Skip to content
Blog
  • Home
  • Blog
  • Contact
March 12, 2024 / Payroll

Payroll Fraud

Running a business requires effort on all fronts. You must ensure that output is always at optimum level so that workers are satisfied and feels motivated with the company culture. Another critical aspect is safeguarding a company payroll system against payroll frauds.

Stealing within a company can take place in many ways, such as stealing raw materials, infrastructure vandalism and machinery. However, payroll fraud is the toughest to detect because it’s often secretly invisible.

According to Forbes reports, Payroll frauds happens in 27% of all businesses and occurs nearly twice as often (14.2%) in companies with less than 100 employees.

We created this Blog on payroll fraud to help you understand how it affects the SME or Large business and what payroll fraud prevention methods can be implemented.

What is payroll fraud?
Payroll fraud happens when an individual illegally does time theft when they add working hours that they do not work or changes the company payroll structure to manipulate the calculation of employee remuneration for their own benefits

Six different types of payroll fraud

  1. Ghost payroll
    This payroll fraud is generally committed by someone in HR department who has easy access to the organization’s payroll system by producing fake staff in the payroll system. In doing so, they falsify the employment records to keep collecting cash from the organization.
  2. Misclassify
    Workers provide different classifications depending on the number of hours they work, their work role, their relationship with the company like full-time, part-time, or contract workers to steal the benefits they’re entitled for and to save costs like severance levies, staff benefits, and payroll levies.
  3. Timesheet fraud
    Workers provide different classifications depending on the number of hours they work, their work role, their relationship with the company like full-time, part-time, or contract workers to steal the benefits they’re entitled for and to save costs like severance levies, staff benefits, and payroll levies.
  4. Third-party payroll scams
    Employers think payroll frauds can be committed only internally, but payroll diversion scams have third-party offenders who steal the employee data to change their bank account details so that the money is transferred to cyber criminals.
  5. Workers’ compensation fraud
    Worker compensation fraud happens mostly in the manufacturing, construction and mining industry when a worker reports a fake injury or falsely claims that an injury occurred at work to collect workers’ compensation which may resume the rise of workers’ insurance premiums thus increasing the cost.
  6. Bonus schemes
    Some staff may figure out loopholes in the payroll system to avail the incentives or bonuses they didn’t earn honestly.

Another type of fraud is committed by contractors who agree to provide a certain number of workers on site but avail fewer workers working thus saving on the labor cost.

How to detect payroll fraud?
Prevention is better than cure. This is why you must take the necessary steps prior to payroll fraud. While lawsuits and recovery of stolen money are secondary steps, first, you must ensure all measures are taken to mitigate fraud.

  1. Use tools to avoid timesheet fraud
    You must ditch paper or excel timesheets and switch to payroll and attendance management software that’s cloud-based. It also offers advanced features such as leave management, attendance policy, contract worker management, and real-time staff tracking.
  2. Understand staff classification
    As a manager, you must understand staff classification. Misclassification of the staff not only has financial implication but this is also against the law.
  3. Create clear workers’ compensation policies
    Create clear policies for workplace injuries. Your workers must know who, when and how to report workplace injuries. Install security cameras at work sites so that any workplace injuries are recorded as evidence.

Can a legal action be taken against employees doing payroll fraud?
An employer can file an action against the employee who commits payroll fraud and sue to recover the stolen plutocrat and seek discipline as per the law against fraud.

Conclusion
Payroll fraud is punishable by law, but its fiscal suggestions on the overall business can be ruinous. It can happen to the small and large companies, which is why there must be measures taken like using payroll automation technology for payroll fraud early discovery. As the consequences can be more than loss of money and can result in privacy invasion, you must implement the solutions we have shared in this blog.

Post navigation

Previous Post:

How Payroll Outsourcing in India can Transform your Business!

Next Post:

6 Reasons Why Payroll Outsourcing is Essential for Businesses in India

Enquiry Form






What is 9 x 3?

Recent Posts

  • Recruitment Services in Delhi: Trends, Challenges & Solutions
  • Payroll Services: What to Expect & How to Choose the Right Partner
  • What Are Contractual Payroll Services and Why Do Companies Use Them?
  • Payroll Audit: Checklist & How To Run It
  • The Ultimate HR Partnership: Why PEOs Are Your Business’s Secret Weapon

Categories

  • Accountants
  • Business
  • Business News
  • Business Tips
  • Health
  • HR
  • Labour Law
  • Management
  • News
  • Other
  • Payroll
  • Professional Employer Organization – PEO
  • Uncategorized
© 2025 Blog - Powered by SimplyNews