By all accounts, blockchain is barely making a scratch in HR right now, but it still promises to play a role in the long-term future of work.
Blockchain adoption in HR may be low right now, but blockchain applications are becoming more prevalent in financial management, which overlaps HR in areas such as payroll, according to Dana Daher, senior research analyst at Info-Tech Research Group.
Besides this constant encroachment of the blockchain into closely related functions, interest in blockchain HR technology has been growing for some time.
In a December 2019 report, “Trending Tools and Technologies in HR,” from the benchmarking association APQC, 82% of organizations were already at least somewhat familiar with blockchain, but only 11.7% were implementing the technology. HR blockchain. Interest was growing, however, with 74% considering, experimenting with or piloting blockchain.
Main use cases of blockchain in HR
A blockchain is a distributed and shared digital ledger technology in which transactions are verified and recorded in a way that makes it virtually impossible for someone to tamper with the information. This means that people who do not already know each other can share data and carry out transactions, including financial ones, without an intermediary. The main advantages are trust, confidentiality, security, data integrity and transparency.
According to APQC, the top three drivers of blockchain adoption in HR are the need to increase transaction transparency, increase transaction speed by reducing clearing and settlement times, and automate or simplify business processes.
“In the last few years alone, blockchain has surpassed the hype and has become practical applications in all areas of business,” said Daher. “For HR, the most powerful applications on the blockchain address critical HR management issues, including payroll, recruiting, employee verification, and contract management. “
Here’s how each of these blockchain applications in HR plays out, according to Daher:
1. Payroll. This is perhaps the strongest use case. Blockchain can streamline the payroll process by automating and securing payments to employees, contractors, and suppliers. A first application, proposed for the first time a few years ago by several startups, concerns cross-border payments, which entrepreneurs and workers in the “gig economy” often need. In some cases, they don’t have bank accounts, which is usually a requirement for automatic deposits from a payroll system. Traditional electronic payments can be hampered by local regulations and IT security systems that blockchain payroll systems overcome. The main HR software vendors get involved. For example, ADP, one of the largest payroll providers, has a blockchain application in development.
2. Recruitment. Applicants can use the blockchain to brand their identity and provide virtual credentials, such as transcripts, training certificates, resumes, and work history that recruiters and hiring managers can trust. ‘have not been tampered with. Finding and securely transmitting documentation is a large part of a recruiter’s workload that blockchain HR technology could dramatically streamline. Organizations often hire outside companies to perform background and information checks, another recruiting expense that could be reduced by blockchain verification. Although this blockchain HR application is still in its infancy, universities have started providing students with blockchain format records.
3. Employee data. Personal information can be encrypted and stored on the blockchain, providing immutability and a secure governance system for private information. However, as with school records, the veracity of the information stored on the blockchain depends heavily on the methods and honesty of whoever creates the initial record. Therefore, according to some experts, it is more realistic for blockchains to be the database for recording employee data in the future rather than a reliable repository of past information.
4. Contract management. Blockchain-enabled smart contracts can turn paper contracts into immutable and transparent digital contracts. Employers can use them to enforce conditions and penalties outlined in agreements with employees and contractors.
“Employment contracts are one of the areas where blockchain can be used, along with background and reference checks,” said Scott Hirsch, CTO and co-founder of TalentMarketplace, a recruiting platform based on the AI for tech companies. “The best use cases are where external verification and immutability is required. “
Another potential use for blockchain contract management features is improving the speed and efficiency of benefit administration processes.
“Blockchains can also be used to execute benefits, events or payments,” wrote human resources expert Riia O’Donnell in an article on HR Dive. “When an employee becomes eligible for health coverage, [blockchains] could be used to initiate delivery; when a probationary period is satisfied, the blockchain can trigger a salary increase. It could even be used to administer employee contracts, such as non-compete. “
5. Personal blockchains. As blockchain seems destined to be pinned down to internal HR functions, an unexpected twist is on the horizon.
A very different and significant use of blockchain in HR will come from the employees themselves, according to the APQC report, which predicts that employees will soon control personal blockchains that “encompass their entire professional identity, including grades, diplomas, employment history, employee appraisal. data and training.
Employers would need permission to access and add to an individual’s private blockchain. Employees could provide employers with access keys and then revoke the keys when they leave the organization to maintain control of their personal records. According to the report’s authors, Blockchain HR technology used in this way would work effectively as “valuable passports” that employees could take anywhere and continue to build throughout their careers.
“HR would be able to verify employee data in hours or even minutes rather than days, which would reduce costs and cycle times for processes like onboarding and recruiting,” said they wrote.
Challenges for blockchain adoption in HR
Given the obvious benefits, what do HR experts think is holding back blockchain adoption in HR?
“For starters, HR is usually a bit behind when it comes to technology adoption, and if you add that to the complexity of implementing blockchain, you have a major hurdle,” said Hirsch. “At this time, blockchain is still not a popular solution for many business applications, so the infancy of the technology could also be a hindrance.”
Beyond these broad opposing forces lie other obstacles and resistances. Operational risks can be classified into the following four categories, according to Daher:
- Cyber security. The blockchain is still vulnerable to endpoint data vulnerabilities that hackers can exploit to intercept data during transmission, posing risks to HR professionals who process personal information and financial transactions.
- The risk of compliance. Blockchain still lacks regional regulatory standards, which exposes organizations to financial loss and legal penalties for violating employee rights and failing to comply with legal frameworks, such as the General Data Protection Regulation. of the European Union.
- Counterparty risk. Third-party vendors often need to be enlisted to facilitate blockchain transactions. The trust provided by a blockchain is thus extended to the applications and websites of these providers, which may not be as secure as the blockchain.
- Data confidentiality. For HR, the biggest internal risk factor is the human component. Employees may not yet think it is safe to store personal information in a distributed ledger.
The essentials on blockchain in HR
While blockchain holds great promise for employers and employees, it is still in its infancy.
“The blockchain has the potential to radically transform the HR function, touching everything from the administration of benefits and the control of sensitive employee data to how HR transactions are carried out,” said Elissa Tucker, senior manager of research at the APQC for the management of human capital.
Nonetheless, “despite these advantages, blockchain is still an emerging technology for HR, with few HR managers reporting that their HR function is already using blockchain,” she said.