“Work” in Web3 is remote, global, decentralized, flexible, democratized, asynchronous… the list goes on. We throw out all of the norms of the 9-5 and most of the norms of remote working. It’s a new way of working, creating value, and earning a living.
But it comes with its own challenges - especially regarding hiring and employment. Why? A few reasons…
- It’s global. Web3 participants and contributors come from every corner of the globe. This makes getting employment right a challenge. You need to understand a whole host of local regulations to ensure you’re providing compliant employment in each jurisdiction of your employees.
- Employment legislation is outdated. Regulators have yet to fully understand the impact of Web3 and provide clear guidelines for how employment should be structured within this ecosystem
- Mismatch of onchain & offchain. The world of Web3 and the world of everything else isn’t easily compatible. Bridging the gap from blockchain to the real world is difficult and costly.
In this blog, I want to take a look at a few of the things you need to understand to hire employees legally and fairly in Web3.
Transitioning from contribution to full-time employment
DAOs and Web3 organizations are typically spun-up as project-based endeavors, made up of like-minded individuals, who are all working towards a fixed goal. Once they hit a certain scale they begin to consider the transition to full-time employment for their core contributors. That’s not always the case though so here are a few things you need to consider when you’re deciding if you want to transition your organization into a full-time employment model.
Do your contributors want to transition to full-time employment?
Some contributors prefer the project, quest, or bounty-based work - that’s totally fine. They like to work as freelancers, playing a role in a number of organizations at any one time. That is part of the beauty of Web3, the freedom to choose how and why you work.
But others don't. They want structured and secure employment - this blog is for them. It’s important you identify the demand for full-time employment within your contributors before you begin this journey.
Is my organization at risk of misclassification?
There are also risk assessments that should be considered when deciding whether this is the right move for your organization - misclassification risk being the main culprit. Misclassification refers to when an employee is being treated as an independent contractor (or vice versa). If a contributor is an employee, rather than a contractor, it significantly alters the DAO’s obligations to the contributor.
The criteria for misclassification change from jurisdiction to jurisdiction. There are a few key things to be considerate of:
- Do you have managerial oversight of your contributor's work?
- Does your organization provide work equipment for contributors?
- Do you have contributors that have been working on back-to-back contracts or projects?
- Are your contributors paid regularly?
If the answer to any of these was yes, you might be at risk of employee misclassification in which case you should consider transitioning them into full-time employment contracts.
What you need to do to hire a full-time employee
The nuance of providing global employment is varied and complex. Here are the things you need to be mindful of to ensure you’re doing it compliantly and fairly for your employees.
Where do your contributors live?
Full-time employment is your chosen route. Now you need to identify the locations your contributors are based in. Typically (but not always), to offer employment you need to have established a legal presence within the jurisdiction of each contributor.
This can be a difficult and expensive hurdle for some Web3 organizations. Difficult, because in some minds, the use of a corporate structure seems against the values of decentralization and freedom from regulatory oversight. Expensive, because setting up an entity usually requires engaging a corporate lawyer in each local jurisdiction of your organization’s contributors.
It’s also worth noting that this process can open up other sets of risks that you need to look out for. Permanent establishment is one such risk. It’s a legal term that indicates whether or not the activities of an organization in a foreign country are taxable. For example, if your contributor is generating revenue from their domicile for a foreign entity - there might be a risk that those activities can be taxed by the local authority.
Understanding local labor and employment regulations
Once you have an established legal presence you must be mindful of the nuance and specifics of that jurisdiction's employment and labor regulations. What are the minimum wage laws? How many holidays are the employees entitled to? What are work hours and overtime regulations? These are just a few of the questions you need to answer.
This information is usually easily available on government websites but it’s wise to consult a local expert to ensure that you have a good grasp of the various regulations to make sure you’re staying on the right side of the jurisdictional authority.
Setting up and running crypto payroll
Web3 is built on the blockchain and compensation is expected to be so too. Contributors don’t just want to be paid in fiat, they want to be paid in crypto, tokens, stablecoins, or other Web3-native compensation.
Setting up crypto payroll globally can be challenging. It involves understanding a complex array of regulations that aren’t exactly clear. Some of the questions you need to answer:
- Do I need to meet minimum wage in fiat before I can start compensating my employees in crypto?
- Am I in breach of any Bank Secrecy, KYC, or AML laws?
- What are digital assets labeled in the county of my employee - commodities, securities, or something else?
- Do I need to apply for licensing or regulatory approvals to be running payroll in certain jurisdictions?
Generally, there are local payroll experts or services that you can engage to manage this process for you BUT very few of these are able to deploy crypto payroll. It is recommended that you seek out crypto payroll experts specific to each jurisdiction.
Calculating and paying income tax
Whatever compensation structure you have settled on will still require you to make tax payments on behalf of your contributors to their local tax authority. If payments are solely fiat, this is a relatively simple process with detailed information widely available on most local government websites.
If however, the contributor is getting paid in cryptocurrencies, tokens, or any other non-fiat compensation this becomes a much more complex process. Tax laws are still catching up with the growth of blockchain technology and regulations vary on how income tax from crypto is calculated. It’s recommended that you seek the advice of local crypto tax experts to help set up your contributor's tax allocation to ensure compliance with all jurisdictional regulations.
Another critical component here is the processing time of tax allocation. We all know cryptocurrencies are susceptible to fluctuation. To avoid any unexpected costs, your organization must be able to withhold or sell-to-cover your employee's tax burden in as short a timeframe as possible to ensure no unexpected tax bills at the end of the financial year.
Providing employee benefits
A key distinction between contractors and full-time employees is access to employment benefits. Working from home allowances for office setup, internet, electricity, etc. Paid leave above and beyond the legal minimum. Pension contributions. Health and dental insurance. These are a few examples of run-of-the-mill benefits that your employees need in a modern lifestyle. This is by no means an exhaustive nor optimal list and it’s up to each organization individually to decide the stack of benefits they see to be most valuable for their employees (if you need any inspiration - we’ve got some great examples here). But, providing these globally can be quite difficult.
Oftentimes there will be employee benefits providers in the local jurisdiction that you can contract to manage this for you. This becomes quite costly if you need to set up these individual contracts in a number of locations around the world, however.
There must be an easier solution!
Hiring in Web3 is a complicated and costly process. It requires hours of research, thousands of dollars of legal and administrative fees, and lots of energy and resources on the part of the organization.
Fortunately, we can help. WorkDAO is designed to provide seamless employment specifically for the needs of Web3 organizations. We bridge the gap between existing regulatory structures and the innovation of the Web3 ecosystem.
Our mission is to create the best working experience for contributors and unlock legal, compliant employment for the next million contributors in Web3. We have already established the infrastructure today to employ, contract, or otherwise engage contributors directly and provide full HR services and statutory compliance in over 40 different countries and 51 U.S. states and territories (including Puerto Rico). We expect that number to reach 100 countries by the end of the year.
If you’d like to partner with us or just like to chat about how you might tackle the employment challenges of Web3 - we’re here to help: email@example.com