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Learn the Basics of Payroll Security and How to Implement it

Payroll Security: Everything You Need to Know

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Highlights

  • Protecting confidential payroll data is key to preventing fraud and potential data breaches.
  • Payroll security strategies involve implementing access control systems and training employees in security best practices.
  • At EmPower HR, we provide payroll and other HR management solutions to make your business safer and more efficient. Contact us to get started!

Payroll processing involves dealing with a trove of sensitive employee information. To keep confidential data safe and prevent fraud and potential data breaches, companies need to have an efficient payroll security strategy in place.

Yes, we know this can be a complex topic, so we’ve put together a guide with everything you need to know about payroll security. Read on to learn why you need to protect your payroll data, the most common types of payroll fraud, and practical steps to strengthen your payroll systems.

Let’s dive in!

What Is Payroll Security?

Payroll security involves all the processes that a business implements to safeguard the integrity, confidentiality, and availability of payroll data.

When paying salaries and managing employee benefits, companies get access to all kinds of personal information from their employees. This involves names, social security numbers, salaries, addresses, and bank account details. What’s more, they also handle data regarding bonuses, taxes, hours worked, and holidays.

So, payroll security is about ensuring that all this sensitive information is safe to:

  • Protect employees 
  • Maintain compliance with regulations
  • Prevent unauthorized access or fraud

Why Does a Payroll System Need Security?

Payroll systems deal with two critical assets: employees’ salaries and other highly sensitive information. So, it’s not hard to imagine why they need to be protected.

Payroll security breaches can have a very negative impact on your business, from serious financial losses to damaging your brand’s reputation.

In 2023, the global average cost of a data breach was $4.45M

IBM

Here are some of the main reasons why your payroll system needs to have strong security measures in place:

  • To keep sensitive information confidential. Unauthorized access to payroll information could lead to identity theft, financial fraud, or other malicious activities.
  • To prevent fraud. Payroll systems deal with financial transactions. Security measures help you avoid fraudulent activities, such as creating fake employees, altering salary figures, or redirecting funds.
  • To stay compliant. There are several laws and regulations that protect employee data as well as financial information. Non-compliance could have legal consequences for your business, such as penalties and costly fines.
  • To maintain trust. Employees trust you to handle their personal and financial information with care. A breach of payroll security can undermine this trust and hurt your company.
  • To protect your business against cyber threats. Ransomware, phishing attacks, malware… your business is exposed to all kinds of digital risks and your payroll system needs to be protected.

The Common Types of Payroll Fraud

Payroll fraud occurs when someone illicitly manipulates payroll processes to gain financial benefits. This can take various forms, here are some of the most common:

  • Ghost employees: It happens when fictitious individuals who don’t work for the company are added to its payroll system. The fraudster may create false identities or use the details of former employees.
  • Time theft: Employees may manipulate timesheets, such as adding more hours worked or submitting fraudulent overtime claims.
  • Salary fraud: Employees or administrators may manipulate salary figures, either by increasing their own pay or altering the salaries of colleagues.
  • Employer Fraud: Employers may engage in fraud by misclassifying employees as independent contractors, underreporting payroll figures, or misrepresenting the nature of a worker’s duties to lower insurance premiums.
  • Tax fraud: This includes underreporting income, falsely claiming tax credits, or manipulating tax withholding information.
  • Workers’ Compensation fraud: Submitting fictitious or exaggerated injury or illness claims to obtain compensation benefits, as well as claiming that an injury occurred at work when it didn’t.
Follow These 7 Tips to Keep Your Payroll Data Secure

Who Is Leaking Payroll Information?

While payroll fraud often happens internally, payroll information leaks can also involve external actors. According to Verizon’s 2023 Data Breach Investigations Report…

“74% of all breaches include the human element, with people being involved either via Error, Privilege Misuse, Use of stolen credentials or Social Engineering.”

