Blockchain has the potential to disrupt the payroll industry in the next few years, but there is still a lot to learn about how it can and should be used. Paychex’s Frank Fiorille breaks down the basics of blockchain, its uses in the payroll industry, as well as benefits and risks.
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Though blockchain has been around since the 1990s, it’s been creating more and more buzz across industries over the past several years. Every day, companies are exploring the possibilities of using blockchain to streamline their operations, including payroll. Though few are adopting blockchain now—according to a recent survey by Paychex, 5 percent of business owners are planning to implement blockchain or cryptocurrency into their payroll in the next year—many business owners are wondering how and when these changes will impact their business.
First things first, what exactly is a blockchain? A blockchain is an immutable distributed ledger of transactions that can be used to record the transfer of any asset of value. The asset can be physical, such as real estate, or virtual, which includes cryptocurrencies. Blockchain can also be used to verify a person’s identity through an undisputable record of their employment history, demographics, location, tax records, etc. Blockchain defines the way a database is set up, and it can be used for internal and external data transfer among businesses and individuals. Bitcoin transactions, for example, are managed on a type of public blockchain. Many enterprises are still learning about the utilization opportunities and challenges blockchain presents, but some supporters believe blockchain can do for business efficiency what the Internet did for communication. Each day, businesses process many types of transactions, both internally and externally. Blockchain has the potential to improve transaction speed, trustworthiness, and data transparency.
How can blockchain be used in the payroll industry? Blockchain transactions are tracked in a completely decentralized environment, allowing transaction history to be transparent and undisputable. In a highly regulated industry such as payroll, this type of system can reduce discrepancies and save time. Cases currently being explored in the payroll industry include time and attendance services, payroll administration and payment options, benefits administration, fraud protection, workforce scheduling, as well as tracking employee trainings, certifications, and licenses, just to name a few. Blockchain is also being explored, among many other technologies, as part of the solution for real-time payments.
Blockchain has many business benefits. Payroll-related payments that run through blockchain databases offer the potential for faster transaction speeds, faster tax reconciliation, and the ability for HR professionals to authenticate employment history. At their core, blockchains are very secure as they require a consensus (more than 51 percent of the computers sharing the blockchain) to alter the blockchain in any way. Therefore, unintended changes to a blockchain are very difficult to make, and users can be more confident in the accuracy of data stored in blockchains.
But there are some risks. One of the possible concerns of using blockchain in the payroll industry involves privacy. As the blockchain is inherently transparent, steps would need to be taken to keep certain data private. Both public and private blockchains often contain metadata, which could present an issue with data privacy and General Data Protection Regulation (GDPR). The regulatory landscape is continually changing regarding this new technology, too. Both at the state and federal levels, agencies seem to have many differing opinions on the regulation of cryptocurrency and blockchain technology.
How far off are these changes? According to some more recent reports, only 1 percent of organizations currently are solidly contributing efforts to blockchain technology—however, the world’s top 10 largest corporations are actively exploring blockchain technology. It is not hard to imagine the financial services landscape looking radically different in just a few years.
How can you prepare your businesses for blockchain? Although blockchain technology is commonly described as “the new Internet,” many of the pioneering efforts in blockchain have been and will continue to be in areas “behind the scenes.” Businesses will be hard-pressed to notice when a transaction is on the blockchain, but they may see a change in how fast or simple things are now transacted.
Your payroll provider or financial institution can help you understand what blockchain may mean for your business. Paychex has been involved in blockchain monitoring since Bitcoin became a potential player in the payments environment and has internal teams meeting regularly to discuss advances in the technology, develop potential use cases, and explore possible partnerships. We are also consistently monitoring the regulatory landscape to understand how we and our clients will need to adapt to remain compliant when implementing blockchain in payroll. The payroll industry will undoubtedly face changes in the next couple of years, aligning your business with a trusted partner now will help ensure you’re ready when those changes arrive.
Frank Fiorille is the vice president of risk management, compliance, and data analytics at Paychex. Fiorille currently serves as one of the chief stewards of risk for the company, and he leads the implementation of all aspects of the risk function, including processes, tools, and systems to identify, assess, measure, manage, monitor, and report risks. In addition to his overall risk management responsibilities and heading the compliance and data science functions, he oversees the government relations and operating risk functions for Paychex. Fiorille joined Paychex in 2002, bringing with him several years of experience from previous risk management leadership roles at Citigroup and PNC Bank.