So You Want to Pay Your Employees in Crypto: A Hong Kong Employer’s Guide

“Can we pay our staff in crypto in Hong Kong?”

If you’re asking this question, you’re either incredibly forward-thinking or you’re trying to solve a specific problem that traditional banking isn’t addressing. Either way, you’re not alone. As Hong Kong positions itself as a crypto hub, more companies are exploring digital asset compensation options.

The way they’re doing it is straightforward: employers set up a payroll system using a hybrid payment model that combines Hong Kong Dollar payments meeting minimum wage requirements with crypto supplements or bonuses.

That’s the short answer. The longer answer involves understanding Hong Kong’s employment laws, tax regulations, and practical hurdles that every employer needs to overcome before sending their first crypto payment…

Why Would Anyone Want This?

Before diving into the “how,” let’s tackle the “why.” Why would any rational employer want to deal with the administrative headache of paying employees in virtual assets?

Actually, there are some legitimate reasons:

1. Tech street cred: Nothing says “we’re a forward-thinking company” quite like complicating your payroll process with blockchain technology.
2. Global talent: If you’re hiring internationally, crypto can sometimes be faster and cheaper than traditional remittance services, especially for contractors in countries with unstable banking systems.
3. Employee retention: For the right employees (read: crypto enthusiasts), getting paid partly in digital assets might be seen as a perk. Plus there’s the tax advantage: Hong Kong has no capital gains tax.
4. Actual business need: If your company operates in the crypto space, having part of your treasury and operations in digital assets can make practical sense.

How Two Ordinances Complicate Your Crypto Payroll

Hong Kong has positioned itself as a crypto-friendly jurisdiction. The government has expressed openness toward “innovators engaging in VA businesses,” and the city is actively working to become a crypto hub.

But when it comes to paying employees, two significant legal hurdles emerge:

1. The Employment Ordinance (Cap.57) defines “wages” as remuneration capable of being expressed in terms of money.
2. The Minimum Wage Ordinance (Cap.608) requires employers to pay employees not less than the statutory minimum wage.

Here’s the catch: cryptocurrencies aren’t recognized as legal tender in Hong Kong. The Securities and Futures Commission (SFC) classifies them as “virtual assets” or “virtual commodities,” not currencies. This creates a fundamental question: Can something that isn’t legally money be considered “wages”?

It’s like asking if you can pay someone in collectible Pokémon cards. The cards might have value, but they’re not “money” in the legal sense. (Though I’d personally accept payment in first-edition holographic Charizards.)

Three Ways to Make This Work

Given these constraints, here are three approaches that won’t make your compliance officer break out in hives:

Option 1: The Split Approach

Pay employees a base salary in Hong Kong Dollars that satisfies minimum wage requirements, then supplement with cryptocurrency. This ensures compliance with employment laws while still letting you jump on the crypto bandwagon.

Example:

• HK$18,000 monthly salary in HKD (deposited to bank account)
• HK$5,000 equivalent in Bitcoin (sent to employee’s wallet)

Option 2: The Bonus Method

Pay regular wages entirely in traditional currency, then award cryptocurrency through bonus schemes. This is particularly clever because bonuses are explicitly excluded from the definition of “wages” under the Employment Ordinance.

Example:

• HK$22,000 monthly salary in HKD
• Quarterly performance bonus paid in Ethereum

Option 3: The Conversion Route

Pay employees entirely in HKD, but provide immediate conversion to cryptocurrency through an exchange. This maintains legal compliance while offering the crypto option.

Example:

• HK$23,000 monthly salary in HKD
• Partnership with a crypto exchange that converts designated portions to cryptocurrency instantaneously

Tax Implications

The good news is this isn’t a grey area. The Inland Revenue Department (IRD) has actually provided guidance on crypto compensation.

In March 2020, the IRD issued revised guidelines covering digital assets, stating that:

• Remuneration in cryptocurrency is subject to income tax
• The same salaries tax treatment applies to crypto payments as traditional ones
• Both employers and employees must declare income received in cryptocurrency
• The taxable amount is the market value of the cryptocurrency on the day it’s paid

The practical implication? You’ll need to record the exact HKD value of any crypto payments at the moment they’re made. This means picking a reference exchange and documenting the conversion rate.

The Volatility Problem

Now for the elephant in the room: crypto prices swing wildly. Today’s HK$5,000 in Bitcoin might be HK$3,000 tomorrow or HK$8,000 next week.

