What is blockchain?
Blockchain technology is a relatively new concept and can be complicated and difficult to understand. In the recent CIPP research survey report “Future of Payroll” is written that only 15.75% of the respondents of their survey have heard about blockchain and its potential impact on payroll.
So what is blockchain exactly?
Blockchain is defined as a decentralised, encrypted public ledger for organising groups of data called “blocks”. A “chain” of blocks is formed as more data is stored. However, instead of the data being kept on one server and owned by one company, the data is stored across a peer-to-peer network. It’s the backbone technology for the digital currency (or “cryptocurrency”) bitcoin. Blockchain technology relies on shared information. All transactions are public, which gives you ownership of your data and decrease the risk of security breaches.
How can blockchain be used in global payroll?
Blockchain technology is poised to impact many industries such as banking, finance, insurance, accounting, real estate, etc. In a highly regulated industries such as HR and payroll, a transparent system like blockchain can reduce discrepancies and save time. In HR for example, blockchain has the potential to speed up the hiring process as recruiters can easily verify a candidate’s credentials in a highly secure way without having to contact third parties.
In payroll, Blockchain can be introduced in various instances, time and attendance services, payroll administration and payment options, benefits administration, fraud protection, workforce scheduling, tracking employee training, certifications, licenses, and many more.
Blockchain is also being explored as part of the solution for real-time international payments. The payment process for employees who are all based in one country is straightforward but as companies scale internationally, complex cross boarder payments bring new challenges. For this reason a large portion of multinational employers engage third parties to handle their international payments. Blockchain removes the banks from the process while ensuring the authenticity of each transaction is securely captured and validated.
Blockchain won’t directly affect payroll today, but it will certainty make an impact in the near future. Blockchain offers quick, safe and secure ways to move money around the world without the need of banks and their high fees. Banks would no longer be required to act as independent third parties to verify financial exchanges, saving multinationals significant amounts of money. Further benefits of blockchain include providing alternative payment options to employees, for example international payments to relocated employees who may not have a bank account or redirecting employees’ payments to family members based overseas with little or no remittance fees. Real-time tax calculation and collection, and real-time (per minute or hour) payments for employees are positive impacts blockchain can bring to the global payroll process.
What are the risks?
Like most emerging technologies, Blockchain still has some initial challenges to overcome:
- Security issues- The security benefits of blockchain technology comes from its decentralised nature. All transactions are public and no one can secretly make changes. But due to the design of blockchain technology, the risk of a so called 51% attack is high. If hackers gain more than 50% of blockchain computing power, in theory they can assume control of the entire blockchain. When data changes, all parties receive a copy of the data, so each member is essential in establishing the integrity of every transaction. Intruders attempting to break into the system, must break into all the same blocks on all parties at the exact same time, which is virtually impossible.
- Privacy issues- Privacy is a considerable concern when using blockchain in the payroll industry. Both public and private blockchains often contain metadata, which could present an issue with data privacy and The General Data Protection Regulation (GDPR). There are many differing opinions on the regulation of cryptocurrency and blockchain technology, some of which we will go into in further detail in our upcoming articles.
- Legal issues- Blockchain technology is facing many legal and jurisdictional questions:
– How to regulate it in different countries?
– Who is responsible in case of a conflict resolution?
– Are smart contacts (pure computer code) same as definition and obligations to traditional contracts?
– What happens if you decide to stop using the service that supplies the blockchain and you don’t hold a copy of the data on the ledger?
- Regulatory issues- Regulatory uncertainty comes in many forms and has many consequences. Some governments have made cryptocurrencies illegal in their territories. Bitcoin is only entirely unrestricted in 111 of 251 countries/regions. Learn more about global bitcoin political support and public opinion here.
- Ethical issues– Blockchain technology raises some ethical issues, with the two most prominent problems being its effect on the environment and enabling of criminal activity. Enormous computing power is needed to run blockchain which will have a direct impact on environment. Increasingly cryptocurrencies are the payment method of choice for illegal activities. Using dark web websites, cybercriminals can sell banned items safely with anonymous cryptocurrencies like Monero or Zcash, money launderers can also avail of the untraceable financial transactions.
Despite the risks of blockchain technology, benefits for both employees and employers are evident. Blockchain will soon become a reality in the international payroll industry. All industries will undoubtedly face technological changes, aligning your business with a trusted partner now will help ensure you’re ready when those changes arrive.
For more information on how Payslip can help your organisation with Global Payroll, contact us today.
Schedule a Free Chat With Us Today!
- Global Payroll Association, David Woodward: “What Could Blockchain Mean For Global Payroll?”
- Balance Point: “Blockchain: How will it Impact the HR Industry?”
- HR Daily Adviser, Frank Fiorille: “The Future of Blockchain in the Payroll Industry”
- NGA Human Resources, Anita Lettink: “Blockchain, HR & Payroll: What does the future hold?”
- CIPP Future of Payroll Survey Report 2019- “Blockchain and Pay on Demand”
- Professional October 2018, Julie Lock: “Blockchain- the Future of Payroll”
- Forbes, Bernard Marr: “A Complete Beginner’s Guide To Blockchain”
- Investopedia, Luke Fortney: “Blockchain, Explained”
- Blocks Decoded, Dan Price: “5 Blockchain Problems: Security, Privacy, Legal, Regulatory, and Ethical Issues”