This is article 5 of 10 forming the fifth part of a series of articles dedicated to my attempt at helping Payroll & HR professionals understand the potential impact that both Blockchain and Cryptocurrencies could have on the future of Payroll & HR.
To view the earlier articles in the series – click here:
- Article 1: How will Blockchain, Cryptocurrency and DLT technologies affect the future of Payroll & HR
- Article 2: Will companies start to payroll its employees in cryptocurrency?
- Article 3: How will blockchain affect HR Recruitment Processes?
- Article 4: What are smart contracts and how will they affect payroll and HR?
Also, check out episode 09 of The Payroll Podcast with Anita Lettink, SVP of Global Alliances at NGA HR which discusses ‘Blockchain and the Future of Payroll & HR’ in considerable detail if you wish to fast-track your learning. You can subscribe to the Payroll Podcast here: Apple Podcasts
Today, I would like to help you understand what benefits blockchain could bring to the payroll industry.
So, lets start with the (in theory) obvious benefits that blockchain technology could bring to the payroll industry:
- Blockchain-based payroll systems should be more secure, and cheaper, than non-blockchain-based systems.
- The distributed ledgers are practically impossible to change once information has been entered and the data confirmed by all participants on the network.
- Transaction fees between parties should be much lower, because blockchain-based payroll cuts out the need for a middleman (usually a bank) to process payments.
- Any technology which can both speed up and simplify payroll will be of huge benefit to the millions of businesses worldwide.
Of course, blockchain enthusiasts will know all of the above which is why they are busy trying to apply their technology to this system.
Clearly, then the field is ripe for innovation. What’s not yet clear is whether blockchain is the right innovation.
So let’s examine the practicalities a little closer to see if we can get to grips with the reality.
Firstly, any company that has in excess of probably 500 employees, will likely require a dedicated payroll function that is responsible for processing payroll and potentially also for invoice management too if they are running large contractor payrolls.
As the payroll employee volumes increase, so do the risks and chances of errors occurring which can result in disputes, problems and payment delays.
Removing the possibility of human input error by using a tamper-proof blockchain like Ethereum would appear to be a step in the right direction.
In addition, it appears that the companies who will really benefit from blockchain-based payroll are those with international workforces, at least part of which are based remotely.
Because blockchain promises faster cross-border payments, less expensive cross-border payments and less error-prone payments, thus solving one of the biggest costs associated with international payroll.
Fewer errors and faster payments means fewer disputes between a company and its employees.
For companies with many international employees applying themselves to projects all across the globe, it would seem that blockchain-based payroll systems would work well.
But few serious developments have been made for companies like yours to easily integrate blockchain-based payrolls into your current systems, or to move your entire payroll away from user-controlled databases and into a blockchain system.
ADP is one of the world’s best known payroll software companies. In a report from May 2018 to the Global Payroll Association, ADP noted that it is currently investigating how blockchains could be used [link: https://globalpayrollassociation.com/blogs/latest-news/adp-and-kronos-unveil-blockchain-payroll-product-strategies]
ADP’s vice president of corporate strategy Tashina Charagi told the GPA:
“As far as blockchain applications and payroll [go], one of the first things that comes out is…not only faster cross-border payments but less expensive and less error-prone cross-border payments.”
Put that statement alongside this rather critical one, published by newswire Reuters on 13 June 2018.
“Banks are unlikely to use distributed ledgers [another word for blockchains] to process cross-border payments for now because of scalability and privacy issues, according to Ripple, one of the most prominent startups developing the technology.”
Remittances and payments
The main issue that blockchain is thought to be able to solve in payroll is remittances – sending money across international borders more quickly and without the hefty transaction fees that workers face when converting salary or contract payments back to the local currency.
International businesses with many overseas employees feel the pain of payroll more than smaller, domestic, companies.
There are the costs of currency volatility – Deloitte’s 2017 report on blockchain [link: https://www2.deloitte.com/nl/nl/pages/human-capital/articles/will-blockchain-disrupt-the-hr-technology-landscape.html] notes that:
“Hourly changes in exchange rates are routinely taken advantage of by intermediaries”. However, it continues: “So, time is money and an international payroll blockchain solution simply offers a faster solution than existing models.”
Is this strictly true? Are blockchain payroll systems “simply faster” than existing models?
Not necessarily, given our earlier focus on how the size of blockchains increase as more data is inputted.
The longer your company’s blockchain-based payroll is running, the harder it becomes – and therefore the more time it takes – to verify transactions.
The calculation of the hash function that every block requires to be added to the chain scales up in difficulty along with the size of the blockchain. Does this sound “simply faster”?
Essentially, it is clear that blockchain could bring a number of benefits to improving a payroll processing operation. However, at present, it is unlikely we will see the technology become widespread until concerns regarding privacy, scalability and integration are tested and improved.
What do you think? Please share and comment – I will try to interact with as many as possible!
Future articles in the series will include:
- Blockchain payroll companies
- How to build a blockchain-based payroll system
- When should businesses start planning for blockchain?
- Risks and costs
- Conclusion – is blockchain and crypto the future?
As always, whether you love payroll or love HR, love what you do, work smart and work hard – just be careful not to overdo it.
This article was written by Nick Day, CEO of JGA Recruitment – the leading Payroll, HR & Reward Recruitment Specialists.
Nick Day | CEO
JGA Recruitment Group
Payroll, HR & Reward Specialist Recruiters
Tel: 01727 800 377