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Blockchain in Human Resources: 8 Practical Use Cases

  • 24 October 2018
  • Sam Mire

HR departments are typically responsible for an array of tasks, hiring not least among them. On average, it takes 42 days and costs $4,129 to hire an employee, and it’s a realistic goal to see these figures shrink significantly with astute technological adoption. The potential for savings is even greater for executive employees, which averaged a cost of nearly $15,000 per hire. Demographic changes also present new obstacles that HR departments must learn to maneuver. Millennials now account for roughly 25% of the U.S. population, and catering hiring processes to address the unique challenges of weeding out and wooing millennial employees will be a top priority for effective HR departments. Considering that 66% of millennials expect to leave their organization by 2020, hiring and retaining serious, loyal employees is more critical than ever.

The blockchain’s potential to provide a no-BS lens into one’s work and educational history will assist in the candidate sorting process, while the ability to prove ethical practices and provide prompt payment through smart contract technology is just one way that blockchain tech may enable a company to differentiate itself in attracting valued candidates. That said, the clearest benefit of the blockchain for human resources is a drastic reduction in intermediaries and realized cost savings as a result, from records acquisition to hiring, payroll, taxation, and more.

Blockchain in human resources - Practical use cases


Transparent Work and Education Histories

Blockchain use cases in human resources -Transparent Work and Education Histories

A reported 75% of HR managers have caught a lie on an applicant’s resume. However, nearly 1 in 5 hiring managers said that they spend less than 30 seconds examining a resume, which can make it easy for the majority of resume fabrications and outright lies to slip through undetected. The most common application lies are an embellished skill set (57%), embellished responsibilities (55%), dates of employment (42%), job title (34%), and academic degree (33%).

Considering that more than half of employers say they would disqualify a candidate caught lying on a resume, HR departments could use more help in vetting applicants for fraudulent claims about their pasts. A blockchain-linked database of institution-verified metadata pertaining to education, certifications, and work history would allow applicant control, and potential employers would be within their rights to request access to the metadata as a condition of employment, providing a more unified, trustworthy vetting process for HR departments across industry lines.

Companies Trying to Solve This Problem 

  • Recruit Tech – Vietnam based project building recruitment solutions on the blockchain.

Securing HR Data

Blockchain use cases in human resources - Securing HR Data

When one employee in Boeing’s HR department sent a company-related spreadsheet to his spouse in November 2016, he believed that he was doing something harmless in an attempt to get some formatting advice. What he had done was make vulnerable the personal information of nearly 36,000 Boeing employees across four states, though only 8,000 would ultimately have their data compromised.

If one of the Defense Department’s top contractors had not instilled in its employees proper practice for ensuring that sensitive HR rosters and data don’t fall into the wrong hands, you can be sure countless HR departments across the nation and world haven’t, either. And HR departments must also protect their data from inside jobs; after all, IBM found that roughly 44.5% of data breaches are carried out by malintending employees, while an additional 15.5% of those breaches are the consequences of inadvertent employee mistakes, a category that the Boeing example falls within.

Legacy security systems have proven insufficient to protect from these breaches, as approximately 63% of confirmed data breaches were the result of weak passwords. And because 89% of intentional data breaches are done for financial or espionage reasons, virtually any company, including their HR department, or individuals with money in their bank account is a potential target of a for-ransom data hack.

Once again, security pops up as one of the perks of blockchain technology. And because HR departments may be left in possession of sensitive, potentially career-ruining information, they are not above employing the blockchain to secure their files and records more robustly, both from outside threats and from those within.

Companies Trying to Solve This Problem 

  • Chronobank – Speeding up HR processes while reducing risk by leveraging blockchain.
  • Fourdx – Blockchain secured eDelivery and document exchange.

Payroll

Blockchain use cases in human resources - Payroll

66% of Americans say that they would experience financial hardship if their paychecks were delayed by just one week. This puts into perspective the critical role that payroll plays in HR processes. Yet despite the essential nature of payroll services, 54% of employers stated that their current payroll processes have room for improvement. A reported one-third of small business owners pay at least $500 per month on payroll service fees, which seems exorbitant considering how routine payment processes tend to be.

One option for blockchain adoption in payroll is the use of cryptocurrencies, especially in international payments. These allow employees and contractors to receive payment in their preferred coin and to withdraw those payments in their national currency without cross-border fees attached. This system is typically faster, and it also reduces the impact of fluctuating exchange rates that can either artificially depress or inflate employee wages in relation to their peers.

