Payroll Scams: Ways Employees Cheat Their Employers


Payroll fraud is a major problem that can impact multiple businesses and cause a diverse array of problems that need to be managed ASAP. An all too common example, an employee might try to get more money out of you by lying on their timesheet. That’s hardly the limit though, and their capability to take largely lies in the control given to them. It’s critical for you to know about these problems, loopholes, and functions of your payroll service, all to how to avoid them to ensure that you don’t end up losing cash. Here are some of the most common of these fraud types that might impact your bottom line.


Misclassification: Honest Mistake or Fraud?

There’s a very big difference between an employee who uses a Form W-2 and someone who uses a Form 1099-MISC. The former has money taken out of their pay for taxes, while the latter has to pay taxes at the end of the year. There is a chance that this could be a mistake on your employee’s part if they try claiming inappropriately, so make sure you talk to them first before assuming that they’re committing fraud. If it keeps happening, then there’s a problem.

Timesheet Fraud: A Very Common Issue

Again, this is another situation where an employee might have just made an honest mistake and tried to claim more hours than they worked. As a result, it’s important to consider that before just assuming that they’re committing fraud. However, if you notice that your employee continually makes this “error” or that they’re close friends with a payroll clerk, it’s important to seriously consider investigating them for committing real fraud against your company.

Padding Work Hours: Easy to Commit and Hard to Spot

Do you have an employee who always seems to work extra hours or make more money than you expect but who doesn’t really seem to do any more work than anyone else? There’s a good chance that they’re padding their work hours here and there to avoid making you suspicious. For example, they might add 10-15 minutes a day occasionally to make more money. Have someone watch them carefully to make sure that they’re really doing all the work they claim.

Heavy Advances: Watch for Extra Expenses

Does an employee of yours always seem to take out a pay advance and then somehow have a much higher expense account than normal? This common scam involves using an expense account to pay for advances rather than paying them back normally. It’s an insidious approach because you’re basically paying them twice. As a result, you need to be on the lookout for anyone who seems to always have high expenses for little reason.

Taking Care of Your Bottom Line

Getting high-quality managed payroll services can help you avoid these problems and minimize your pay errors. Seriously consider this step if you feel like your employees are somehow committing fraud against you. In this way, you can reduce potential pay issues and save yourself money. No matter what size business you run, you deserve the ability to properly pay your employees without costing yourself too much money and to stay financially solvent.