How to Master ​​Payroll Security: 6 Top Tips to Safeguard Your Company

The confidential information, bank routing numbers, and thousands of other sensitive pieces your organization holds can be a goldmine for hackers. In fact, The Association of Certified Fraud Examiners reports that 27% of businesses face payroll fraud and it surprisingly goes undetected for an average of 36 months.

This staggering statistic highlights the urgency for your company to prioritize payroll data security to protect yourself from severe and far-reaching financial losses—often averaging tens of thousands of dollars per incident—as well as potential lawsuits, criminal charges, and reputational damage.

For any organization, especially those with leaner margins or smaller teams, a payroll security breach can be devastating, underscoring the need for robust protective measures.

How do you keep that data safe? As we increasingly lean into the digital space for storing sensitive documents, protecting payroll data is more important than ever.

This article will provide you with an overview of why it’s so important to implement payroll data protection strategies, then dive into six strategic tips that you can use to enhance payroll security within your organization. By implementing these expert-recommended strategies and potentially onboarding a turnkey security software solution like BambooHR, you’ll be able to safeguard your payroll processes, protect sensitive information, and ensure compliance with regulations.

What Is Payroll Security?

Payroll security is the practice of safeguarding your organization’s payroll data to prevent unauthorized access, fraud, and data breaches. By regularly updating and monitoring payroll systems for suspicious activity, as well as encrypting sensitive information, you can ensure that only authorized personnel have access to:

• Employee Personal Records: Names, addresses, Social Security numbers, and other identifying details.
• Salary and Wages: Employee pay rates, bonuses, and compensation.
• Tax Records: Tax withholding information, filing statuses, and related documentation.
• Bank Account Details: Direct deposit information and bank account numbers.
• Employment Records: Hiring dates, job titles, and employment history.
• Benefits Information: Including health insurance, retirement plans, and other perks.

To implement robust security measures, you want to ensure that sensitive data is protected through numerous protocols, such as:

• Access Control: Only authorized personnel should be able to access payroll data, using mechanisms like passwords, biometric verification, and role-based access controls.
• Data Encryption: Encrypt sensitive data both in transit and at rest to protect it from unauthorized access or cyberattacks.
• Monitoring and Auditing: Regularly monitor payroll systems for suspicious activity and conduct audits to ensure compliance with security policies.
• Fraud Prevention: Implement checks and balances to detect and prevent payroll fraud, such as ghost employees or unauthorized changes to payroll data.
• Compliance Assurance: Ensure that payroll processes comply with relevant legal and regulatory requirements, thereby avoiding penalties and legal issues.
• Backup and Recovery: Maintain secure backups of payroll data and be proactive in creating a recovery plan to restore data in case of a breach or system failure.

By safeguarding these data types and performing these functions, payroll security helps protect your organization from financial losses, legal complications, and damage to employee trust.

Why Do Payroll Systems Need Security?

In an ideal world, everyone would respect the rules that keep us all safe—especially when it comes to our most sensitive information. Unfortunately, all that information your company is currently guarding holds tremendous value if it gets into the wrong hands, so it’s crucial to set up a series of protocols to ensure that only the people who need to access it can.

“It takes 20 years to build a reputation and a few minutes of cyber-incident to ruin it.”

― Stephane Nappo

Most companies don’t consider this risk until it’s too late. In fact, 31% of HR managers say they need better employee data protection, and 13% of all employees have been directly affected by an employer's data breach. Here are the most significant risks your company faces if you don’t take preventative measures in advance:

• Internal Threats: There are moral and ethical concerns to be aware of since you’ve asked all your employees to trust you with their private information. Employees expect these details to be handled responsibly, and a breach can significantly impact their morale and your organization's reputation. Securing your payroll system helps prevent internal fraud and theft, maintaining your brand reputation and employee trust.
• External Threats: Payroll data is a prime target for cybercriminals as well. By maintaining robust payroll security that guards against cybersecurity threats, you can safeguard sensitive data, such as social security numbers and bank details, from breaches and cyberattacks.
• Regulatory Threats: Your company is responsible for ensuring regulatory compliance with payroll tax regulations and data privacy laws. Non-compliance can lead to hefty fines and legal issues, making it essential to secure your payroll systems effectively.

With these general risk categories in mind, we’ll explore the more specific risk of payroll fraud in the next section.

What Are the Most Common Types of Payroll Fraud?

Fraud can take various forms, and each type poses significant risks to your organization’s financial health and employee trust. (Dig into some payroll horror stories we’ve collected from the trenches!)

Here are the most prevalent forms of payroll fraud that your security measures should address:

• Ghost Employees: This type of fraud occurs when fake employees are added to the payroll, allowing fraudsters to collect paychecks for non-existent workers. This often involves collusion with someone in the payroll department who creates and manages these fictitious records.
• Buddy Punching: This happens when one employee clocks in or out for another, allowing the latter to be paid for hours they did not work. Buddy punching can lead to significant financial losses over time and can be mitigated by using biometric time clocks or other verification methods.
• Time Theft: Time theft involves employees falsifying their working hours, either by exaggerating the time they’ve worked or by not accounting for breaks accurately. This fraud can be prevented by implementing strict time-tracking policies and using automated time-keeping systems.
• Non-repayment of Advances: In this scenario, employees take payroll advances and fail to repay them. Without proper tracking and repayment systems, these advances can accumulate, leading to financial discrepancies and losses for your organization.
• Salary Fraud: This type of fraud involves the manipulation of salary payments, such as unauthorized salary increases or bonuses. It can occur through the alteration of payroll records or unauthorized changes in salary structures, often requiring insider access.
• Workers’ Comp Fraud: Employees may commit workers’ compensation fraud by falsely claiming injuries or exaggerating the severity of legitimate injuries to receive undue benefits. This fraud leads to financial loss and increases insurance premiums for your organization.
• Tax Fraud: Tax fraud in payroll can occur when employees or employers manipulate payroll taxes, either by underreporting income, falsifying deductions, or failing to remit withheld taxes. This fraud can lead to severe legal penalties and financial losses for your company.

