Applying Blockchain in Human Resources Systems

Applying Blockchain in Human Resources Systems

Employing and managing work force and human resources is considered a relatively difficult task all around the world. With the complex and competitive markets which exist among companies and the organizations in different industries, absorbing, directing and managing human resources gets very critical and using new technologies can be a shortcut to the growth and success in this condition. Sometimes, the competition and attempt in success among competitors reach a level that some companies take measure in employing their human resources form the other countries and prioritize employing international human resources; however, with the new technologies such as Blockchain, the possibility of improvement in human resources management will be there in its different sections. The application of Blockchain in the human resources systems will be addressed in the flowing parts. One of the main issues and duties in managing the human resources is the paying the payrolls and privileges. New technologies such as Blockchain cause a significant improvement in the optimization of the alternatives for the management of the related financial affairs to the human resources. Imagine a condition where an organization and company are supposed to pay the wage to the human resources which cooperate with them in outsource manner and at international level. In such a status, the management of human resources gets more difficult. Using new technologies like Blockchain can promote the management of financial affairs to a higher level and simplify it.


First Part: Resolving the Problems of Traditional Human Resources in Every Business with Blockchain


1.1 What Are the Human Resources’ Challenges in the Organizations and Companies Traditionally?


Before speaking about the role of Blockchain in solving the problems of human resources and recruiting the forces in each business, we should first address the challenges which usually exist in the traditional human resources systems. Examining different affairs of the human resources like paying the payrolls or controlling their records and performance normally is time-consuming, especially in big organizations which are prone to accuracy and exactness decrease without the interference of the technologies. But with the smart contract defined in Blockchain, investigating human resources will fabulously have the potential to manage better and in a more optimized manner.
Smart contracts are calculative computer programs which provide the possibility of accessing to the existing data in Blockchain networks. For example, the data related to the performance and records of the staff and the human resources of a company and organization can be stored and kept in the infrastructure of Blockchain and accessed through these contracts. Blockchain smart contracts are computer programs which are used for controlling transactions between different parties of a relationship in Blockchain. With Blockchain technology, all the related processes to the management of human resources find the capability of becoming automated and everything which is related to the human resources can be easily automated in an automation process. For instance, pay attention to the Blockchain and smart contracts about paying the staff’s salary; in the Blockchain network and with the help of these contracts, payroll of the human resources will be easily distributed among the staff and there will be no fraud or delay in it too. [1]
The issue of investigating the financial affairs of the human resources in every organization is among the most important issues that if not investigated correctly with the required transparency, the staff’s satisfaction and the optimization of the company and business will be negatively influenced. [1]

1.2 The People Who Are Influenced by the Problems Raised by Traditional Human Resources Process


With human resources management traditionally, many problems can be raised in the working process for the staff. The more the work force is influenced by the problems and the less its satisfaction is, the more probable the possibility of fraud and human error in different departments of human resources will be. The lack of the possibility to follow up the payment process and probable frauds in paying the payroll, privileges to the various employees can bring about dissatisfaction for them and it not only affects their performance negatively, it can also cause lowering the performance level of the whole organization and group. There are many variable financial transactions in the section of human resources management in each group. The data from the workforce in the areas of insurance, privileges, wage, monthly performance and other numerous cases are processed and maintained. These data are exposed to exploitation. The security and negative exploitation of the mentioned data is highly probable and possible in the traditional systems. In addition, the financial data or other related data to a human resourced system from the internal forces and factors can be scammed or robbed, external cyber-attacks or external activities of every organization can jeopardize the health and security of the data related to the human resources. But Blockchain with the capacities and abilities it has can comfortably overcome the current problems of traditional human resources systems. [2]
If we look at paying the payroll and controlling the financial aspects of human resources management as a challenge which can be created in the traditional systems for the organizations and their staff, we should seek for the technologies like Blockchain which are able to remove the problems in the field of controlling the data and managing them and positively influence the staff’s performance, their satisfaction and at last the optimization of the organization.

