A Momentary Thrill from Receiving USDT Payments

Not long ago, a friend came to me gleefully boasting that he had landed a rather lucrative job. I said, “Brother, if you become rich…” Only after persistent questioning did he reveal that he was actually working domestically for an overseas Web3 project. The job offered considerable flexibility, and his employer paid his salary directly in the crypto asset USDT. His take-home pay was intact and particularly substantial.
I shook my head, thinking that such “wealth” was more trouble than it was worth.

 

01

Paying Salaries in Crypto Assets Becomes Commonplace

In today’s world, where crypto assets are gaining widespread popularity globally, an increasing number of blockchain companies have begun to pay salaries in crypto assets (primarily USDT). After all, the advantages are evident:
On the one hand, for cross-border payments,crypto assets make international payments faster and cheaper. While reducing costs, employees no longer need to deal with cumbersome foreign exchange procedures. Typically, crypto projects agree with employees on a monthly salary denominated in a specific amount of USDT. When payroll is due, the finance department simply executes an on-chain transfer, paying a small Gas Fee, and can send the funds with a single click. The payment arrives quickly, as swift as “Elon Musk posting a tweet.”
On the other hand, crypto assets are a type of virtual currency that leverages blockchain technology. Unlike traditional paper money and coins, crypto assets rely on sophisticated cryptographic techniquesto ensure that payment transactions are extremely transparent and secure. All transactions are recorded on-chain, eliminating concerns about opaque operations. After the finance department disburses salaries, it provides employees with the transaction hash. Employees can then use this hash to locate the specific data on the corresponding blockchain explorer. Everything is open and transparent, leaving no room for trickery.
Although paying salaries in crypto assets appears to offer many benefits… in China, this practice could land you in serious legal trouble.

 

02

Legal Risks Are Ever-Present

For both Web3 project sponsors and ordinary employees, using crypto assets as a means of wage payment may give rise to a series of unforeseen legal risks.

Chinese Law Does Not Recognize Virtual Assets as Wages

First, Chinese law does not recognize these virtual assets; the renminbi is the proper medium of payment. Specifically, the Chinese government maintains a cautious stance toward crypto assets and imposes stringent regulatory oversight. There is a saying in the crypto community: “Leeks can never be fully harvested; they sprout again with the spring breeze.” However, in China, the “spring breeze” for crypto assets is hardly favorable.
Accordingly, on the question of “paying wages in crypto assets,” the answer is: unfortunately, this is not permissible under Chinese law. Pursuant to the Law of the People’s Republic of China on the People’s Bank of China, the Interim Provisions on Wage Payment, and the Notice on Further Preventing and Disposing of the Risks of Speculation in Virtual Asset Transactions,the renminbi is the sole legal tender; virtual assets such as Bitcoin, Ether, and Tether do not have legal-tender status, do not enjoy the same legal status as legal tender, and should not and cannot circulate as currency in the market.
At the same time, because most Web3 projects are based overseas, issues related to foreign-exchange administration may also arise. In this regard, China’s approach to cross-border transactions involving crypto assets is one ofstrict regulatory oversight, and using them for payment may trigger compliance pitfalls. The State Administration of Foreign Exchange exercises strict controls over foreign-exchange flows, and the anonymity and decentralization inherent in crypto assets make them easilysuspected of being used as money-laundering instrumentsRecently, the Shanghai People’s Procuratorate released the 2023 Shanghai Financial Prosecution White Paper. In light of financial crimes involving illegal business operations published over the past three years, it is inevitable to observe widespread use of methods such as foreign-exchange conversion and cross-border asset transfers for money laundering. In response, corresponding regulatory enforcement has been escalating year by year.

What Are the Implications for Employees When Wages Are Paid in Crypto Assets?

The project is based overseas, with development and technical work handled by personnel in China. This reflects the current reality for most Web3 projects. The question then arises: Are you certain that an employment relationship has been established between the company and you?
Under China’sLabor Contract Lawand related regulations,only overseas enterprises that are lawfully registered within China and have obtained a business license qualify as “employers” under Chinese labor law and may establish an employment relationship.Beyond this, whether an employment relationship exists must be determined by reference to the specific contractual terms governing the cooperation model. However, given common employment practices in the Web3 industry, contracts are often not executed; even when agreements are signed, they are typically simple nominal corporate arrangements or consulting agreements. In such circumstances, if a dispute arises over compensation paid in crypto assets, employeesmust produce other evidence to prove the existence of a de facto employment relationship; otherwise, the employment relationship will not be recognized, and their rights and interests will naturally lack legal protection.
Of course, you might assert that you have indeed established an employment relationship with the company. Yet this gives rise to new issues:

  • Income instability

Although the predominant method of compensation is stablecoins (such as USDT mentioned earlier, which is pegged to the U.S. dollar and exhibits limited price volatility), some projects use other types of crypto assets. Such tokens are characterized by significantprice volatility, with wages just received today potentially shrinking by 20% tomorrow, causing one's quality of life to roller-coaster. Imagine being a crypto whale yesterday and turning into a retail victim today; who could endure such a life?

  • Tax complications

Most crypto projects lack a domestic entity and therefore do not withhold taxes for employees. Consequently, most employees must file and pay taxes on their own. Under China's current tax laws, income derived from the personal transfer of Bitcoin and other virtual assets may be subject to individual income tax. However, crypto asset transactions are complex,Tax filing becomes a challenge'Better to earn less than to violate regulations.' If tax issues are mishandled, no matter how much you earn, it may all be forfeited in penalties.

