If you are in payroll, you need to get familiar with the benefits of blockchain. It won’t directly affect your work today, but it will make an impact in the future. How near? That depends on where you work. Let’s explore the benefits of blockchain.
Most people think of bitcoin. Cryptocurrencies, like bitcoin, make headlines as the most prominent use of blockchain technology. Blockchain technology enables bitcoin. But blockchain is so much more. Let’s take a closer look at the benefits of blockchain.
Think about how an employer pays employees today. After payroll runs, a bank file, containing all payments, is created and sent to the bank. The bank processes this file and takes money out of the employer’s bank account. Next, funds flow, in the form of deposits, into employee accounts. A transfer takes several days to complete. In some countries, employees receive paper checks, which they must take to the bank to receive their money.
In both cases, a bank acts as a trusted middle-man tasked with moving money around. The bank stores information about each account in a database on its servers. However, the bank charges a fee for the transaction, since it is not a charitable organization.
While money moves between accounts, it’s unclear where the money resides or how long it takes. Adding to the mystery, end-users can’t check the validity or security of the underlying databases. Employers and employees trust the bank to ensure accuracy and security.
But, what if new technology removed the “trusted third-party” from the equation? Also, the authenticity of each transaction is securely captured and validated?
Blockchain handles these tasks with ease. Blockchain builds a secure and trusted ledger across a decentralized infrastructure, also called Distributed Ledger Technology (DLT). When someone makes a transaction, the technology alerts all parties in the network (nodes). They validate and approve it.
The data is encrypted and anonymous to those who aren’t directly involved in the transaction. Once the transaction is complete, a new block is created and added to the existing chain of transaction records. That’s why it’s called blockchain.
The hash or signature of previous blocks is added to the current block and then encrypted. Along with other factors, encryption prevents tampering. Also, the blockchain provides a permanent and transparent ledger, ensuring that the historical record of data becomes unchangeable. The distributed ledger guarantees the security of this technology.
When data changes, all nodes receive a fully synchronized copy of the data – and so each member is essential in establishing the integrity of every transaction.
Blockchain replaces a centralized version. Requirements make it difficult to hack. An intruder wanting to break into that system must break in on all the same blocks on all nodes at the exact same time, which is virtually impossible. Distributed ledgers can be public or private and vary in structure and size.
All transactions are captured, but instead of storing them in a centralized database (remember the bank), transactions are encrypted, and an update is sent across the decentralized network.
Every time a transaction takes place, the blocks are updated, so the chain accurately reflects the change. And because transactions are recorded as a ‘public ledger’, every user of the blockchain can trust that the blocks are secure.
Let’s revisit the payroll example above. How would DLT change salary payments?
When your employees live in the same country, the process is straightforward. You issue bank payments. Payroll complexity increases when you need to make cross-border payments to expat employees.
Wait times stretch longer when money travels via the banking system from one country to the next. When you send a check, the employee pays a fee to the bank to cash it. Also, the bank charges additional fees to handle exchange rates. Because of these complexities, companies typically engage 3rd parties to handle international payments.
When using blockchain, you can achieve the following benefits:
An employer enters into a smart contract stored on DLT. Then, when the work is delivered, the payment happens immediately. Same day payments are important for these workers, as they want to be paid in real-time to eliminate dependency on payday lenders.
And same-day pay is not limited to these workers. Permanent employees welcome the flexibility to receive instantaneous payments too.
A further benefit is that blockchain allows payment to people who don’t have a bank account. An estimated 2 billion people, across the globe, lack an account. These individuals could create a digital bio-identification straight from their smartphones. They’d use that to access a digital wallet platform and accept payments.
As often with new technologies, it takes a while for governments to catch up.
Paying for work is subject to taxation, social security and other contributions and regulations. In many countries, it’s illegal to pay someone who does not have a bank account or use a payment system that is not visible to the authorities for reasons of fraud detection. While it’s good to experiment with new technologies like blockchain, always verify that you are compliant.
The examples above give you some background on the benefits of using DLT in the payroll process. As global payroll provider, NGA HR is piloting several use cases on DLT. This ensures that we take full advantage of this exciting technology in our client service delivery. Johan Bosschaerts, SVP Technology, Innovation and Solutions, adds the following insights:
If you take the payroll process, security is fundamental, but security is only as strong as the weakest point in the whole chain. So, when you redesign the payroll process on DLT, it’s crucial to apply security consistently throughout the whole process.
In the case of payroll, from the moment NGA HR receives data via the client’s cloud HRIS, DLT enables us to put this data in a secure and trusted ledger. Next, all events are logged so they can’t be changed. We can also introduce contextual access security, depending on access keys. The data processor and the client or employer each have different keys allowing specific access.
Similarly, when an employee calls with a payroll question, they can use their key to allow the service agent read-access to the data. When the call ends, and the agent closes the tickets, the access is revoked.
Throughout the whole payroll lifecycle (except for the black box payroll run itself), employee data and transactions are only stored in and referenced via the ledger. This ensures single data storage, that all dependent systems, like MyHRW (case management system) or PEX would reference to.
So instead of copying data between systems and holding copies in a number of databases, the DLT would work as a trusted source of data that is referenced by other systems when data access is required. In redesigning the payroll process using DLT, NGA HR can provide a secure service to clients, who can trust that PII (Personally Identifiable Information) is in authorized hands.
While NGA HR is exploring blockchain/DLT as a promising technology for payroll, we are also pursuing other use cases in the HR domain, like for personal data and recruitment. Watch for more details in a future blog post.