This creates two problems:

1. Employee satisfaction and expectations: Nothing breeds workplace resentment quite like watching the supplemental portion of your compensation drop 15% because Elon Musk tweeted something cryptic.
2. Accounting and valuation challenges: Even if your minimum wage compliance is secure through the HKD base salary, determining the proper value of the crypto portion for tax reporting and company accounting becomes complicated with high volatility.

Here’s how to mitigate these issues:

• Use stablecoins like USDC or USDT that are pegged to the US dollar
• Implement hedging strategies to protect against price fluctuations
• Convert fiat to crypto at the moment of payment to ensure accurate valuation
• Schedule payments during lower volatility periods (though predicting these is like forecasting the weather six months in advance)

Getting Employee Buy-In

Even if you legally can pay in crypto, it doesn’t mean your employees want you to. While some might be excited about the potential upside (imagine being paid in Bitcoin in 2010!), others will be concerned about volatility, tax complications, or simply the hassle of managing yet another financial account.

Before implementing any crypto payroll:

1. Make it optional: Let employees choose whether they want to participate
2. Educate employees: Most people don’t understand crypto beyond “Bitcoin goes up (or down)”
3. Amend employment contracts: Get formal consent in writing
4. Be transparent about risks: No one likes surprises, especially when it comes to their income

Compliance Requirements

Hong Kong has comprehensive Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations that apply to cryptocurrency transactions:

• The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) provides the framework for recordkeeping and customer due diligence
• A Licensing System for Virtual Asset Service Providers (VASPs) requires cryptocurrency platforms to obtain licenses
• The Cryptocurrency Travel Rule applies to all transfers of Virtual Assets worth more than HK$8,000

This means you can’t just start sending crypto to employees without some paperwork. You’ll need to:

• Conduct proper KYC procedures for all employees receiving cryptocurrency
• Maintain detailed records of all payments
• Monitor and report any suspicious transactions
• Engage only with licensed cryptocurrency service providers

The penalties for non-compliance are steep: fines up to 5,000,000 HKD, potential imprisonment for senior management, and additional daily penalties of 100,000 HKD for continuing offenses.

Practical Implementation: A Step-by-Step Guide

If you’re still reading and haven’t been scared off yet, here’s how to actually implement this:

1. Consult legal experts: Get specialized advice on Hong Kong employment and cryptocurrency laws
2. Develop a crypto payroll policy: Define which cryptocurrencies you’ll use, valuation methods, and procedures for handling volatility
3. Select a platform: Companies like Rise and Gloroots offer specialized crypto payroll services that support Hong Kong regulations
4. Obtain employee consent: Educate employees and secure written consent through formal contract amendments
5. Implement compliance measures: Establish KYC procedures and monitoring systems
6. Launch a pilot program: Start small with willing participants and gather feedback
7. Scale gradually: Expand based on success and continuously update policies as regulations evolve

The Banking Reality Check

Here’s a practical challenge: Hong Kong banks haven’t fully embraced cryptocurrency. Traditional banks currently only accept cash, stocks, foreign currencies, Hong Kong properties, funds, and bonds as recognized assets.

This means that for employees receiving crypto payments, the only way to use these assets with traditional banking is to cash out first. Make sure your employees understand this limitation.

Final Thoughts: Is It Worth It?

Crypto payroll in Hong Kong is legally possible but complex. Like many innovations, the question isn’t just “can we do this?” but “should we do this?”

If your company operates in the crypto space, has internationally distributed teams, or employs staff who genuinely want this option, then the administrative overhead might be justified. For everyone else, it might be a solution in search of a problem.

But if you do decide to venture into this brave new world of payroll, Hong Kong’s relatively progressive stance on crypto makes it one of the better jurisdictions to try. The government’s pro-crypto position suggests a favorable environment for innovative payment solutions, and ongoing regulatory developments continue to provide greater clarity.

How Monx Can Help

While other payroll providers might panic at the mention of cryptocurrency, our team has expertise in implementing the hybrid payment models we’ve discussed throughout this article. We’ll help you:

• Set up compliant base HKD payments that satisfy minimum wage requirements
• Integrate cryptocurrency supplements or bonuses into your compensation structure
• Establish proper valuation methods and record-keeping protocols
• Navigate the AML/KYC requirements for crypto payments

Ready to explore how crypto payroll could work for your Hong Kong business? Contact Monx today for a free consultation and let us show you how we can simplify your journey into the future of compensation.

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Regulations change rapidly in the cryptocurrency space, so consult with appropriate professionals before implementing any crypto payroll solution.