Focusing on your payroll’s security is one of the best ways to ensure your data remains secure. We detail five tips you can use to improve your current process and ensure that your employee and financial information is safe.
What is payroll security?
Payroll security entails taking precautions to prevent sensitive company and employee information from being compromised by employees or outside actors such as hackers.
Processing payroll is more than just paying employees for their skills and expertise. It can be time-consuming and frustrating, especially with the threat of losing critical data along the way. That’s why employers must set up a secure payroll system to safeguard their company’s payroll and provide maximum security to the entire team.
Common sources of payroll security issues include timesheet fraud, pay rate alterations, and data breaches—though the exact nature of these varies by the type of business.
If you take essential steps to safeguard your business’ data, it’s possible to create a secure payroll system using software or by partnering with an experienced payroll specialist.
Why Does a Payroll System Need Security?
Every payroll period, your company manages mountains of personally identifiable information (PII) on your employees. Your database is left vulnerable to potential hackers if you lack security systems.
A breach in payroll information can lead to more than just identity theft. In fact, a minor leak can lead to fraud, hurt your brand image and result in losing employee trust, confidence and loyalty. Smaller companies might be lulled into a false sense of security, thinking, “hackers have bigger fish to catch.” That line of thinking can come at a high cost.
According to Forbes, payroll fraud occurs nearly twice as often in smaller businesses than in large organisations. The reason behind this is quite simple; these companies tend to have fewer anti-fraud controls in place, making them an easier target.
Unfortunately, payroll fraud is more than a quick cash grab. The Association of Certified Fraud Examiners (ACFE) reports that payroll fraud schemes are the longest-lasting form of fraud, with an average lifespan of 30 months. Without proper systems in place, you could go years without ever detecting the ongoing theft of your data or money.
The Common Types of Payroll Fraud
Hacking isn’t the only challenge businesses need to be on the lookout for. Payroll fraud can result in significant losses to a company as well. Here are some more common methods of fraud:
- Advance Retention – This type of fraud occurs when an employee requests a pay advance and fails to pay it back. Always review advances to make sure they’re repaid.
- Buddy Punching – When an employee asks another to punch in for him and doesn’t report to work, this is another type of payroll fraud. Biometric time clocks can help eliminate this practice.
- Ghost Employee – Sometimes, an unscrupulous payroll employee creates a fake employee, doesn’t immediately delete a terminated employee or alters a payment record to change direct deposit information. Always be sure to periodically audit payroll records to prevent ghosts.
- Unauthorised Hours – Hourly employees who pad their timesheets with unworked hours are committing payroll fraud. Ensure managers review all hours and don’t just issue blanket approvals.
The Best Ways to Protect Payroll
1. Create strong passwords & set up encryptions
Using strong passwords for their payroll software and computers prevents unauthorised personnel from accessing payroll data. A strong password contains at least eight characters, including uppercase letters, lowercase letters, symbols, and numbers.
Also, when creating a password for the computers and payroll software, companies should avoid using their names, birthday or a family member’s name. In addition, they should avoid using the same password for multiple accounts.
Consider setting un encryptions on your payroll and date to add an extra layer of protection.
2. Separate payroll duties
Companies can also protect their payroll by delegating payroll duties to multiple employees. For instance, they can choose different people to manage payroll, issue payments, review time cards, authorise payroll, and report payroll. This way, they will be able to deter payroll fraud.
3. Restrict payroll access
Employers should put one or two employees in charge of payroll processing to access payroll information and other sensitive data. This way, they will know who to hold accountable.
4. Outsource Your Payroll Process
If you’re a busy business owner, it can be challenging to dedicate the time and energy necessary to maintain a secure payroll system. Likewise, you may not have room in your budget to hire full-time HR or payroll specialists. Hiring a third-party payroll provider can help you save time while ensuring your company is protected by comprehensive security measures.
That said, when outsourcing your payroll, there are a few important considerations to help you find the most secure provider. Here are some tips:
- Ask about security features incorporated in employee time tracking processes
- Confirm that there is a secure way for employees to access their payroll history
- Research the provider’s reputation, including its handling of security issues
- Understand the services offered by each provider and how they will integrate with your business’ other security measures
- Balance your budget and your business’ payroll needs against the importance of a secure and reliable payroll provider
5. Conduct Regular Payroll Department Audits
Payroll audits help business owners prevent or minimise fraud and embezzlement threats while also ensuring payroll processes comply with tax and labour laws. In general, you should conduct a payroll audit at least annually, but quarterly or monthly mini-audits can provide more comprehensive insights into the health of your payroll system. When running a payroll audit, take essential steps, like:
- Confirming employee information, including pay rates and pay periods
- Spot-checking 5% to 10% of your employee W-4 forms to look for possible systemic issues
- Comparing hours in payroll records to hours reported on timecards
- Running a ledger report that shows every transaction in your company to ensure it aligns with payroll records
Benefits of Payroll Security Measures
1. It prevents identity theft
Having a secure payroll safeguards employee information from identity theft. If payroll data is insecure, someone can access confidential employee information such as bank account numbers or social security numbers and use them for illegal purposes.
2. It prevents jealousy and conflict in the workplace
If payroll information is left out in the open, it may result in jealousy and conflict at the workplace regarding salaries, bonuses, and benefits.
Securing payroll is the best way to safeguard this information and prevent the lower employee from getting jealous. However, it is worth noting that employers cannot prevent employees from discussing their salaries with each other.
3. It protects tax and benefit information
Securing payroll helps protect vital company information like benefits and tax documents. Only the business owner is supposed to have access to such information. Hackers can access and use it against the company.
Hackers and other unauthorised personnel can access a company’s payroll information anytime if they are not careful. This can lead to a massive loss of personal data that can easily taint the company’s reputation.
Fortunately, payroll services like MASA have years of industry experience and high levels of security to ensure your information will be safe and adds a layer of protection to any company’s payroll information.
Our in-house specialists process over 12,000 payroll transactions monthly worldwide through best-in-class payroll systems and develop custom reports to give you a detailed view of your company’s payroll. We also update and submit all the correct documentation to the relevant bodies, ensuring payroll compliance and reducing risk.
You can get in contact with us today to learn more about our payroll solutions!