  • Difficulty in seeking legal remedies

Labor law requires wages to be paid in RMB; therefore, paying wages in crypto assets may not receive legal protection. In cases of unpaid wages or bonuses, it may be difficult to provide evidence, leading to disputesDifficulty in seeking legal remedies。

  • Security risks

After receiving virtual assets, employees often need to convert or trade them into fiat currency through illicit channels for daily use. However, the source of funds from counterparties in cash-out transactions is highly uncertain. Once illicit funds related to gambling or fraud are received,it is highly likely to trigger a bank account freezeAfter all the effort, the money is not retained, and there may even beCriminal risks involving suspected assistance in information network criminal activities and concealment or disguise of proceeds of crime。

What are the implications for enterprises of paying salaries in crypto assets?

  • Compliance risks and tax risks

Paying wages in crypto assets may, with some probability, triggercompliance issues, which may result in fines, administrative penalties, and even disruptions to normal operations. Tax policies on crypto assets are also unclear, and enterprises may need topay back taxes and finesThe accuracy of tax records is also difficult to ensure. Imagine the finance department working all day only to face substantial penalties due to crypto asset payments; would such purported "cost savings" not be more trouble than it is worth?

  • Risk of having to make additional wage payments

Paying remuneration in crypto assets violates legal provisions. For enterprises, if wages are paid in crypto assets, any ensuing dispute will often lead to the payment being deemed invalid because crypto assets are not legal tender (as noted above), thereby exposing the enterprise tothe risk of being required to make additional wage payments, ultimately resulting in the loss of both funds and labor, akin to "trying to steal a chicken only to lose the rice used as bait."

  • Security Risks

The Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading and Speculation clarifies that “participation in virtual currency investment and trading activities entails legal risks. Where any legal person, unincorporated organization, or natural person invests in virtual currencies and related derivatives in violation of public order and good customs, the relevant civil juristic acts shall be invalid, and any losses arising therefrom shall be borne by such persons; where such conduct is suspected of disrupting financial order or endangering financial security, the relevant authorities shall investigate and deal with it in accordance with the law.” If an enterprise holds a large amount of virtual currencies and uses them to pay wages, improper operations may also give rise tothe risk of disrupting financial order and result in corresponding legal liabilities.。

 

03

Case Analysis

On May 20, 2019, Mr. Shen joined a certain internet company and entered into a labor contract with it. The labor contract stipulated that Mr. Shen would work under a non-fixed working hour system, with a monthly salary of RMB 50,000, 14 months’ salary paid annually, a target performance bonus of RMB 50,000 (pre-tax) per half year, and a target annual bonus of RMB 50,000 (pre-tax) per year. During the performance of the labor contract, after deductions for social insurance and housing provident fund contributions, Mr. Shen’s actual monthly salary was paid in the form of RMB 2,574 plus the virtual currency USDT. The RMB portion was paid through October 2020, and the USDT portion was paid through September 2020. On October 17, 2020, Mr. Shen resigned for personal reasons. Believing that the internet company had arrears in his wages, performance bonuses, and overtime pay, he applied for arbitration with the Labor and Personnel Dispute Arbitration Committee. Dissatisfied with the arbitral award, Mr. Shen filed a lawsuit with the court.
The effective judgment of the court held that the practice of paying wages in virtual currencies violates legal provisions and should be deemed invalid. The employer shall, in accordance with the labor contract and state regulations, promptly and fully pay labor remuneration to the employee in Renminbi (RMB). With respect to the agreed fourteenth-month salary and bonuses, these shall likewise be paid in RMB.
The focal issue in this case is whether an employer may pay wages to employees in virtual currencies. As mentioned above,Chinese law does not recognize virtual currencies as a permissible form of wage payment.According to Article 5 of the Interim Provisions on Payment of Wages, wages shall be paid in legal tender; Article 16 of the Law of the People’s Republic of China on the People’s Bank of China provides that the legal tender of the People’s Republic of China is the Renminbi (RMB); and the Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading and Speculation stipulates that virtual currencies do not have legal tender status. Therefore, virtual currencies should not and cannot circulate in the market as currency, nor can they be used to pay remuneration.
This case also involves the issue of the enterprise’spayment of wage arrears, which is one of the risks associated with paying salaries in crypto assets as described above. In such circumstances, the company must bear the adverse consequences: the act of paying wages in virtual currencies is deemed invalid, and the company is required to fully pay labor remuneration to its employees in RMB in accordance with the labor contract and state regulations.

 

04

Conclusion

Although paying salaries in crypto assets offers certain advantages, it indeed faces numerous legal risks under China’s current legal and regulatory framework. Both enterprises and employees should carefully consider these factors, comply with laws and regulations, and avoid legal disputes and economic losses. Understanding these risks helps protect our rights and interests and enables us to make more informed choices.
If you do find yourself in serious legal trouble, please promptly consult blockchain-specialized lawyers and institutions. We hope this article helps you avoid many detours.

Special Disclaimer:

This article is an original work of Mankun Law Firm. It reflects only the personal views of the author and does not constitute legal consultation or legal advice on specific matters.

 

Recommended Reading

First Major Amendment to China’s Anti-Money Laundering Law: Virtual Assets Are a Key Focus 

Assisting Others in Trading Virtual Assets: Must Losses Be Compensated?

[Infographic] Risks of Selling USDT Virtual Assets

 

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