The Payroll Blog

News, tips, and advice for small business owners

How to Protect Your Small Business from Payroll Fraud

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Stephanie Davis

As a small business owner, you know that running payroll is a complicated task. With the fear of entering incorrect information and mistakes that lead to hefty fines, it’s a smart move to get some help and outsource your payroll. 

A cybercriminal trying to steal personal information from a computer.

We have previously discussed what you need to look for when choosing an online payroll provider, but now we are going to let you know how to watch out for fraudulent payroll companies. As we’ve said before, not all payroll providers are created equal, so it’s important to know who is legitimate and will have your business's best interests in mind.

Understanding Payroll Schemes

When it comes to payroll fraud, there are multiple ways that your business can be targeted. Some of the most common methods are:

  • Ghost employees: A payroll firm may set up one or more fake employees. When paychecks are distributed, these ghost employees will still get paid, which is money that stolen from your business.
  • Commission stratagems: When it comes to employees who earn a commission, payroll can get tricky. Fraudulent companies take advantage of this by inflating commission amounts for certain workers by falsifying sales records, invoices, and other financial documents.
  • Falsified hours and salary: Similar to inflating commissions, fraudulent payroll companies will boost the number of hours worked, or increase take-home pay to take more money out of your business.

In addition to these schemes, it’s important to watch out for any suspicious employee behavior. If any of your employees have access to your online payroll provider, they could easily alter their wages, plus any other employee’s to ensure they get more in their paychecks. Additionally, if you offer expense reimbursement, but not any documentation, employees can say that their expenses were higher than they were. While you would hope your employees use the honor system and are people you can trust, these situations can occur, so make sure that you are only sharing your payroll login with employees you trust.

How to Keep Yourself Safe

Now that you know what to keep an eye out for, it’s important to take extra steps to make sure your business is staying safe.

  • Increase cybersecurity efforts: Having virus and malware protection is the first step in keeping the online workings of your business safe. This software can prevent serious issues from affecting your business. Additionally, keep passwords protected, update them frequently, and try to not use the same password for multiple accounts.
  • Conduct internal audits: When you conduct an internal audit of your small business, you are reviewing financial records to see where your money is going. Any gaps can be a sign of fraud, whether internal due to employees, or external with fraudulent companies or hackers.
  • Have more than one account: If you have all of your business funds in one account, it can be easier for hackers to take everything. By opening a separate account for just your payroll expenses, you can ensure that you have enough money to pay your employees and you are limiting funds that could be hacked.

Which Online Payroll Providers Can You Trust?

When choosing an online payroll software company to help with your payroll needs, it’s vital that you’re selecting a legitimate company. Some common markers to look for are:

  • A national reputation for excellence and integrity
  • A long history of quality service and ethical business relationships
  • Publicly traded and adheres to the regulations of the Securities and Exchange Commission (SEC)
  • Proof of a certificate of liability insurance

At SurePayroll, we take small business needs seriously and have a tax filing guarantee: “If you receive a notice from the IRS, or any other tax agency, based on a filing that SurePayroll made, we’ll work with the agency to help resolve the issue on your behalf.  And, if we’re at fault, we’ll pay all the associated penalties and fines.” When you choose SurePayroll for your payroll software needs, we make sure that your taxes are filed accurately and keep your information safe to prevent hacking.

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This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.