1.3 What Are the Alternatives of Blockchain to Sustain the Health and Security of Human Resources Data Such as Financial Data Related to Human Resources?


One of the major applications of Blockchain is that it can represent itself in the area of the payments in an organization. By payments, we mean the financial affairs of an organization and its staff. Blockchain is able to remove many manual affairs and make payroll payments systems start activity without any delay and interruption. Blockchain can apply alternatives such as those smart contracts introduced before to further the process of the payments via automation and give them transparency and security. Especially at the time when a company continues its cooperation with the international outsource forces, the existence of an infrastructure similar to Blockchain to pay the payrolls can be a very interesting functional idea. With Blockchain, the flow of the payment to the domestic and foreign will enjoy a very transparent process which owns a very high speed besides clarity and there will be no middlemen like the banks. 
Currently some of the companies and organizations around the world use Blockchain for their payment system of their staff. Smart contracts are profitable in paying the human resources and forces. Each smart contract is a code written considering a collection of the parameters. Designing each contract is in way that completely affects paying wages and financial affairs and these affairs get dependent on Blockchain network codes. When the number of working hours is completed for a working force, Blockchain system automatically takes measure in paying wage. The code used here is connected to the bank account of the company and makes a link with it to the employee’s bank account. As a result, the payment possibility is created. Different methods and models can be defined in forming an infrastructure to automatically pay the payroll of the staff of a company in the infrastructure of Blockchain. 
As a result, managing the human resources of the organization will not need the management of the monthly payment affairs. On the contrary, we will encounter an on-time and transparent payment method which is very easy to be investigated and followed up. Smart contracts applied in paying wages to the work forces both deposit the payroll in the account of the staff on-time and ensures the management that the wage has been paid as per completing the working hours for each employee. In fact, removing human factors from the financial management in the department of payroll of the human resources causes the transparency and accuracy of the affairs to be followed up in more careful process. Such an approach will be beneficial for every business and play an important role in decreasing the charges and the time. [4]

1.4 Four Hypotheses about Using Blockchain in Payroll System of Human Resources


Using smart contracts and Blockchain in paying wages and controlling the salaries of employees in every business group can be highly effective and accurate. There are four hypotheses in using these facilities and technologies:
•    1. The performance transparency of the payment is more than the traditional payment methods to the human resources.
•    2. The possibility of following payment process becomes more feasible with Blockchain and smart contracts.
•    3. More trust is formed among companies and the staff.
•    4. Immutability in the payment of the companies starts and the possibility of tampering with financial data is minimized. Immutability is among the features of Blockchain network.

Hypothesis 1


With smart contracts, the clarity of performance of payments to the staff gets much more than before. The clarity in smart contracts is created since all the operations and transaction can be observed by all the users of a network. In each Blockchain network, all the users can well observe and follow what is taking place. Hence, in a payment system, too, the users; that is, the network member staff can observe the financial transactions related to their account. The clarity in the financial issue in each business is among the most important achievements which can bring about regularity, trust and validity for the group.

Hypothesis 2 


The activities which were conducted manually in the section of managing payments to the human resources are changed by Blockchain. Everything is accommodated in automation procedure with the smart contracts and it is the codes which manage the working process. For example, 90 working days are considered for the employee A, and when these 90 days are completed, the predetermined price of wage is deposited in their account.

Hypothesis 3


Blockchain is a big ledger and the employees in each organization trust in the set of available recorded information, since there is no possibility of altering the data on the part of a central core and every kind of change should be confirmed by the public and network users. As a result, the human resources’ trust of every working group in the company increases and this trust is reciprocal; that is, as it was stated before it is a necessity that some hours be completed by the working force and then their accounts are filled. In this case it is obvious that the hypothesis of the formation of a reciprocal trust is not strange and impossible. 

Hypothesis 4


When the computer and mathematical calculations logic is used in paying payroll of the human resources, changing the data is impossible. When a datum is recorded in the network it cannot be erased or altered. Every set of data in Blockchain, like the data and the details related to a transaction are recorded according to the encryption and cryptographic laws. [3]

Second Part- Elaborating on the Alternative of Using Blockchain in Payment Systems for the Human Resources Management?


