way when it comes to something new.
All I have is my experience with which to share, and I hope that my red flags and mishaps can serve a better purpose.
Hopefully you found this informative and useful. If you’re a small business and deciding to venture into this route, I’d love to know you’re experience. If you run into any issues, please feel free to use the comment section or the new Chat feature here on Substack.
If you know of a small business owner who’d like to learn how to offer Bitcoin as a means of payment, share this article.
Until next time!