One technology that is receiving a lot of attention these days is blockchain – and no wonder as it is set to bring about major change across a number of industries.
Although best known for its use with cryptocurrencies, the software has the potential to revolutionise areas ranging from voter fraud prevention to tax collection. It could also have a major impact on the payroll industry.
What is blockchain?
Blockchain has received a lot of attention in the media lately. Although a complicated technology, because its influence is likely to be so significant, it is worth payroll professionals taking the time to understand how it works and the possibilities it could unlock.
The software is also referred to as a Distributed Ledger Technology. This digital ledger enables both organisations and individuals to record various groups of data, which are also known as ‘blocks’. Both public and private forms of blockchain are available, with the former being widely used to underpin cryptocurrencies and the latter more likely to be employed for business use.
One of the key things to understand about this software is that it is decentralised. This means it is not stored on a single server, or by a single organisation, but runs across a peer-to-peer network instead. As different parties add data to the system, it forms into a chain of blocks (hence the name ‘blockchain’).
What could blockchain mean for payroll?
By handling interactions between employers, employees, tax authorities and the banks acting as middlemen, blockchain has the potential to make the payroll process much more efficient and streamlined.
Perhaps the technology’s most significant impact here could be in making it easier to provide cross-border payments to international workers. Endless amounts of regulations and specialised procedures around the world can require a multitude of different types of payments, ranging from wire transfers to BACS payments.
Blockchain could not only help to simplify this process but also reduce the role of banks as they would no longer be required to act as independent third parties to verify financial exchanges. Because the blockchain itself ensures that each transaction is valid and takes place securely, employees are able to receive their pay in real time.
Another important consideration here is that overseas transactions attract much higher bank fees than domestic ones, while also being subject to additional complexities such as currency exchange fluctuations. Therefore, paying international workers today often means long delays, high fees, an increased likelihood of errors and no possibility of tracking payment.
It is also not uncommon for exchange rates to change hourly, which can have a significant financial impact on both employers and employees. But again, blockchain is able to manage frequently-changing cryptocurrency exchange rates.
As a result, management consultancy PWC has suggested that international companies create their own blockchain-based currency for undertaking global business.
How else could blockchain be used?
Another area in which blockchain could prove particularly useful relates to gig economy workers such as freelancers and contractors, for whom cash flow often represents a real challenge. Employers have the opportunity of using the technology as a means of boosting loyalty by entering into a smart contract that is stored on the ledger, thereby enabling them to make payments instantly once the work is completed.
Moreover, the transparency that blockchain provides also means that workers can see the exact status of their payment at all times. They are likewise able to redirect payments more easily and share their salary with family abroad while avoiding expensive bank transfer fees.
But there is also the potential of offering employees a wider range of payment options. For example, one Japanese company now provides its staff with the option of receiving some of their salary in bitcoin.
A further possibility is using blockchain to manage employee expenses more effectively by simplifying and streamlining the process of having expenses signed off, recorded and paid, all by different departments.
Blockchain benefits
One of the key benefits that blockchain offers is lower transactions costs. By reducing the role of banks and their often-hefty charges, organisations can save significant amounts of money. Using blockchain means there are fewer parties involved and moving money around costs a fraction of what it would do otherwise. Saving time on administration is a further bonus.
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.
Blockchain is the future
The blockchain market is still a nascent one and we are unlikely to see the technology being used widely in our everyday life for some time to come – something that means its impact on the payroll function has yet to be truly felt. But as technology often catches up with us more rapidly than we might think, particularly if there are cost savings and increased efficiencies to be had, it is worth at least keeping an open mind about.
David Woodward is vice president of product development for Europe, the Middle East and Africa at ADP. Prior to his current role, he worked for a number of international organisations within the human capital management space, most recently as chief product officer at SD Worx UK.
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One technology that is receiving a lot of attention these days is blockchain – and no wonder as it is set to bring about major change across a number of industries.
Although best known for its use with cryptocurrencies, the software has the potential to revolutionise areas ranging from voter fraud prevention to tax collection. It could also have a major impact on the payroll industry.
What is blockchain?
Blockchain has received a lot of attention in the media lately. Although a complicated technology, because its influence is likely to be so significant, it is worth payroll professionals taking the time to understand how it works and the possibilities it could unlock.
The software is also referred to as a Distributed Ledger Technology. This digital ledger enables both organisations and individuals to record various groups of data, which are also known as ‘blocks’. Both public and private forms of blockchain are available, with the former being widely used to underpin cryptocurrencies and the latter more likely to be employed for business use.
One of the key things to understand about this software is that it is decentralised. This means it is not stored on a single server, or by a single organisation, but runs across a peer-to-peer network instead. As different parties add data to the system, it forms into a chain of blocks (hence the name ‘blockchain’).
What could blockchain mean for payroll?
By handling interactions between employers, employees, tax authorities and the banks acting as middlemen, blockchain has the potential to make the payroll process much more efficient and streamlined.
Perhaps the technology’s most significant impact here could be in making it easier to provide cross-border payments to international workers. Endless amounts of regulations and specialised procedures around the world can require a multitude of different types of payments, ranging from wire transfers to BACS payments.
Blockchain could not only help to simplify this process but also reduce the role of banks as they would no longer be required to act as independent third parties to verify financial exchanges. Because the blockchain itself ensures that each transaction is valid and takes place securely, employees are able to receive their pay in real time.
Another important consideration here is that overseas transactions attract much higher bank fees than domestic ones, while also being subject to additional complexities such as currency exchange fluctuations. Therefore, paying international workers today often means long delays, high fees, an increased likelihood of errors and no possibility of tracking payment.
It is also not uncommon for exchange rates to change hourly, which can have a significant financial impact on both employers and employees. But again, blockchain is able to manage frequently-changing cryptocurrency exchange rates.
As a result, management consultancy PWC has suggested that international companies create their own blockchain-based currency for undertaking global business.
How else could blockchain be used?
Another area in which blockchain could prove particularly useful relates to gig economy workers such as freelancers and contractors, for whom cash flow often represents a real challenge. Employers have the opportunity of using the technology as a means of boosting loyalty by entering into a smart contract that is stored on the ledger, thereby enabling them to make payments instantly once the work is completed.
Moreover, the transparency that blockchain provides also means that workers can see the exact status of their payment at all times. They are likewise able to redirect payments more easily and share their salary with family abroad while avoiding expensive bank transfer fees.
But there is also the potential of offering employees a wider range of payment options. For example, one Japanese company now provides its staff with the option of receiving some of their salary in bitcoin.
A further possibility is using blockchain to manage employee expenses more effectively by simplifying and streamlining the process of having expenses signed off, recorded and paid, all by different departments.
Blockchain benefits
One of the key benefits that blockchain offers is lower transactions costs. By reducing the role of banks and their often-hefty charges, organisations can save significant amounts of money. Using blockchain means there are fewer parties involved and moving money around costs a fraction of what it would do otherwise. Saving time on administration is a further bonus.
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.
Blockchain is the future
The blockchain market is still a nascent one and we are unlikely to see the technology being used widely in our everyday life for some time to come – something that means its impact on the payroll function has yet to be truly felt. But as technology often catches up with us more rapidly than we might think, particularly if there are cost savings and increased efficiencies to be had, it is worth at least keeping an open mind about.
David Woodward is vice president of product development for Europe, the Middle East and Africa at ADP. Prior to his current role, he worked for a number of international organisations within the human capital management space, most recently as chief product officer at SD Worx UK.
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