Paying staff in tokens: grant value, vesting, lockups and withholding

Token awards rarely fit the share-based payment rules neatly. Here is how scope, measurement, classification and payroll tax interact.

2026-10-17 · 6 min read

If you pay people in tokens, the first question is not the price but the rulebook: most tokens are not your company's shares, so the share-based payment standards may not apply as written. That choice drives whether the cost is fixed at grant or moves with the token price every quarter, and payroll tax runs on its own timetable.

Which standard applies

Under US GAAP, ASC 718 covers awards that are, or may be, settled in the entity's own equity, or whose settlement depends at least partly on the price of that equity [1]. A typical protocol token is not a share in the employer, and its price is not the price of the employer's equity. Many token awards therefore sit outside ASC 718, and companies have to build a policy by analogy to other guidance.

IFRS draws a similar line. IFRS 2 covers payments settled in the entity's own equity instruments, and payments in cash or other assets whose amount is based on the price of those instruments [3]. Where a token award is not caught by IFRS 2, the fallback is generally IAS 19, which covers employee benefits settled in cash, goods or services, including non-monetary benefits, and expressly excludes anything within IFRS 2 [4]. A token that genuinely is an equity instrument of the issuer, passing the IAS 32 tests, is possible but unusual.

Fixed at grant, or remeasured

The practical difference is volatility in the income statement. Under IFRS 2, equity-settled awards are measured at grant-date fair value, and that figure is not updated for later price moves. Cash-settled awards are remeasured at each reporting date until settled [3]. An obligation to deliver a volatile token behaves much more like the second case than the first.

A public example: Hiro Systems, a developer in the Stacks ecosystem, disclosed in its FY2022 Form 1-K that it treats restricted token unit grants as liabilities measured at fair value at every reporting date, with expense recognised straight-line over a four-year quarterly vesting period [2]. Forfeitures by leavers reduce both the expense and the obligation. Because the tokens it delivered had a zero carrying amount, it recorded a non-cash gain on delivery equal to the cumulative expense [2]. That is one disclosed policy, not a rule, but it shows the mechanics most finance teams end up with.

Vesting and lockups are different things

Vesting is a service condition: the employee earns the tokens by staying. A lockup is a transfer restriction that can continue after vesting, often tied to a token unlock schedule. For accounting, vesting drives the attribution period. A lockup affects what the award is worth, because a token you cannot sell for a year is not the same as a freely tradable one. How much discount to apply is a valuation judgment that needs documentation.

Tax law cares about the same distinction. In the US, property transferred for services is generally taxed when it stops being subject to a substantial risk of forfeiture or becomes transferable, whichever is first, unless the recipient makes a section 83(b) election within 30 days of transfer [6]. The IRS treats virtual currency as property [5], so tokens actually transferred subject to vesting are commonly analysed under section 83. Token units that are only a promise to deliver later are usually taxed on delivery, but the contract wording matters.

Payroll withholding

The IRS position is straightforward: virtual currency paid to an employee is wages, measured at fair market value in US dollars when received, subject to income tax withholding, FICA and FUTA, and reported on Form W-2 [5]. Contractors paid in tokens have self-employment income [5]. The employee's tax basis in the tokens is the same dollar value [5].

In the UK, HMRC treats exchange-traded tokens as readily convertible assets, which means the employer must account for PAYE and National Insurance on their value through payroll [7]. Advisers note that the timing can depend on when the employee becomes beneficially entitled, that it is unclear whether some tokens count as securities for the restricted securities rules, and that tax can be due on value that has since evaporated [8].

Either way the withholding is owed in cash, while the employee was paid in tokens. Employers typically fund it by selling or withholding a portion of the tokens, or by paying it from cash and recovering it later. Decide which before the first vesting date, because it affects the number of tokens delivered and the journal.

What to do

• Read each award agreement and decide, in writing, whether it is in scope of ASC 718 or IFRS 2, or treated under another standard by analogy.
• Pick a measurement approach (grant-date or remeasured) and document the reasoning, including any lockup discount.
• Keep a vesting schedule by employee with token counts, dates and the price source used at each reporting date.
• Agree the payroll mechanics for withholding (sell-to-cover, net delivery or cash) with payroll and tax advisers before tokens vest.
• Reconcile tokens delivered on-chain to the vesting schedule and payroll reports every period.

Sources

1. Deloitte's Roadmap: Share-Based Payment Awards (Deloitte (DART))
2. Hiro Systems PBC, Form 1-K for fiscal year 2022 (Part II) (U.S. SEC (EDGAR))
3. IFRS 2 Share-based Payment (IFRS Foundation)
4. IAS 19 Employee Benefits (IFRS Foundation)
5. Frequently asked questions on virtual currency transactions (IRS)
6. 26 U.S. Code § 83 - Property transferred in connection with performance of services (Legal Information Institute, Cornell Law School)
7. CRYPTO21100 - Cryptoassets for individuals: Income Tax: earnings from employment - readily convertible assets (HMRC)
8. Giving digital assets to employees: the tax implications to be aware of (BDO UK)

General information for finance teams, current as of publication. Not legal, tax or accounting advice.

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