The current article outlines the use of decentralized ledger technology to simplify the administration related to employment and payroll in Switzerland. The exchange of relevant data between all main stakeholders (i.e. employers, employees, authorities and 3rd parties) is inefficient due to a couple of reasons. The employment and payroll related data ultimately drive the funding – and redistribution mechanism of the social Swiss social security. There is currently much room for improvement as far as the exchange, the reconciliation, the validation and storage of the data mentioned above is concerned. The HR, Finance and/or Payroll Function play an essential role in the orchestration process.
A digital platform based on decentralized ledger technology (“DLT”) could help to simplify the exchange, the reconciliation, the validation and storage process. This digital platform would definitely lay the foundation for a robust end-to-end process, a first step in the direction of machine-to-machine communication. The envisaged digital platform, which I will call “Convergence” for the sake of clarity is based on Blockchain. Sensitive employment – and payroll data are hashed and saved on the Convergence. The rules-of-engagement between all relevant stakeholders are encoded in Smart contracts, which run on top of the Blockchain. All master nodes running the Blockchain shared the same ledger, thus replicating the “single-source-of-truth” according a “Poof-of-Stake” consensus mechanism.
THE CONTEXT
n a vibrant and developed economy, employment remains – next to capital – a fundamental economic resource for the creation and the redistribution of wealth. The current social security system is based on employer’s – and employees’ contributions. All employers (and employees) have the statutory obligation to comply with the legal framework (i.e. labor -, tax -, social security -, immigration – and data protection laws). It is the employer’s responsibility to ensure that employees are paid and insured (i.e. social insurance, pension fund, accident insurance and possibly health insurance). The employer executes employment related payments (i.e. contributions, premiums) to the authorities or insurance companies.
The employer is responsible for all statutory registrations related to employment and immigration. At the end of each year, the employer reports the wage amounts and the contributions to the authorities and insurance companies. In the event of an accident or prolonged illness, it is also the employer’s duty to inform the insurance companies to ensure that the employee receives adequate compensation.
The authorities have a statutory duty to manage the financing and redistribution of incoming (i.e. employee and employer contributions) and outgoing funds (e.g. old-age -, maternity – and other deferred benefits). The above demonstrates that the exchange of data between the stakeholders – ultimately – have a monetary impact for one or many stakeholders.
Insurance companies have a similar role to the authorities, which also keep a record of the incoming and out-going funds of the respective policy holders. Third parties such as trustees and/or fiduciaries may be instructed by employers to assume the employer’s duties described above. Employers and trustees agree on a well-described and detailed scope of services and a corresponding fee to fulfill the employer’s tasks described above. The services and duties of the trustees is usually formalized in a written contract.
The statutory related calculations and reports are performed in accounting or payroll software (i.e. business application), which can be “SWISSDEC” certified. The sensitive data related to employment is usually stored in a database or system-of-record. The business application validates the processed data and orchestrates the exchange of data between stakeholders.
Every stakeholder has his own “source-of-truth”. The exchange of data between the various stakeholders always requires a collective reconciliation of their respective records. All stakeholders will periodically have to agree on the correctness, completeness and validity of their records and/or exchanged data (i.e. transaction).
The reconciliation process is inefficient and can lead to financial damage or loss on an individual level (i.e. employee or employer) and on an aggregated level of a society or economy. The existing shared frameworks (i.e. laws applicable for all respective stakeholders, technical standards, trainings, contracts) are not sufficient to enforce the adoption and accurate execution of this shared standard between all stakeholders.
WHAT DOES CONVERGENCE SOLVE?
Convergence runs on a “permissioned” blockchain based on Hyperledger Fabric. The Blockchain can simplify the exchange -, validation – and reconciliation process between all stakeholders in a drastic manner. Machine Learning Algorithms (i.e. regression and/or classification) ensure the validation of periodic payroll calculations before those are hashed and stored on the Blockchain. The correctness, the completeness and validity of the payroll calculations is checked right after the periodic payroll processing cycles. The smart contracts determine the further orchestration of exchange of hashed data between all stakeholders.
