- Small and medium-sized businesses often underestimate the importance of payroll security, leading to vulnerabilities.
- Withholding of advances, Buddy Punching, Ghost Employee, Unauthorized Hours, and Expense Reimbursement Fraud are common internal threats.
- Outsourcing payroll to a third-party provider like LL Roberts Group can save time and ensure comprehensive security measures are in place. Contact us today!
The digital world has many advantages but also many complications. One of them is the security of the personal information that circulates every day through the network.
Nowadays, if a computer is connected to the Internet, its information can be hacked. And few things have as much personal information as a company’s payroll.
In payroll information, we can find social security numbers, addresses, telephone numbers, bank accounts, and addresses, all tremendously valuable information for hackers and scammers. That is why today we want to alert you to the importance of payroll security, the measures that must be taken, and how to be alert in case something is wrong with our computer security.
Payroll Security Definition & Importance
Payroll security is, as its name indicates, the security created around all the personal information of your employees and clients so that it is protected and cannot be hacked and used for criminal purposes such as fraud, identity theft, etc.
Payroll security is a necessity for companies and must be up to date with the best practices both on the part of the human team and in terms of technology, with modern and updated software. This may sound obvious. However, data shows that small and medium-sized businesses don’t take this security seriously enough.
According to Forbes, payroll fraud occurs in 27% of all businesses, and small businesses are attacked 50% more times than larger companies. This is because the interest of hackers is not just to grab a sum of money and disappear. Payroll frauds are some of the longest lasting, on average, between 24 and 30 months before being detected, in which between $70,000 and a million dollars can be lost.
This is without considering everything else that a data hack can cost; IBM estimated that 2023 the average global cost of a data breach in 2023 was $4.45 million, an increase of 15% in 3 years.
But data security is not all about money. The reputational costs to an attacked company can be very high and range from losing customer confidence to resigning employees and investors. This is not to mention that if employees have personal consequences of an attack, such as identity theft, they can sue the company for personal damage to their image and assets.
Common Types of Payroll Fraud You Should Be Aware Of
We already know the importance of Payroll security; now we must know how hackers operate, and the most common frauds. In this way, we can be attentive to any irregularity. It is important to mention that attack modalities can be internal or external.
In the digital era, securing payroll isn’t just about protecting data. It’s about safeguarding the financial well-being and trust of your employees.
External data leaks: a constant threat
The increase in cyber threats is undeniable. Between 2020 and 2021, there was an increase in cyber-attacks of 68%. External data breaches pose a significant risk and potentially expose sensitive payroll information to cybercriminals. These violations can significantly affect the credibility and financial health of your company.
Internal payroll fraud: the silent threat
Internal fraud can be committed in many ways: making up numbers, stealing small sums here and there, inventing expenses that do not exist, etc.
Some of the most common forms of Payroll fraud are:
- Withholding of advances: This type of fraud occurs when an employee requests an advance of their salary and does not return it. You must always review advance payments to ensure they are repaid.
- Buddy Punching: This is common in time-clock companies and occurs when an employee asks another to punch them and does not show up for work. This is another type of payroll fraud.Biometric clocks can help eliminate this practice.
- Ghost Employee: This is a very serious practice. This is when a payroll employee creates a fake employee, fails to remove a departed employee, or alters a pay record to change direct deposit information to receive financial compensation. Always make sure to audit payroll records periodically to avoid ghosting.
- Unauthorized hours: This fraud occurs when employees work hourly or must report overtime. Ensure these hours have been worked and that managers review all hours and don’t just issue blank approvals.
- Expense Reimbursement Fraud: This happens when an employee requests reimbursement for a work expense that did not occur, was for personal use, or cost less than they reported. Make sure your expense reporting policy is well-defined and always supported by receipts.
The important thing is to stay alert to possible failures in your security, not to trust that, because your company is not big or famous, it cannot happen to you. Be attentive to those who have access to the information since the threat may be within your own organization.
The cost of payroll fraud goes beyond monetary losses. It extends to the erosion of trust, reputation, and the very foundation of a business’s relationship with its employees.
5 Tips to Protect Payroll Data
Now that you know the problem and its importance, it is time to provide solutions. There are many things that your company can do to improve its payroll security. Today, we are going to talk about five basic recommendations that will raise the level of security of your employees’ data.
Educate employees on proper data security
All employees must know basic rules of care and data protection, such as having strong passwords, recognizing phishing emails, not leaving computers open and unlocked in places such as coworking or cafes, not connecting to unsecured public networks, or not closing email accounts and password-protected platforms. These basic recommendations can prevent information leaks and do not take much time.
Keep access limited
The more people with access to information, the easier it is to leak.
The fewer people with access to the payroll system and data, the lower the risk of internal data breaches and manipulation. Only a very few people in the organization should be able to access the payroll system, and those can be no other than key stakeholders and members of the payroll department.
Monitoring access and activity logs
Constant monitoring of activities related to payroll or sensitive data is one way to keep information secure. Constantly monitoring information can reveal irregular numbers, unauthorized access, or suspicious behavior.
Evaluate potential risks by analyzing the entire process
While a payroll security audit takes time and effort, it can reveal any issues you may have. To start:
- Evaluate your payroll team by asking each member to explain what they do on a day-to-day basis. This will shed light on daily security practices and process weaknesses.
- Take a close look at your payroll data to determine if there have been security breaches in the past.
- If you discover violations, think about why they occurred and what you can do to avoid them in the future.
Keep payroll software up to date
Payroll software typically comes with several default security features, but like other software, it needs to be kept up to date for optimal performance. When your system becomes obsolete, it exposes your company to potential security threats and cyberattacks. To keep payroll data secure, regular checks for updates are essential.
Bonus: Outsource Your Payroll
There’s no denying that maintaining a secure payroll system takes time and energy. If you have a lot to do and don’t have the budget to hire a full-time HR or payroll team, consider outsourcing. A third-party provider can save you time and ensure your payroll is protected. If you decide to go this route, research and shop to find the right provider. Make sure you choose a company that takes security issues seriously with comprehensive security measures.
Modernize Your Payroll Processing with LL Roberts Group
LL Roberts Group has been one of the most trusted professional employer organizations (PEOs) since 1989. Through our extensive experience and reliability, we recognize the critical nature of our clients’ payroll security. We integrate cutting-edge technology into our services to secure, streamline and strengthen payroll processing for companies.
Our payroll services span a variety of functions, including paper paychecks, direct deposit, and payment cards. Certified payroll reports, labor cost analysis, and comprehensive reporting ensure transparency and efficiency.
Likewise, we perform meticulous payroll tax audits and filings so that you have peace of mind when outsourcing your payroll to us. Contact us today to explore how our customized payroll services can improve your business operations and strengthen your payroll security!