innovation blockchain in HR: interesting use cases for human resources

One of the first challenges HR professionals face is understanding the fundamentals of what blockchain is and how it functions. Simply put, a blockchain is a distributed digital public ledger used to keep track of records. The term block is simply another word for record. A blockchain, at its core, is simply a chain of records. Blockchain is special and distinct from other recordkeeping systems because it relies on a distributed ledger, meaning the chain of records is subsequently stored across a large network of independent computers. This decentralizes and encrypts the data, making it safe and secure.

The high level of security makes blockchain technology a good match for the HR industry, which is often charged with managing large amounts of sensitive data about a company and its employees.

Despite all the ways blockchain technology could potentially disrupt human resource management, HR teams need not panic. There is still some time to prepare for the coming blockchain revolution—and the technology has a strong track record of success in the industries it has touched so far. For example, banks can now reduce infrastructure cost by 30% through blockchain solutions. This is achieved by encrypting millions of storage points, none of which contain a full name or an account number.

While just 0.5% of the global population is currently using blockchain technology, the demand is rising and it is expected that 80% of the population will be involved with blockchain technology in some capacity within 10 years. For HR teams, the mainstream adoption of blockchain could unlock value and benefit for employers and employees alike, starting with the ability of hiring managers to put the right people in the jobs.

To show how it could work on both sides of the employer relationship, blockchain can enable individuals to maintain, secure and offer controlled access to a comprehensive blockchain-driven digital ID that includes critical information about them to employers. This could include education, skills, training and professional performance. Through this digital ID, individuals would be able to turn their credentials into real value in the employment market while employers are able to identify the right employees more accurately and effectively through data-driven insights.

If its success in banking and supply chain is any indication, blockchain is poised to innovate the ways we manage human capital in many different capacities.      Now is the time that the industry is piloting and envisioning various use cases.

1.  Strengthen security for sensitive personal & financial data.

HR teams are tasked with conducting some of the highest-volume financial transactions for an organization as well as handling sensitive employee data related to pay, healthcare, finance, banking, disciplinary records, performance records, expense reimbursement, and more.

All of the data an HR department maintains is at risk of being exploited and, as more companies face data breaches, it is of utmost importance that safeguards are in place to prevent fraud and maintain security. In the face of rising cybersecurity crime, blockchain technology is being lauded as a solution.

Blockchain’s role as a game-changer for human resources is defined by its security capabilities. In fact, blockchain has proven itself to be so effective for risk management and software security that even aerospace and defense giant Lockheed Martin is using it.

Implementing blockchain can help thwart both internal fraud and external hacks of sensitive employee records. Access to the blockchain is limited and controlled and even those with access can’t arbitrarily make changes to the record. This limits both internal fraud and external hacks of sensitive employee records.

With the rise of the Internet of Things (IoT) in HR, there is growing concern as hackers often get in the door by strategically exploiting weaknesses in edge devices. The vigilance applied to computers is often neglected when ensuring the security of IoT devices, leaving organizations vulnerable to hacks. Blockchain offers strong protections against data tampering by locking access to IoT devices and shutting down compromised devices within the IoT network if a security event is suspected.

Blockchain serves to effectively decentralize data as a key defense against hacks and fraud. Data is part of a company’s currency in the digital age. It is fast becoming one of the most prized assets a company has. If you store all your jewelry, cash and other valuables in one location of your home, what happens if a burglar enters your home and finds this location? Because blockchain spreads data across a large network of computer storage spaces, it is like placing your most valuable belongings across a multitude of locations to mitigate your risk of being severely impacted or wiped out by a single hacking event.

2.  Improve recruiting processes, verification of job qualifications & background checks.

Whether we call it lying, embellishing or stretching the truth about work history, we know that sometimes what you see on a candidate’s CV is not always what you’re getting. A reported 75% of HR managers have identified a lie on a CV. With nearly 20% of hiring managers also reporting they spend less than 30 seconds looking at a CV, it is impossible to know how many fabrications actually go undetected.

Perhaps the greatest advantage that blockchain can offer is trust in the veracity of its data. In current recruitment systems, it is difficult to determine the accuracy of a potential employee’s work and education history. Even the most seasoned recruiters can be deceived by a candidate’s falsified employment history and education credentials.

Traditionally HR managers have relied on CVs, which applicants can modify and embellish. While LinkedIn and reference calls can be used to verify some information, these methods only provide a thin layer of verification. Additionally, these analog processes can also be time consuming and a hassle.

As many HR professionals can confirm, conducting a traditional background check can be slow and expensive. It can also place a burden on candidates, requiring numerous forms to be filled out. Blockchain can reduce the labor and expense currently associated with background checking.

Although blockchain cannot guarantee all inaccuracies or exaggerations will be detected, it can effectively reduce incidents. It also provides employers with the most accurate snapshot of a candidate’s credentials and background.

The benefit of blockchain is also passed on to candidates in the form of confidence, allowing them to apply to roles that they know they are qualified for. It also mitigates the concern that other candidates might be getting ahead of them by applying to the same job with fraudulent resumes and qualifications. This transparency levels the playing field for all candidates

3.  Streamline payroll, contractor payments & vendor tracking.

One of the most common use cases for blockchain HR involves a company’s largest expense and the process that employees appreciate the most: payroll. Blockchain has the power to replace many of the manual tasks and eliminate time lags within current payroll systems. Blockchain also offers ‘smart contract’ solutions that allow a company to automate and secure payments to contractors and vendors.

