Five Promising Ways to Use Blockchain in Human Resources

Blockchain is slowly but surely arriving in HR. For Dana Daher, an analyst at Info-Tech Research Group, the adoption of distributed ledgers in the digitalization of human resources is still tentative, but the technology is gaining more and more ground in financial management, an area that intersects certain HR functions such as payroll. But even beyond these overlaps, the blockchain is arousing a certain interest in HRDs and among HRIS publishers.

Principles and interests of blockchain for HR

Architecturally, a blockchain is a distributed and shared ledger (a ledger) between nodes (members of the blockchain), in which transactions are verified and recorded by the nodes in the chain, from so that the writings are unalterable (unless you have control over the majority of the nodes).

In terms of use, the blockchain allows people who do not know each other to share data and carry out transactions, primarily financial, without an intermediary or trusted third party (it is the blockchain that plays this role).

Its main advantages are trust (or more precisely the lack of trust between members is no longer an issue), security and integrity, and data transparency.

The three main drivers of blockchain adoption in HR are:

  • the increased need for transparency at the transaction level,
  • the need tospeed up transactions reducing clearing and settlement times,
  • and the usefulness of process automation and simplification job.

“In HR, the most relevant applications of the blockchain will concern the management of critical issues such as payroll, recruitment, background checks or contract management”, foresees Dana Daher.

Summary of the 5 major promises of blockchain for human resources management and HRIS

Relevant applications of blockchain in human resource management

Here are 5 possible applications of blockchain in HRM:

  1. Paid. This is arguably the most promising use case. By automating and securing payments made to employees, subcontractors and suppliers, blockchain streamlines payroll management. One of the first applications, proposed a few years ago by start-ups, is cross-border payment, often requested by subcontractors and freelancers in the “gig economy”. This type of payment makes up for the possible absence of a bank account, essential for the automatic transfer of pay. Blockchain pay replaces traditional electronic transfers, which are sometimes prohibited by certain laws or by certain IT security systems. Major HRIS software publishers are interested in it. ADP, for example, is developing a blockchain application.
  2. Recruitment. Job candidates can use a blockchain to provide reliable and certified information (diplomas, CVs, etc.) to recruiters. Blockchain can facilitate the verification and secure transmission of these documents. It also makes it possible to avoid the usual recourse to subcontracting to carry out these verifications, thus reducing costs. This blockchain application is recent, but schools like EM Lyon are already starting to deliver their documents to students in this form.
  3. Employee data. Personal information can be encrypted and stored in a blockchain, which makes it unalterable and provides secure governance. But the authenticity of the information, of course, depends on the veracity of the original record. For this reason, some experts view the blockchain as a database of employee information, to be continually updated, rather than a reliable repository of past information.
  4. Contract management. The blockchain makes it possible to establish “smart contracts”: sorts of “triggers” (or triggers), which cannot be modified, which automatically activate a procedure when pre-established conditions are met.

At the end of a conclusive trial period, a smart contract can, for example, trigger a salary increase. Blockchains could even be used to manage certain clauses such as non-competition clauses.

Smart contracts can be used in many ways by employers to enforce contractual terms (and penalties) with employees or contractors. They can help speed up human resources administration processes and improve their efficiency.

  1. “Personal” blockchains. A novel use case for blockchain is on the horizon. It is called “personal blockchains”.

Personal blockchains encompass the entire professional identity of an employee (transcripts, diplomas, professional background, evaluation and training). Employers to access these personal blockchains (which should not be confused with private blockchains) to consult or complete them, with the authorization of their owner.

Employees will be able to grant them access keys and terminate them when they leave the company, in order to keep control of their personal information. This use of blockchain in HR could give rise to “professional passports” that employees would have with them constantly and which they could enrich throughout their working lives. For their part, HR managers could verify employee data in hours or even minutes.

Barriers to Blockchain Adoption in HR

Blockchain holds great promise for HR teams, but it also poses challenges. Here are the most predictable obstacles to its use.

For Gartner, the majority of blockchain applications in HR will be mature in 2 to 5 years.

The first obstacle is that the blockchain is a technology that is not trivial. Deploying one is an exercise that can still be scary today. However, this difficulty must be qualified. There are indeed now more and more turnkey offers – a private blockchain is not that complex –; it is possible to use a public (or semi-public) blockchain in B2B that does not have to be deployed, and finally publishers are increasingly infusing functionalities that rely on the blockchain directly into their HRIS.

A second obstacle is a certain immaturity of technology. The Gartner firm estimates that the majority of the blockchain applications mentioned in this article are still in advance of the phase and will only be truly democratized in 2 to 5 years.

Dana Daher of Info-Tech Research Group categorizes blockchain operational risks into 4 categories:

  1. Cybersecurity. The blockchain is still vulnerable to data leaks, whether on the endpoints (the users) or in the code (several thefts of digital assets have made the headlines). This point must be addressed when dealing with sensitive data – personal and financial transactions.
  2. Compliance Risks. For now, the blockchain is floating in a legal limbo, which exposes companies to legal penalties for not respecting the rights of employees in terms of data management. The compliance of a particular blockchain with the GDPR, for example, must be studied closely with the legal department.
  3. Counterparty risk. External partners must access the blockchain to facilitate exchanges or transactions. The level of trust in the blockchain therefore also depends on the level of trust that one can have in the applications and information of these partners.
  4. Data Privacy. For HR, internal mistrust is also a risk factor. Not all, and not always, employees welcome blockchain with open arms. The origin of the technology – which comes from cryptocurrencies (very volatile and sometimes used in dubious operations) – continues in the minds of some to give it a bad reputation. This judgment is unjustified today – blockchain technology in B2B is decorrelated from cryptoassets – but this distrust must be dealt with by appropriate support, like any technological change.

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