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The impact of blockchain on ensuring data security and privacy in HR operations

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By: Anjan Pathak, CTO and Co-Founder, Vantage Circle

In the age of digital advancements, HR operations aren’t merely about hiring and payroll but have evolved into complex ecosystems where data security and privacy are paramount. With over 4 billion data records compromised in 2022, data security is a pressing concern for HR departments. As the world delves deeper into the realms of technology, the emergence of blockchain promises to shape the future of HR operations. 

In the world of Human Resources, blockchain technology has the potential to streamline and automate key processes, as well as enhance compliance. It creates an incredible and secure system where records cannot be changed or tampered with once they have been entered into the ledger. However, just like any other technology usage, blockchain has certain advantages and limitations to its use and implementation in HR operations. 

Let us delve deeper into the blockchain concept and how it impacts business and HR operations. 

Understanding blockchain and its pertinence to HR 

Blockchain is a decentralised ledger of all transactions across a network. If we need to understand how blockchain technology operates, we need to understand its features. In blockchain technology, data are not stored in a single location but are decentralised, thus reducing the risk of cyber attacks and single-point of failure. Additionally, the data stored in the blockchain are encrypted and secured through advanced cryptographic techniques. It is also transparent, making it easier for all participants in the network to view the transaction history.

When it comes to HR operations, blockchain offers an unparalleled degree of transparency and security for HR-related data. Interestingly, implementing blockchain technology as an HR personnel makes salary processes easy and efficient. In addition, blockchain can streamline the entire financial management of the company. In HR operations, its implications are game-changing for both the organisation and its employees. Traditionally, HR data was stored in centralised databases, making it vulnerable to breaches and cyberattacks. Such breaches are not limited to financial losses but impact beyond that and can tarnish a company’s reputation leading to legal repercussions. 

In addition to providing security, blockchain can also be used in the process of recruitment and selection. For example, when a prospective candidate is visiting the career portal in real-time, blockchain can effectively identify and engage them and present them with the right set of jobs and competencies. This benefits the organisation as they can pick out the best-suited candidates by personalising the job profiles. 

The role of blockchain in HR data security and privacy

There are several ways in which blockchain technology can transform HR data management: 

  • Decentralised databases: Instead of a single, vulnerable database, the employee database used by the HR can be distributed across a blockchain network, making it virtually impossible to hack.
  • Tamper-proof recordkeeping: Blockchain’s immutability ensures that once employee data is recorded, it cannot be altered or deleted without leaving a trace.
  • Audit trails: Transparent transaction histories enable easy auditing of HR processes, enhancing accountability and trust. 
  • Employee consent: Smart contracts on a blockchain can automate and enforce employee consent for data sharing, ensuring compliance with privacy regulations. 
  • Blockchain-based digital signatures can secure sensitive HR documents and communications.

How blockchain is implemented in HR operations 

The implementation of blockchain in HR operations involves a strategic process. Initially, organisations must assess the specific HR needs and identify areas where blockchain can add value, such as recruitment, onboarding, payroll, or records management. Once these areas are identified, a blockchain network is established. This network uses a permission-based blockchain to maintain control over access rights. Employee records can be stored securely in blockchain, as it ensures data integrity and immutability. 

‘Smart Contracts’, a key feature of blockchain, is deployed to automate various HR processes such as onboarding, salary adjustments, and employee benefits distribution. This reduces manual intervention and minimises errors. 

Furthermore, as data privacy is paramount in HR functions, blockchain’s encryption and access control mechanisms can be used to protect sensitive information while granting authorised personnel secure access. 

Advantages of blockchain in HR functions 

  • With blockchain’s distributed ledger technology, all HR actions are recorded on a transparent transaction ledger that fosters trust within the organisation. It also makes it possible to store and share employee records securely across multiple departments and locations where employees and stakeholders can view and verify transactions without many intermediaries involved. This eliminates the need to manage and update records manually, thus saving the HR department time and resources. Blockchain technology thus benefits HR departments, making compliance easier and more secure.
  • To make the hiring process more efficient, rigorous background checks and verification of credentials are often essential. With the help of blockchain, these processes have become swifter and more reliable by providing authentic verification of employment histories and academic credentials. It can track employee information, from personal details and qualifications to vacation days and salary.
  • Blockchain technology can transform global enterprises conducting business across borders. Blockchain enables fast, low-cost cross-border payments, streamlining international payroll. For instance, a multinational firm could leverage blockchain to pay employees worldwide in real-time in local currencies without high transaction fees. This automated payroll processing reduces manual work for HR departments, allowing greater focus on strategic initiatives. It also minimises errors and ensures compliance, as records are immutable on the blockchain. Overall, blockchain delivers massive efficiency gains and cost-savings for global corporations managing complex international payrolls and operations.
  • Blockchain can be traceable which ensures that all HR operations can be audited and traced back to their origin, significantly reducing the chances of fraudulent activities. Blockchain also allows companies to reduce the risk of legal non-compliance. Once you can leverage these smart contracts and immutable records, companies can create automated systems to ensure compliance with labour laws and regulations. This helps reduce the potential for costly fines or other penalties due to non-compliance.

Challenges of blockchain in HR functions

Like any other transformative technology, even blockchain has its set of challenges: 

  1. Implementation costs of adopting blockchain technology might demand significant upfront costs and technical expertise. 
  2. In terms of scalability, integrating blockchain into existing HR systems can be complex and resource-intensive.
  3. Blockchain’s legal landscape is still evolving regarding regulatory and compliance issues, presenting potential compliance challenges for organisations

Talking about the future of blockchain in HR operations, we find that blockchain may enable the tokenisation of HR assets like employee stock options, making them more accessible and secure. Additionally, decentralised HR platforms could also empower employees to have more control over their data

The potential of blockchain in HR operations in businesses 

Blockchain technology is a revolutionary force that can reshape HR operations across businesses of all sizes. Its decentralised nature and immutability of records provide an unparalleled level of data security and integrity. A recent Delloite report reveals that 86 percent of organisations are using blockchain technology and believe it could help in integration towards more touchless corporate operations. 

Considering its benefits, blockchain has the potential to revolutionise various aspects of HR, from recruitment to payroll management. One of its standout applications is the use of smart contracts which can automate the onboarding process streamlining HR procedures and minimising administrative burnout. Beyond its operational advantages, this technology safeguards against data breaches and catalyses efficiency, trust, and innovation in HR operations, thus promising a brighter future for businesses seeking to optimise their workforce management. Therefore, it is not merely a technology on the horizon but an indispensable tool that can unlock new horizons for HR professionals, ushering in a new era of data-driven and operational excellence. 

Conclusion 

The landscape of HR operations is undoubtedly experiencing the winds of change with the introduction of blockchain. It can be said that blockchain is on the cusp of revolutionising HR operations by bolstering data security and privacy. By adopting blockchain technology, organisations can fortify their HR data against cyber threats, enhance transparency, and automate compliance. While challenges persist, the long-term advantages promise a transparent, secure, and efficient ecosystem. 

As technology evolves, HR professionals must remain agile and proactive in adopting innovative solutions to safeguard their most valuable asset ‘data’. 

Several organisations have already embraced blockchain in HR operations and its benefits also extend to MSMEs as well. In fact, blockchain technology can level the playing field for smaller enterprises. By leveraging blockchain, these businesses can securely and efficiently access candidate qualifications and work histories, reducing the cost and time traditionally associated with background checks. Although the cost of integrating blockchain into HR systems can be complex for some organisations it can ultimately help them to compete more effectively in the modern business landscape.

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