Are smart contracts a clever solution for HR?

November 5, 2018 Michael Grotherr

Digital handshake

New technologies are constantly arising and being used across all industries and sectors. In a previous blog I talked about blockchain technology and whether it could be implemented in HR. This time, I want to look at smart contracts and what opportunities and risks they present for HR.

Smart contracts are very similar to blockchain in that the concept is a digitised transaction. In essence, a smart contract is a computer protocol which intends to digitally facilitate, verify or enforce the negotiation or performance of a contract, without the use of a third party. Business collaborations tend to benefit most from smart contracts because they can be used to enforce a type of agreement, so that all participants can be certain of the outcome without an intermediary’s involvement.

But experts also see advantages in using smart contracts in other aspects of business such as forecasting cost advantages and quality improvements in billing and certification processes. As such, many opportunities could arise for HR from using digital contract management.

For example, smart contract algorithms could be used to track and pay workers based on their performance, allowing the potential to change existing leadership structures through the non-hierarchical distribution of work processes. Currently, this assumption is still rather vague and most of the benefits would be more appropriate for non-permanent workers, such as freelancers.

For international companies, in contrast to the electronic dispatch of domestic payroll, shipping overseas is usually expensive and may take longer because of several intermediary banks and third parties. Thus, the long-term inefficiencies of wage payments abroad may add up. Currency fluctuations can have a direct impact on both the employer and the employee - hourly exchange rate changes are routinely used by intermediaries for example, so it can become complicated given the unstable rate. 

Time is money, and an international payroll blockchain model, if stable, would be able to provide a faster solution, but it raises several issues at the same time. Even today, many globally operating companies are unable to implement headcount planning for all their branches, making it difficult to process across all markets. Although there have been many digital solutions that have had positive impact over the years, smart contracts are still a growing technology and its potentials aren’t realised yet. 

From fully automated contracts and identity checks

One thing’s for certain with smart contracts is that they have the ability to eliminate time-consuming identity verification process in recruiting. Rather than candidates having to complete long approval forms, the process would be completely automated. Similarly, the technology could help streamline admin-intensive processes, meaning that employment contracts, compensation contracts and tax obligations etc. could be managed under one roof.

A number of companies find their candidates through external sources and websites, which, although easier, can work out to be quite expensive. Eventually, smart contracts would be able to replace these sources, allowing the HR department to have direct control over the recruiting process, saving time and money. 

The concept may sound promising, but there is still a lot of room for improvement for it to be used in everyday practice. Even if the technology is at an advanced level, it cannot be said whether it will prevail in the breadth of the corporate landscape. Because in the end, it's still the users who decide. And these are the HR managers as well as the applicants and employees.

About the Author

Michael Grotherr

Michael Grotherr is Vice President for Sales in Central Europe at Cornerstone OnDemand since 2017. He works from Munich and has extensive and detailed industry knowledge regarding strategic leadership, corporate development and human capital management, which he has acquired during his extensive career in the HR space.

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