Payroll Security: 11 Tips to Keep Your Business Data Safe

Payroll security involves taking steps to ensure that sensitive company and employee information isn’t compromised by employees or outside actors, like hackers. 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.

Here are some tips to safeguard your business’ data and create a secure payroll system using software or a third-party provider.

1. Choose a Good Payroll Software

Payroll software plays an important role in preventing payroll risks like payroll fraud and phishing. These tools are also equipped with advanced security features making your payroll safer from attacks. They also automate the payroll process and lessens the possibility of human error. According to Zenefits, integrating automated timekeeping payroll reduces errors by two-thirds compared to those which are only automating.

2. Train Employees How to Use Your Payroll System

Training all new and current employees on the proper use of your business’ payroll system helps everyone understand built-in security features. It’s also an opportunity to train relevant employees on additional steps that must be taken to protect sensitive company data and employee records such as Social Security numbers and addresses. For that reason, payroll training efforts should clearly describe your company’s procedures and make sure all relevant employees have access to them.

To maintain employee training goals and uphold payroll security standards, schedule additional training sessions whenever the software is updated or a procedure changes. IT Governance reported that 5.37 billion records have been breached as of October 2023 and that includes payroll data. Ensuring that your employees are trained and aware of all rules/regulations is the best way to get ahead of this.

Business owners can also strengthen payroll security by keeping an eye out for ways employees may cut corners and bad habits that form around payroll security procedures.

3. Include Payroll in the Business’ Security Strategy

Just as your business’ payroll procedures should be published in relevant training materials, payroll security is an important part of the business’ security measures. Including payroll processes in your security strategy makes relevant policies accessible to employees and makes it easier to integrate all of the company’s security measures and avoid gaps or other weaknesses. Helpful internal measures that can combat payroll fraud include:

• Conducting background checks before hiring new employees
• Limiting how many employees have access to employee personal information
• Engaging an automated clearing house (ACH) filter to prevent unwanted parties from accessing your business’ bank account
• Encouraging employees to use direct deposit instead of printed checks, which are more susceptible to payroll fraud

4. Update Your Payroll Software Consistently

Whether it’s an app on your phone or the system your business uses to manage payroll, outdated software exposes you to a number of security threats, including hackers. For that reason, one of the best ways to tighten your business’ payroll security is to update your payroll software immediately after those updates become available. These updates are especially important when released in response to known data breaches or other security issues.

How to Ensure Payroll Software Is Updated

1. You can keep software up to date by providing clear update requirements in your company’s payroll and security procedures. Likewise, if employees need to update the software on their individual devices, communicate this in a timely fashion, provide clear instructions, and follow up to confirm the updates are completed.
2. Business owners who work with a payroll provider should also confirm that the vendor automatically applies all software updates—rather than requiring manual updates at the individual company level. Updating your payroll software also allows you to ensure that you have access to all the latest third-party integrations, which will help you to streamline your process in the most efficient way possible.

5. Require Users to Update Their Login Credentials Regularly

In addition to updating your company’s payroll system itself, take steps to require that employees update their passwords on a regular basis. Generally speaking, it’s best to update passwords every 60 to 90 days, though the frequency ultimately depends on the unique needs of your business and the likelihood of a password breach. This requirement should be clearly stated in the company’s security procedures and as part of payroll system training.

Regular password changes don’t protect against every threat to payroll security, but the approach can still be an effective strategy—especially when combined with other security measures.

6. Focus on Separation of Duties

Separation of duties is a human resources and information technology principle that can help tighten payroll security while also reducing errors. In the context of payroll security, businesses are more likely to have security issues if a single person is performing every stage of the payroll process. This is because people are typically less likely to access or steal sensitive information if they think someone else will be reviewing their work and other activity. And in many cases, not having access to multiple systems makes it impossible to commit payroll fraud.

As an example, some businesses opt for one employee to manage time cards, have someone else handle payroll, and have a third employee issue the checks. Not only does this structure discourage employee fraud, but it also reduces the likelihood of errors. The more employees who are required to review elements of your business’ payroll process, the fewer mistakes are likely to impact operations.