Potential sources of leaks may include:

a – External Hackers

No matter the size of your business, this is the most frequent cause of payroll information leaks. Following Verizon’s report…

83% of breaches involve external actors and nearly all of them are financially driven

External hackers may gain unauthorized access to a company’s payroll systems or take advantage of vulnerabilities in the network to steal payroll information. Also, through social engineering, they can manipulate or trick employees into disclosing sensitive information, including payroll details.

b – Internal Employees

Employees might leak payroll information accidentally, by sending sensitive data to the wrong recipients, leaving documents in public areas, or misplacing physical records. They can also fall victim to phishing attacks.

Finally, disgruntled employees may intentionally leak payroll information as a form of sabotage.

c – Third-Party Service Providers

Leaks may occur if your business outsources its payroll processing to a third-party service provider and the provider’s security measures are inadequate.

7 Tips to Protect Payroll Data

Now that you are aware of the main risks and threats that your business is exposed to, it’s time to see how to keep your data safe!

Here are 7 tips to improve the security of your payroll data:

1 – Implement Access Controls

Limit access to payroll systems and data to authorized personnel only. By implementing role-based access controls, you can ensure that employees have the minimum level of access necessary for their job responsibilities.

Make sure to regularly review and update access permissions.

2 – Encrypt Sensitive Data

Use encryption to protect sensitive payroll data both in transit and at rest. This guarantees that, even if unauthorized individuals gain access to your payroll data, it remains unreadable without the proper decryption keys.

3 – Regularly Update Software and Security Patches

Keep payroll software, operating systems, and security applications up to date with the latest patches and updates. That way, you can decrease vulnerabilities that could be exploited by hackers.

4 – Conduct Regular Audits and Monitoring

Perform regular audits of your payroll data and processes to identify any unusual activities or discrepancies. You should also implement monitoring systems that can detect and alert people to suspicious behavior, providing an early warning of potential security issues.

5 – Train Employees on Security Best Practices

Provide security awareness training to your employees, emphasizing the importance of safeguarding payroll data. Train them to recognize phishing attempts, use strong passwords, and follow secure data handling practices.

6 – Secure Physical Access to Data

If your payroll data is stored in physical form, such as paper documents or hard drives, ensure that physical access is restricted. Implement secure storage facilities, use locked cabinets, and establish procedures for keeping sensitive documents safe.

7 – Establish a Disaster Recovery Plan

Develop and regularly test a disaster recovery plan to ensure that your payroll processes can continue in the event of data loss or system failures.

Finally, back up your payroll data regularly, and store backups in a secure offsite location.

EmPower HR: Payroll With a Personal Touch

Processing payroll involves great attention to detail and handling sensitive employee information. There are just too many tasks to do and little room for error. But what if you could take that weight off your shoulders?

Outsourcing payroll and other HR functions to a trusted partner gives you peace of mind and more time to focus on the strategic side of your business.

At EmPower HR we provide payroll administration services that actually feel like having an in-house payroll specialist. We ensure that all your employees are paid correctly and on time, while keeping your payroll data safe and fully compliant.

Why to Choose EmPower HR for Payroll Administration

We know that managing payroll requires responsible and trustworthy partners. Here are a few reasons to choose EmPower HR:

  • Have a payroll specialist available for you, without the associated costs of hiring one on-site.
  • Amazing customer service. We are proud of the connections we build with clients and specialize in solving problems.
  • Get customized solutions adapted to your business’ specific payroll needs and your sector’s regulations and standards.

Payroll Security Conclusions

Regardless of the size of your business, you need to have payroll security processes in place to ensure your most sensitive data is protected.

By keeping your payroll system safe, you can minimize the risk of fraudulent activities and protect against hackers or other digital threats.

At EmPower HR, we provide a full suite of payroll and HR services to help businesses manage administrative tasks more efficiently, while staying up to date with compliance and security requirements.

Contact us to improve your payroll process with a team of specialists by your side!


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