2.1 Necessary Steps for Applying Blockchain in the Payment System of Different Organizations and Businesses


When it is set to pay the staff’s salaries, it is usually a time lapse between finishing and work delivery and paying salaries. But Blockchain has a solution to organize this matter. With P2P contracts there is the possibility of wage payment needless to any middleman and third parties in the contract between the individual and the company. In this method the staff use the tokens to receive the salary; that is, some smart contracts codes are written for the staff who sign those contracts with the company in the infrastructure of Blockchain and they are able to receive their salary through tokens after completing working hours or doing some projects, the information of which has been recorded in the form of the codes in the network. In this method, there is no sign of banks and the charges spent on paying wages. [4]
The method of paying payroll of the human resources with the help of Blockchain can be followed by a direct and easy process as below: 
A smart contract is defined for every human resource with the company. Then the tax, insurance, financial advantages and anything else are defined through coding in the Blockchain network. When everything is changed into codes and automation is included in all the financial affairs, after completing the working hours every human resource should complete, the wage will be deposited in his/her account. There is no more need to use the human resources for the signatures, bureaucracies and spending much time to provide the staff’s payroll. The procedure can be as the following:
•    Each employee logs in the internal web page of the company. Then he/she enters his/her working hours and the minutes of the breaks. In addition, he/she should enter a web address which is unique to entering the company web page. In fact, with this address he/she proves that he/she is a company member. 
•    The data an employee stores in the web page is recorded and stored in the Blockchain system besides a unique identification code.
•    A version of these data is simultaneously sent to the instant messaging channel of the company.
•    At the end of each month, an application automatically calculates the information related to each employee. [5]
Of course it is a general plan of the program which can be used to pay financial affairs in every business. There are surely different methods and finer as well as more accurate ideas behind this system which can be employed. This means that high capability of Blockchain is in a way that they can be applied in various models for the management of financial affairs of a business group or the organization.

2.2 What Are the Challenges Ahead of Using Blockchain in the Payment System of Human Resources?


Despite all the advantages the technologies such as Blockchain give to different organizations and businesses, there are still some problems which are considered the challenges in the way of these technologies. There are some challenges in the route of each new technology and the challenges should be contented with for the new ideas and thoughts to become fruitful. Among the challenges ahead of the plan of using Blockchain to financially manage different businesses to pay the wages of the human resources are the followings:

Security Issues


Although the Blockchain network has been designed in public manner and there is no possibility of tampering with and altering in it on the part of an overseeing agent, again the network security can be exploited by the hackers and the attacks by intruding forces. Of course such a thing is almost impossible; since in case of the emergence of any change in the Blockchain system and its data, a version of the changes is sent to all its users. The hackers cannot attack all the users; i.e., the existing nodes, simultaneously in the Blockchain network. So from the viewpoint of security, you should not worry very much about Blockchain. Anyway there should be steady attempts to promote this network in case of security. From the viewpoint of security everything which enters the computer systems can be hacked and tampered with. As a result, with important capacities and features Blockchain has in this regard and the fact that it is reliable regarding security, there should still be attempts to find the maximum level of security for it. If there is not the issue of security in the field of financial affairs of the human resources, there will be no possibility for the growth of such plan and project.

Legal Subjects


From the legal viewpoint, Blockchain network and its related technologies in different countries have not yet reached a determined stability. That is, every country faces this new technology in a different way and you cannot exactly say which laws are dominant in this area. For example, do the aspects of a smart contract which is drawn with the employees of the company enjoy the legal basis? The issue of laws and regulations in the field of Blockchain and its belonging technologies are among the subjects which need more maturity and development. In some countries and cities, these new technologies are welcomed very much and they can be relied on with more trust; however, in some other spots of the world, there are some opposition with Blockchain and its related technologies. Hence, the issue of law should be taken into account in doing projects related to Blockchain. Legality of using Blockchain and its belongings in different spots of the world seems to need a little time.