7. Limit the Information You Print on Checks

Including too much employee information on checks exposes your business and its employees to significant threats to payroll security, from phishing and social engineering scams. The more you print on checks, the more sensitive information is stored in your payroll software and the more susceptible you may be to a devastating and potentially expensive data breach.

Instead of printing details like employee Social Security numbers, addresses, or identification numbers on checks, limit information to the bare necessities like the employee’s name. Likewise, if you use a third-party vendor to handle your business’ payroll needs, make sure it is taking steps to maximize security and issue payments safely.

8. Utilize Features to Reduce Time Theft

Time theft is a breach of payroll security that involves employees intentionally misrepresenting the amount of time they worked in their time sheets. Luckily, payroll systems offer a range of features intended to reduce the incidences of time theft.

Many payroll providers offer multi-factor authentication to help confirm the identity of the person signing into an account, and you can start using it for free. Other features you should consider are shift rules that limit when employees can clock in and out and ways to identify time entries that appear inconsistent with typical logs.

If you’re already using a payroll system, contact your customer support representative to determine what kind of tools are available to safeguard time sheet reporting in your business. There are also stand-alone time and attendance systems available. Here are eight of our best time and attendance systems to get you started.

9. Consider Security When Offboarding Employees

Losing an employee is rarely ideal, but it can be even more harmful if your business’ payroll system is susceptible to security threats from former employees. Most often, security breaches related to former employees occur when an employee who resigned or was fired accesses sensitive employee information. However, insufficient offboarding measures can also result in ghost employees that remain on payroll after they’ve left the company.

To reduce the likelihood of threats to payroll security, recover any company assets such as security credentials and laptops from the employee on their last day. Furthermore, ensure there are processes in place to remove former employees from the payroll system and change login credentials for former payroll employees to prevent unauthorized access.

This is a great area to utilize your payroll provider to help keep your payroll secure. Rippling, for example, offers a device management software that allows you to turn permissions to all apps and programs with just the click of a button. This allows you to manage all of your employees’ access remotely to ensure that only the appropriate team members can access sensitive data. Learn more about what it can do for you in our in-depth Rippling review.

10. Conduct Regular Payroll Department Audits

Payroll audits help business owners prevent or minimize fraud and embezzlement threats while also ensuring payroll processes comply with tax and labor 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 conducting a payroll audit, take important 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

11. Outsource Your Payroll Process

If you’re a busy business owner, it can be difficult to dedicate the time and energy necessary to maintaining 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. Follow these tips when choosing a payroll solution:

• 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

Common Payroll Risks to Avoid

Payroll risks are a major concern for any type of business. Whether the cause is human error or a security attack, you need to protect your business against it. To protect your business from such risks, you need to be aware of them and what they look like.

Some of the most common ones are:

• Payroll Fraud: This is the most common payroll security risk. It happens when someone illegally uses payroll data for their personal gain. This includes making unauthorized changes to the timesheet, creating fake employee accounts, and making unauthorized payments.
• Phishing: The aim of these attacks is to trick you into revealing sensitive information, like your login credentials or password. Phishing attacks often happen under the guise of an email from a legitimate source like your bank.
• Malware: Scammers or attackers use this to infect your computer and steal the data from your computer. They can use this to get into your payroll system and get sensitive data.
• Over and underpayments: This is often the cause of human error due to incorrect pay rate or calculation of hours worked. Sometimes the cause can be the miscalculation of withholding tax or overtime pay.
• Noncompliance: Payroll laws can change over time and if you’re not aware of it, you might find yourself in trouble for noncompliance.

Bottom Line

Whether you work with a third-party payroll provider or handle payments in-house with software, payroll security is an integral part of paying employees. Payroll systems typically have security features built in, but there are a number of steps that you can take to protect your business from threats like falsified time sheets and data theft.

When it comes to payroll software with robust security features and HR support, Gusto offers unlimited pay runs and automated payroll tax payments and filings. It also supports international contractor payments in more than 90 countries. Sign up for a Gusto plan today and get one month free when you run your first payroll (this offer will be applied to your Gusto invoice while all applicable terms and conditions are met or fulfilled).

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