In these last years, more and more companies and start-ups in the tech sector particularly are considering or have already implemented the possibility to remunerate their employees in tokens. This choice must be carefully considered not only by the employer, but also by the employee who agrees to be rewarded accordingly. Some fundamental reflections must be made before proceeding in this direction. In particular, the regulations in force in the employee’s and employer’s country of residence should be consulted carefully with the help of legal professionals before implementing a payment system in tokens. In fact, while some jurisdictions may prohibit any form of salary that is not paid in legal currency, others may limit the payment in tokens up to a certain amount of the salary or restrict it to bonuses and rewards only. Once the compliance with the applicable national regulations has been verified, the employer will also have to reflect on how to remunerate his or her employees: (i) payment (cryptocurrency or stablecoin), (ii) asset-backed or (iii) utility tokens. At this point, both the employer and the employee will have to inquire about the tax consequences.

By simplifying the situation as much as possible and assuming that both the employer and the employee are Swiss residents, Swiss labour law does not set any particular restrictions on the payment of salaries in tokens. In fact, the contractual freedom to determine remuneration provided for in article 322 (1) of the Swiss Code of Obligations (CO) also applies to the type of remuneration. Furthermore, although article 323b (1) CO provides that salaries are paid in legal tender, the latter being of a dispositive nature allows the parties to agree on a payment in foreign currency or in kind. Since tokens are not legal tender in Switzerland, they could be treated as payment of salaries in foreign currency or in kind. With regard to the payment of any bonus or reward in addition to the salary, Swiss law does not provide for any specific regulations, thus leaving the employer complete freedom on the form of remuneration chosen.

It is thus up to the employee and the employer to determine and agree on the modalities of remuneration. As mentioned above, the possibilities are many and are not mutually exclusive: tokens can be hybrids and have characteristics belonging to several categories. A case-by-case assessment of the token chosen or created ad hoc will be necessary to determine any other legal requirements that must be met before proceeding with the allocation.

From a Swiss tax law perspective, the type of token chosen does not affect the tax consequences which, in any case, remain the same. Therefore, if the salary or part of it is paid to the employee in the form of tokens (regardless of type), it is taxable as an income from an employed activity in accordance with article 17 (1) of the Federal law on direct federal tax (LIFD) and the payment in tokens must appear on the salary certificate. The amount to be stated is the value at the time of allocation and must be converted into Swiss francs. According to the aforementioned provision, taxable income includes all the benefits that derive from employed activity and that have a causal link with the latter. Consequently, even if the tokens are not distributed by the direct employer but by a related entity (i.e. the actual token issuer), there is no difference from a tax point of view. Article 17 (1) LIFD also covers the tax treatment of bonuses and rewards in connection with an employed activity.

At the end of the day, what are the advantages and disadvantages of paying your employees in tokens? A precise answer to this question is not possible as it depends very much on the situation under consideration. There are many elements to take into consideration, including the functionality of the token with which you pay your employees, the possible decision to undertake an ICO by the company, the economic market situation and so on. For the employer, paying employees with tokens from the company means motivating them to contribute to the economic growth as well as securing their long-term loyalty. For the employee, owning tokens that acquire value over time can be extremely beneficial and lead to large, tax-free earnings. In addition, more and more goods and services are easily accessible and purchasable through tokens. Concerning disadvantages, the applicable regulations are still very much fragmented and not always predictable. Equally unpredictable is the value of tokens that, depending on the situation, can be more or less sensitive to sudden fluctuations.

In conclusion, when considering the choice to propose or accept payment of salaries in tokens, it is necessary to inquire with the national authorities about the applicable regulations and the procedures to be followed. For the employer, it is important to guarantee the legality of the operation and the resulting accounting aspects. The choice of token is fundamental. For the employee, it is necessary to know what the tax consequences are and how to declare the income. It is also important to inquire about the actual value of the tokens received and the possibility of using them, either within the company or externally.

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PhD student and Assistant to the Chair of Tax Law at the University of Neuchâtel, with a particular interest and experience in taxation of blockchain-based tokens and other forms of crowdfunding.