Privacy 


In case of paying payroll of the human resources with Blockchain, the issue of the peoples’ privacy is influenced to a large extent. The amount of wage and income of every person is among his/her personal and private information disclosing it will not look very pleasant and acceptable. Now considering the fact that in this network, the data are disclosed in front of all the users’ eyes, the people’s privacy is affected greatly. Of course this subject might not be very much pleasant from the employees’ opinion, but it results in the formation of a type of transparency which all the business members benefit from. With such system, scam and astronomical incomes will not be possible for the managers and everything is observed and controlled by the staff. The clarity which enters the system in this way will be followed by positive results. [6]

Third part- How Is the Payroll Business Model of the Human Resources with Blockchain?


3.1 What Is the Business Model Using the Application of Blockchain in Payroll of the Human Resources?


With the help of Blockchain paying the payroll of the employees in every business can comfortably be furthered. If it is set that a business model is offered in this field, its features for this plan, i.e., using Blockchain and smart contracts, will be described in the following way:
Major Activities in This Business Model

•    Using P2P contracts
•    Making changes in the financial management processes of the human resources
The Values of Using this Model

•    Forming trust among business group and human resources
•    Removing the possibility of fraud and scam in financial flows of payroll payment
•    Decreasing the charges of financial management and removing the middlemen
The Structure of the Model Charges

•    Decreasing the charges following the removal of the banks and payment middlemen
•    Decreasing the charges of the human resources present in the section of financial management of human sources department
•    The speed of payment operation and more accuracy in its process 
Main Resources

Accessing to the networks with the capability of drawing P2P contracts and the improvement in:
•    The possibility of better auditing payments process
•    The possibility of better documentation of the data related to the employees in the financial field. [7]


3.2 How Can You Find the Investors for Your Idea in Applying Blockchain in the System of Human Resources?

Crowdsourcing is one of the appropriate methods which can be employed to raise fund to deploy different projects. You inform various groups of anonymous people about your plan in crowdsourcing and will have the possibility of receiving assistance from high number of anonymous people. Now that a business plan and model is supposed to continue its activity in the infrastructure of Blockchain, it is better for the crowdsourcing to be changed from its traditional state to raise fund and the investors and interested people take measure in investing in the plan through this Blockchain infrastructure. Via outsourcing models in Blockchain, different investors can be accessed to in different spots in the world. The investors who join a project through Blockchain have neither legal prohibition nor limitation in making different interaction and transactions. Hence, crowdsourcing via Blockchain can be a good idea for financing this project. Considering the fact that Blockchain and its belonging technologies are new, those people are attracted to its projects that are accommodated in the category of the market pioneers and believe and hope its high value and bloom in the next years. Taking that the investments and welcoming these technologies and their derivative are not in the hand of the public, the futuristic investors who join Blockchain projects can easily outrun the others. In addition, applying this plan and model can greatly lower various charges each organization bears and create more speed and accuracy in the process of paying payroll. Removing the middlemen and charges they suffered from were among the positive points that different departments and organizations are able to bestow on their group through applying this plan. The Blockchain-based payment system can be effective almost in every business. So designing its models and offering it to various state and private businesses face growth and boom.


References 


[1] Blockchainexpert, “Blockchain in Human Resource”, April, 2019
[2] Voice on Growth, “Blockchain in HR: Interesting Use Cases for Human Resources”, July, 2019
[3] Blockchain-Expo, Galya Westerler, “How to improve HR practices with Blockchain”, April, 2019
[4] Plugandplaytechcenter, “Innovating Payroll with Blockchain”, 2019
[5] Linkedin, Nick Day, “How to build a blockchain-based payroll system”, October, 2018
[6] Payslip, Yana Todorova, “The Role of Blockchain in Global Payroll”, April, 2019
[7] Business Horizons, Vida J. Morkunasa, Jeannette Paschenb, Edward Boonc, “How blockchain technologies impact your business model”, May–June 2019, Pages 295-306

Written by:

Dr. Pooyan Ghamari

https://www.linkedin.com/in/counos/

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