Blockchain technology is still a relatively new concept that can be complicated and difficult to understand. Most people who have heard of blockchain associate the technology with cryptocurrencies like Bitcoin or Ethereum. However, blockchain technology can potentially impact many different industries. One of the largest industries that is primed for disruption by blockchain is the payroll industry.
What is Blockchain?
In order to understand how blockchain can transform the payroll industry, first we need to understand what blockchain is. Blockchain can be described as a decentralized, encrypted public ledger running across a peer-to-peer network. On this network, data is organized in groups called “blocks” and a “chain” of blocks is formed as more and more data is stored (hence the name). Unlike typical data storage practices where the data is kept on one server and owned by one company, this data is stored publicly on the blockchain. Blockchain technology relies on sharing information across users. Since all transactions occur on this public medium, users keep ownership of their data and decrease the risk of security breaches.
How can Blockchain be Used in Payroll?
Blockchain technology is primed to impact the payroll industry. In such a heavily regulated industry like payroll, a transparent system like blockchain can reduce errors and save time. Blockchain can drastically alter many aspects of the payroll industry like time and attendance services, payroll administration, payment options, benefits administration, fraud protection, workforce scheduling, tracking employee training, certifications, licenses, and much more.
Blockchain is also being tested and used for real time payments, both domestically and internationally. While a payment process is already developed for domestic workers, the process is still lagging. Why is it that in a new world of convenience, that we must wait at least a week or longer to receive payment from work? Blockchain technology will allow people to get paid the same day or even hour that they worked.
Blockchain backed real time payments will have an even larger use for international firms. Complex cross border payments often bring new challenges and regulations. Many large multinational firms have resulted in using third party providers to handle their international payments. Blockchain removes the banks and middlemen from the process while ensuring the authenticity of each transaction is securely captured and validated.
An additional benefit of blockchain includes providing alternative payment methods for employees. For example, some international workers may have trouble getting access to a bank account depending on the country they are from or work in. Blockchain can solve this issue by sending money to anyone on the peer-to-peer network, regardless of having a traditional bank account.
Blockchain can also make significant contributions to the gig economy workers such as freelancers and contractors, for whom cash flow often represents a real challenge. Employers will have the ability to enter into a “smart contract” that is stored on the ledger, enabling the employer to make payments instantly once the work is finished.
Blockchain technology is still experiencing growing pains in the market today, but it’s clear that it will certainly transform the industry in the near future. Blockchain offers an efficient, streamlined way of moving funds around the world without using banks and experiencing high transaction costs, saving employers tons of money. But because blockchain is both encrypted and distributed, the technology also ensures that transactions are more secure, a situation that could result in reduced payroll fraud.
What are the Risks?
Like most emerging technologies, there are still some initial challenges to face:
Blockchain is designed to be the most secure system for moving money around. Since blockchain is decentralized, all transactions are public, and no one can secretly make changes. However, due to the design of the blockchain technology, if hackers gain more than half of the blockchain computing power, in theory they can assume control of the entire blockchain. Hackers 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. However, as time progresses and new technologies emerge, who knows what techniques could be used to hack the system
Blockchain technology is facing many legal and jurisdictional questions:
o How to regulate it in different countries?
o Who is responsible in case of a dispute or conflict resolution?
o Do smart contracts have the same legal obligations of traditional contracts?
o What happens if you stop using blockchain and you don’t have a copy of the data?
Each country regulates blockchain technology differently. Each new political leader could either support or oppose blockchain technology and pass new laws accordingly. Some governments have even made cryptocurrencies illegal in their jurisdiction.
Blockchain poses two prominent issues being the effect on the environment and enabling crime. Copious amounts of computing power is needed to run blockchain which could have a direct impact on the environment. Likewise, cryptocurrencies are the payment choice for illegal activities. Using the dark web, criminals can buy and sell illegal items like weapons, drugs, etc. anonymously with untraceable financial transactions.
Blockchain is the Future
Despite the risks of blockchain, benefits for both employees and employers are evident. Blockchain will soon take over the payroll industry with its efficient and streamlined transaction speed and security. Aligning your business with a trusted partner will help navigate through changing waters.
Partnering with a PEO like CornerstonePEO may be in your best interest. We administer millions of dollars worth of payroll a year. CornerstonePEO covers everything from HR and employee benefits to payroll and workers comp. Our industry leading PEO services offer innovative, cost effective, easy to understand business solutions for companies of any size and industry. Contact us to learn more.