Payroll Fraud: Prevention is Better Than the Cure

Payroll Fraud: Prevention is Better Than the Cure

Payroll processing services play a significant role in the running of any organization. The overseeing of processes that are involved in the payment of wages to employees is one of the HR department or manager’s chief objectives. Of course, when it comes to payroll, it encompasses various elements. Some of these include:

  • Tax computation and deduction
  • Benefit awards
  • Gross wage estimate and award
  • Employee record upkeep.

In most cases, organizations outsource most or all these processes to payroll outsourcing services. These third-party concerns take charge of and execute an organization’s payroll processing services under contract for a price. Most large organizations have switched to third party concerns or online payroll services.

Payroll Fraud

Payroll fraud is a serious issue that plagues businesses today. It is carried out by individuals/ employees who have control or access to employee records. It refers to the abuse/ exploitation of employee data and theft from an organization. Payroll manipulation doe illegally causes major losses to any company.

The Cost of Payroll Fraud

  • A report by Zee Business stated that attendance fraud, a crucial aspect of payroll, has cost companies 28 lakh crore rupees. The American Payroll Association released these statistics. According to Zaheer Hussain, a national HR expert, and consultant, 3 out of 4 people had erratic or inaccurate attendance. This affects businesses nationally, as well.
  • According to a Forbes article from 2013, payroll fraud affects 30% of all businesses in the US, and it hits smaller companies with less than 100 employees more than one with more than a hundred. Payroll fraud, therefore, is a major reason why many small businesses may experience slow growth.
  • The Happay Report from 2019 also brought to light that nearly half (48%) of Indian firms do not have effective systems in place for the detection of travel and expense frauds, both aspects that come under payroll.

Examples of Payroll Fraud

Some of the most common examples of payroll fraud observed are:

  • Unpaid advances – when employees fail to repay advances given to them by the organization.
  • Fake or ghost employees – fake or ghost employees are those that do not work for an organization but still collect wages.
  • Time Sheet/ Wage alteration – Employees in collusion with the person who has access to records can falsify information such as the number of hours worked or the amount received.
  • Faking accidents – In industrial and even in some IT setups, some employees will take advantage and even fake workplace accidents.
  • Worker misclassification – In cases like these, employees change the status of their employment as well as designation to enjoy the perks and privileges that come along with the position.
  • Paycheck rerouting – In some cases, employees reroute or take a check meant for another employee and cash it.


  • Rigorous background checks on new hires, as well as those in charge of payroll processing services, should be done for security reasons.
  • Constant supervision and monitoring of employee records and transactions is the need of the hour to prevent payroll fraud.
  • As there are various payroll processes, it might become difficult for one person to manage the entire payroll by themselves. In this case, segregating and delegating responsibilities of payroll to other members of an HR department will ease the burden. This also helps when organizations have many employees, and it becomes more complicated to process.

Online Payroll Processing Services

Another way to prevent payroll fraud is to outsource the payroll process. Online payroll processing services are applications and concerns that allow managers and employees greater control over their payroll records as well as a greater sense of security and surveillance. This lessens the responsibilities and liabilities of any company.

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