Global companies in particular could enjoy benefits with blockchain when it comes to issuing cross-border payroll to employees in overseas jurisdictions. Blockchain automatically sifts through exchange rates and communicates with intermediary banks so employees can be paid quickly—and at a lower cost to employers in the long term.

Through smart contracts, some organizations are using blockchain to pay out employees, contractors and vendors. In fact, it is reported that 45% of early adopters of blockchain are already implementing smart contracts within their organizations.

A smart contract writes out in code a set of parameters using statements in ‘if this, then that” (IFTTT) language. These contracts can be designed so that, once put in motion, the payment process is made entirely dependent on these codes. It is also made irreversible unless of course terms of a contract need to be updated.

When a certain number of hours of work have been completed (this would be a potential ‘if this’ variable), the smart contract automatically pays the employee, contractor or vendor the correct payment (a ‘then that’ variable) by deploying the ascribed piece of remotely executable code. This code is linked to an instruction from the company’s bank account to the contractor’s bank account, which ultimately facilitates the payment.

HR would not need to contact their company’s bank or do a monthly payment run. Instead, the transparent, real-time blockchain ledgers help track invoices and facilitate distribution, billing and reporting of transactions. There is also no need to wait for the usual payroll processing time.

The smart contract functions as a guarantee that work is completed and that the payment will make it to the employee, contractor or vendor properly and in a timely fashion.

4.  Automate taxes & mitigate the strain of audits.

Taxation plays a critical role in the life of a business or an individual. For HR professionals, constantly evolving tax laws and regulations across jurisdictions ensure they often have their hands full properly issuing taxes. Payroll taxes are then only further complicated by other factors like bonuses, commissions, overtime pay, back pay, accumulated sick time pay, human resources expenses, and beyond.

Blockchain’s keen ability to record and update employee tax considerations and provisions automatically is catching the attention of the HR industry. By wielding the capability to streamline and secure the taxation process, it is likely that blockchain-powered platforms will become the record of choice for HR departments around the globe.

Speaking of taxes, no business wants to be hit with an audit but it does happen. Audits are so daunting that it has actually held back countless businesses that only feel comfortable maintaining physical record systems, despite the time, energy and money they require to properly upkeep.

If presented with an audit, having blockchain technology already in place is like having a life preserver thrown out to you while you’re struggling to stay afloat in choppy waters. The blockchain makes it easier for a business to sustain an audit because it can securely share its records with regulators in near real-time. The time and cost spent for document collection is subsequently reduced drastically. Furthermore, the blockchain’s cryptographic hashes and source verification build a strong barrier against document manipulation and fraud.

5.  Enhance employee experience with better access to benefit packages & a dynamic expense reimbursement system.

HR and employees alike will appreciate blockchain’s ability to expedite access to benefits packages. Once employers outline the terms of employment prior to hiring, it is HR’s responsibility to uphold the conditions in the contract. The traditional model requires manual implementation of provisions that might impact an employee’s benefits package, running risks of errors or preventing proper delivery of benefits.

Inputting these terms into blockchain technology instead allows HR to seamlessly deliver upon these benefits. For example, if a company outlines that an employee’s healthcare benefits are due to kick in after a 90 day waiting period, the blockchain technology can be engineered to implement those benefits at the right time. Again, this is coded through the same IFTTT language that governs smart contracts.

Apart from healthcare benefits, Blockchain can potentially offer a more robust approach to pay scales by applying defined salary increases for identified skills or key capabilities that are deemed valuable to the company. They can also administer performance-based bonus awards to employees in a more measurable, data-driven way.

Blockchain expands on the employee experience even in the realm of expense reimbursement. In its current format, reimbursing employees can be nebulous and time consuming. For employees, they are often forced to wait for paperwork to go through and checks to clear. For HR, it can also create pain points and expend time and energy.

Blockchain is disrupting the expense reimbursement scene by allowing organizations to create their own company currency. In developing an individualized cryptocurrency unique to their company, organizations will reduce expenditures associated with the current expense reimbursement process: elimination of processing fees, accounting for international exchange rates, reducing in-house HR staff, etc. This also appeals to both parties in the transaction and provides corporate mobility, with businesses now having the ability to easily reimburse between various jurisdictions.

With current reimbursement system, there is an ongoing conflict between employer and employee about what should be compensated, what should not, how, when, etc. Blockchain-led solutions ensure transparency, with all company-funded transactions linked into the blockchain network.

Though initially cultivated in the cryptocurrency industry, blockchain is branching out into the world of work. There are many potential uses for blockchain technology, which could disrupt hiring, payroll, taxation, benefits administration, data storage, and so much more. Despite current challenges in cost and scalability, the case for blockchain HR is strong.

Promoting transparency and trust in company processes are two priorities for HR professionals as they manage human capital and face a competitive hiring landscape. While the technical performance of blockchain technology and its ability to encrypt and offer laser sharp accuracy are hardly up for debate, blockchain’s success will ultimately depend on how well it is able to infuse trust and transparency into an organization’s operations.