It's not illegal, but you have to do all the paperwork the same as if you pay in USD. That means tax withholdings and all that, on a per-pay-period basis. Doing this basically means going through a payroll provider. When I had an employee we paid in BTC, we had to go through a licensed company to actually do the BTC payment to our overseas worker (Circle).

The way it worked was our payroll provider would release the paycheck in USD to Circle, who would do conversion to BTC at prevailing exchange rates same day before executing the transfer.

If we already had the money in BTC, we would have had to convert the money to USD to send to our payroll provider so they could do withholdings and all that, and then have Circle convert it back to make the transfer.

There are foreign transfer reporting requirements and rules about currency conversion at payment time so that you can't skirt paying taxes. If you try to do it yourself you're making a lot of extra work for yourself.