By all accounts, blockchain is barely making a scratch in HR at the moment, but it still promises to play a role in the long-term future of work.
Adoption of blockchain in HR may be low now, but blockchain applications are increasingly prevalent in financial management, which overlaps with HR in areas such as payroll, according to Dana Daher, senior research analyst at Info-Tech Research Group.
Besides this steady encroachment of blockchain in closely related functions, interest in blockchain HR technology has been building for quite 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 blockchain HR technology. However, interest was growing, with 74% either considering, experimenting with or piloting blockchain.
Top use cases for blockchain in HR
A blockchain is a distributed, shared digital ledger technology in which transactions are verified and recorded in a way that makes it virtually impossible for someone to tamper with information. That means people who don’t already know each other can share data and conduct transactions, including financial ones, without an intermediary. The main benefits are trust, privacy, security, data integrity and transparency.
According to APQC, the top three adoption drivers of blockchain in HR are the need to increase transactional transparency, increase transaction speed by reducing clearing and settlement time, and automating or simplifying business processes.
“In the last few years alone, blockchain has progressed beyond hype and into practical applications in all areas of the business,” Daher said. “For HR, the strongest applications of blockchain address critical HR management issues, including payroll, recruitment, employee verification and contract management.”
Here’s how each of those applications of blockchain in HR play 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 vendors. An early application, first offered a few years ago by several startups, is cross-border payments, which contractors and “gig economy” workers often require. In some cases, they lack bank accounts, which is usually a requirement for automatic deposits from a payroll system. Traditional electronic payments can be stymied by local regulations and IT security schemes that blockchain payroll systems overcome. Major HR software vendors are getting involved. For example, ADP, one of the biggest payroll providers, has a blockchain application in development.
2. Recruitment. Candidates can use blockchain to tokenize their identity and provide virtual credentials, such as college transcripts, training certificates, resumes and work histories that recruiters and hiring managers can trust have not been tampered with. Chasing down and securely transmitting documentation is a big part of a recruiter’s workload that blockchain HR technology could streamline significantly. Organizations often hire outside companies to perform background checks and verify information, another recruiting expense that could be reduced by blockchain verification. While this HR application of blockchain is still nascent, universities have begun providing students with records in blockchain format.
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 educational records, the veracity of information stored on the blockchain depends heavily on the methods and honesty of whoever creates the initial record. Therefore, some experts say, it is more realistic for blockchains to be the database of record for employee data going forward than a reliable repository of past information.
4. Contract management. The smart contracts that blockchain enables can transform paper contracts into immutable, transparent digital contracts. Employers can use them to enforce the terms and penalties outlined in agreements with employees and contractors.
“Employment contracts is one of the areas where blockchain can be utilized, as well as background and reference checks,” said Scott Hirsch, CTO and co-founder of TalentMarketplace, an AI-powered recruitment platform for tech companies. “The best use cases are ones where external verification and immutability are required.”
Improving the speed and efficiency of benefits administration processes is another potential use of blockchain’s contract management features.
“Blockchains also can be used to execute benefits, events or payments,” wrote HR expert Riia O’Donnell in a post on HR Dive. “When an employee becomes eligible for health coverage, [blockchains] could be used to initiate the benefit; when a probationary period is satisfied, the blockchain can trigger an increase in wages. It could even be used to administer employee contracts, like non-competes.”
5. Personal blockchains. While blockchain seems destined to be pinned to HR’s internal functions, an unexpected twist is appearing on the horizon.
A very different and significant use of blockchain in HR will come from employees themselves, according to the APQC report, which predicted that employees will soon control personal blockchains that “encompass their entire professional identity, including academic transcripts, credentials, work history, employee review data and training.”
Employers would need permission to access and add to an individual’s private blockchain. Employees could provide access keys to employers and then rescind the keys when they leave the organization to maintain control over their personal records. Blockchain HR technology used in this way would effectively function as “value passports” that employees could take anywhere and continue to build throughout their careers, according to the report’s authors.
“HR would be able to verify employee data within hours or even minutes rather than days, which would reduce costs and cycle times for processes like onboarding and recruiting,” they wrote.
Challenges for blockchain adoption in HR
Given the clear advantages, what do HR experts think is holding back adoption of blockchain in HR?
“For starters, HR is typically a bit of a laggard when it comes to technology adoption, and if you add that to the complexity of blockchain implementation, you have one major obstacle,” Hirsch said. “As of now, blockchain still isn’t a widespread solution for many business applications, so the infancy of the technology could be an obstacle as well.”
Beyond these broad opposing forces lie other obstacles and resistance. The operational risks can be broken down into the following four categories, according to Daher:
- Cyber security. Blockchain is still vulnerable to data vulnerabilities from endpoints that hackers can exploit to intercept data during transmission, which poses risks to HR professionals who deal with personal information and financial transactions.
- Compliance risk. Blockchain still lacks regional regulatory standards, which exposes organizations to financial losses and legal penalties for failing to respect employee data rights and comply with legal frameworks, such as the European Union’s General Data Protection Regulation.
- Counterparty risk. Third-party vendors often have to be enlisted to facilitate blockchain transactions. The trust provided by a blockchain is thus extended to those vendors’ applications and websites, which may not be as secure as the blockchain.
- Data privacy. For HR, the biggest internal risk factor is the human component. Employees may not yet feel it is safe to store personal information on a distributed ledger.
The bottom line on blockchain in HR
While blockchain packs a lot of promise for employers and employees alike, it is still very much in its infancy.
“Blockchain has the potential to radically transform the HR function, touching everything from benefits administration to control over sensitive employee data to the way that HR transactions are carried out,” said Elissa Tucker, APQC’s principal research lead for human capital management.
Nevertheless, “in spite of these benefits, blockchain is still an emerging technology for HR, with few HR leaders reporting that their HR function was already using blockchain,” she said.