Smart Contracts – The Future of Payroll? | CXC AMERICAS

Smart contracts for payroll have the potential to process near instant payment transactions, but there are some risks involved.

Future of Payroll

As we move further into the fourth industrial revolution, technology is taking us deeper into the digital world, impacting how we transact and specifically how we process payroll.

In the not-too-distant future, smart contracts could be used to payroll employees. Blockchain payroll and crypto payroll stand right there beside smart contracts payroll.

There are a few reasons why smart contract payroll is gaining interest.  One of the key reasons, is that smart contracts can payroll employees in a near-instant way.  Ultimately this would save companies a lot of time processing payroll and available resources by streamlining HR functions and existing processes.  In turn, this would reduce an organization’s spend on back-office functions.

Smart contracts could technically be used by payroll for independent contractors, freelancers, sole traders, gig workers, non-employees and anyone that is being paid infrequently for specific projects.

As more companies embrace smart contracts for payroll and more workers request payments in crypto, it’s good to get an understanding of how these parts all interrelate.

There’s no doubt that blockchain technology is going to disrupt HR and payroll functions.

What is a Smart Contract?

Smart contracts are a computerized transaction, where the terms of the contract are executed digitally.  They are a set of agreements between the buyer and seller that self-execute. The set of agreements are written into code.  The code and agreements then sit cross a decentralized network – like blockchain.  It’s the code that controls the execution of the contract.  All transactions are trackable and cannot be reversed.

The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement)

Because smart contracts are executed in a decentralized environment, it alleviates the requirement for central governing or legal authorities

While they are not exactly new, their adoption is getting more mainstream attention and their use in various areas of business becoming recognized.

How do Smart Contracts work?

Smart contracts are written in code, using if/when and then type statements.  They are written in code onto a blockchain.  Given that blockchain is decentralized, the execution of the contract is done over a network of computers when the conditions of the contract have been met.  The network of computers on the blockchain also verify the conditions have been met.

In relation to smart contracts for payroll, the execution could be an instruction to release funds to the designated parties or sending notifications.

Once the transaction has been completed, the blockchain is updated.  Once updated on the blockchain, the transaction is irreversible. Only parties that have been given permission would be able to see the results.

To create a smart contract, the parties involved must map out the terms of the contract and how the transactions and their data will be represented on the blockchain.  They will need to agree on the logic being used, in terms of the if/when and then statements, as these make up the overarching governance of the transactions.

Once the terms are mapped out and transactions and data agreed on, with the logic in place, a specialist smart contract developer can then write the program.


Smart contracts for payroll

Having a smart contract in place could enable payments to be automatically made to a bank account, once certain pre-determined tasks have been actioned.


A smart contract is created to execute payment for a completed project to a contractor.  Once the contractor has completed the project, the smart contract would automatically execute the payment to the contractor, based on the pre-defined code and situation.

Likewise, a smart contract could be setup to execute payment to employees, once they have completed a set number of hours.

This could alleviate the necessity of running monthly payroll.  Instead, the smart contract would execute the instruction for the payments to be made to worker’s nominated bank account.

There is no need to incorporate this into a regular monthly payroll run: the smart contract executes an instruction for the payment to be made into the employee’s bank account.

Smart Contract for Payroll Risks

We’ve looked at the benefits of using smart contracts on blockchain for payroll, but there are some risks involved that you should be aware of.

While smart contracts, once created and implemented cut down on human error, the contracts themselves and the code used to create them needs to be 100% correct.  Any slight deviation, for example 1 character wrong, and the contract will have been compromised.

It is rare to find code with 100% accuracy. The average error rate is reported as being 15 to 20 errors in each 1000 lines of code.   In fact, all software contains errors, including commercial and professional programs, like Microsoft.  While Microsoft does have errors in its code, it’s lower than the average error rate.  Nasa is the only organization to have zero errors in their code.  It’s not hard to see how important this is for their space programs and to ensure the safety of their crew.

As blockchain developments continue, some organizations will develop their own private blockchains to transact.  This would be preferable to having their transactions on a public blockchain, however this too comes with its own risks.

In a situation where are only a certain number of people that can update the blockchain, this can cause vulnerabilities to hacking. Add to that the fact that transactions are irreversible and there is no backup, any hardware or file corruption could cause serious issues.


Blockchain Payroll and Crypto Payroll


Ethereum and Bitcoin are probably 2 of the most well-known blockchains and could be used by blockchain payroll or crypto payroll.

Bitcoin was first to the market using blockchain technology and so for that reason it is considered the more stable of the 2.  However, Ethereum came a few years later to the game and is increasingly being used for smart contracts and decentralized applications.

It is said that transactions are faster on the Ethereum network than on Bitcoin’s so for this reason, it could end up being the preferred network, outside of private blockchains developed in-house.



There is still much work to be done to develop this new way of transacting both in the public and private blockchains.  There’s no doubt that smart contract payroll can increase the speed of payments and require less human intervention, but the risks are still high and 100 accuracy is critical to guarantee the successful execution.


CXC is a global HR outsourcing organization with 30 years of experience in workforce management. Our innovative and cost-effective solutions help companies gain a competitive advantage by improving efficiency while reducing risks.

Contact CXC today to start enabling your future workforce.