Companies Trying to Solve This Problem 

  • Peacounts  Full-service payroll on the blockchain.
  • Bitwage Blockchain solutions for outsourcing.
  • 4th Pillar – Full-service HR solutions on the blockchain.

Enforcing Compliance via Smart Contracts

Blockchain use cases in human resources - Enforcing compliance via smart contracts

HR departments in charge of compliance can expect their workload to continue growing. One report suggests that firms spend approximately 4% of revenues on compliance, and that number could more than double to 10% by 2022. 89% of compliance executives at banks, capital market firms, and insurance agencies expect the cost of compliance to rise over the next two years. Nearly half of those executives expect a rise of 10–20% in costs, while nearly a fifth expect an increase of more than 20%.

One way to mitigate these expected costs is through the adoption of smart contract technology built on the blockchain. These contracts could transmit required information and documents to regulatory bodies based on pre-specified criteria. This system would significantly decrease, if not eliminate, costly reporting delays and diminish the opportunity for document manipulation and foot-dragging. 


Transparent Audits

Blockchain use cases in human resources - Transparent Audits

The potential for an audit at any given time has caused many businesses to cling onto physical recordkeeping systems, but operating expense savings in departments that embrace digital record storage systems can be as great as 25%. Accountants and bookkeeping agents recommend that businesses keep their records for seven years, and the average in-house bookkeeper tasked with assembling and maintaining these records costs businesses $41,692 per year. And with the assurance that an audit will never cost less than $10,000 on top of your recordkeeping costs, it’s no wonder why business owners lament the state of compliance.

With the blockchain serving as a decentralized, secure record that updates in near real time, businesses can share their essential records with regulators and auditors. Such a system would reduce the cost of document collection and sharing, as well as the man-hours spent complying with auditors. Conversely, regulators tasked with reviewing the books could eliminate currently essential redundancies that arise from the possibility of fraudulent or incomplete documentation. With the blockchain, cryptographic hashes and source verification serve as a strong barrier to document manipulation and fraud. 


Better Vendor Tracking on Ledgers

Blockchain use cases in human resources - Better vendor tracking on ledgers

The cost of poor supplier and vendor relationships — and the poor tracking mechanisms that often create rifts between businesses and their vendors — is far from meager. In the auto industry, Ford, GM, FCA US, and Nissan missed out on an estimated $2 billion in potential operating profit because of a lack of improvement in their vendor and supplier relations. Being on good terms with vendors has allowed Proctor and Gamble to structure payments in a way that frees up approximately $1 billion in cash flow at any given time. By establishing transparent, real-time blockchain ledgers to track invoices, order distribution, billing processes, and overall reporting capabilities, companies could maximize the amount of transparency in vendor management and the potential savings that arise from better systems. 


Automating Taxation Processes

Blockchain use cases in human resources - Automating Taxation Processes

63% of small businesses reported spending more than $1,000 annually on the administration of federal taxes, and that cost only rises with the size of the company. That includes 40 hours each year spent on these taxes, and administrative taxation processes are only expected to become more complicated as time passes. Payroll taxes are another beast in and of themselves, with bonuses, commissions, overtime pay, back pay, accumulated sick pay, human capital expenses, and more all considered taxable income that HR departments in charge of taxation must account for.

With approximately $1 trillion in payroll taxes alone collected in 2016, HR departments can go crazy trying to get their tax-related ducks in order. The ability for the blockchain to serve as a regularly updating ledger of an employee’s overall tax considerations is invaluable, and will ultimately serve as the record by which HR departments can handle taxation during the pay periods and filing season.

Companies Trying to Solve This Problem 


Paying Independent Contractors

Blockchain use cases in human resources - Paying Independent Contractors

As of May 2015, 15.5 million workers in the U.S. were self-employed, typically categorized as independent contractors. Counting other alternative work arrangements, approximately $626 billion or more in personal income will be accounted for by contractors. There’s been a 30.6% increase in these kinds of workers in the past five years, and now the number of “contingent workers” — many of them contractors — equates to 40% of workers.

These alternative work arrangements present unique challenges to HR departments in charge of taxation, and because many contractors are paid according to predetermined milestones, smart contracts are uniquely suited to handle payments. Metadata pertaining to unique tax withdrawals and other stipulations can also be programmed into these contracts, with the automation of these processes saving costs while easing the burden of HR departments.

Companies Trying to Solve This Problem 

  • Bounties Network – Using crypto bounties to find and pay independent contractors with Smart Contract bound terms. Check out our interview of their Co-Founder in Episode 34 of Blockchain Disruption.
About Sam Mire

Data journalist and market research analyst focused on emerging technology, trends, and ideas.

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