One common theme here is that most of these types of fraud can be reduced or eliminated by implementing turnkey security measures and in-depth analytics offered by specialized software such as BambooHR. This can also help prevent internal fraud such as Wage Theft, which is when a company intentionally or unintentionally underpays their employees, and can lead to hefty fines for labor law violations.

But there are more possible threats to your organization. Let’s explore additional internal and external risk factors you should be aware of in the next section.

How Does Payroll Data Get Leaked?

Most often, internal data leaks occur due to employee errors, such as failing to secure sensitive data properly or falling victim to phishing attacks. An astounding 80% of HR professionals are complicit in questionable data management practices. Additionally, intentional data leaks can happen when disgruntled employees misuse their access to confidential information, leading to unauthorized disclosure.

External threats also pose significant risks to payroll data. Hackers and cybercriminals constantly seek vulnerabilities in your payroll systems to exploit weaknesses they can profit from. Cybersecurity breaches can result in massive data theft, exposing sensitive employee information and leading to severe financial and reputational damage.

With a clear understanding of both internal and external risks, it's essential to take constructive steps to maintain strong payroll security. In the next section, we'll explore practical strategies you can implement to protect your organization from these threats.

6 Tips for Stronger Payroll Data Security

Protecting your payroll data is essential to mitigate the risks we've discussed, such as fraud, leaks, and cyberattacks. By implementing the following six strategies, you can strengthen your payroll data security and safeguard your organization against these threats.

1. Ensure All Software Is up to Date

Keeping all your payroll software up to date is a fundamental step in ensuring payroll security. Software updates often include critical security patches that address vulnerabilities identified by developers. By regularly updating your payroll systems, you minimize the risk of cyberattacks and data breaches.

“There are only two different types of companies in the world: those that have been breached and know it and those that have been breached and don’t know it.”

― Ted Schlein

Hackers frequently exploit outdated software to gain unauthorized access to sensitive information, so staying current with updates ensures that your payroll data remains protected against the latest threats. Make it a standard practice to install updates as soon as they become available to maintain a secure and resilient payroll system.

2. Regularly Audit and Monitor Payroll Processes for Security and Compliance

Conducting regular audits and continuous monitoring of your payroll processes is essential for maintaining security and compliance. Regular audits help identify discrepancies, unauthorized access, and potential fraud before they escalate into significant issues.

Continuous monitoring ensures that any suspicious activities are detected in real-time, allowing you to take immediate corrective actions. See these top tips to take a proactive approach, which can help you maintain the integrity of your payroll system while adhering to regulatory requirements, and protecting your organization from potential legal and financial repercussions.

3. Secure Physical Access to Payroll Data

Limit how and when employees are able to access the servers where payroll data is stored to further safeguard digital information. Only authorized personnel such as your IT and HR team members should have access to these areas, and measures such as locked cabinets, secure offices, and access control systems should be in place.

By restricting physical access, you reduce the risk of unauthorized individuals tampering with or stealing sensitive payroll information. This added security layer complements your digital defenses and helps maintain your payroll data’s integrity and confidentiality.

4. Educate Employees on Data Security Best Practices

Usecure recommends educating your employees on data security best practices to ensure payroll security. Conduct regular training sessions to inform them about recognizing phishing attempts, creating strong passwords, and handling sensitive information securely.

When employees understand the importance of data security and their role in maintaining it, they become your first line of defense against potential breaches. Empowered with knowledge and awareness, they are less likely to fall victim to social engineering attacks and more likely to adhere to security protocols, significantly reducing the risk of payroll data leaks.

5. Establish and Regularly Test Disaster Recovery Plans and Data Breach Strategies

It’s essential to maintain payroll security backup for any eventualities that may occur. According to IBM, it’s critical to develop comprehensive plans that outline the steps to take in case of a data breach or system failure, ensuring minimal disruption to payroll processes.

Regular testing these plans can help identify any weaknesses and ensure that your team is prepared to respond swiftly and effectively. By having robust disaster recovery and data breach strategies in place, you can mitigate unforeseen incidents, protect sensitive payroll data, and maintain business continuity.

6. Outsource Payroll to a Trusted, Certified, Payroll Service Provider

Outsourcing payroll to a trusted, certified payroll service provider can significantly enhance your payroll data security and end up saving you money. These providers specialize in payroll management and invest in advanced security measures that might be challenging for individual organizations to implement.

How BambooHR Can Help Keep Payroll Data Secure

In addition to streamlining your payroll process with comprehensive payroll and HR solutions, BambooHR offers cutting-edge security features designed to protect your sensitive data. Protect your company and employees with advanced encryption, multi-factor authentication, and continuous monitoring.

Our certified payroll specialists ensure compliance with the latest regulations and conduct regular audits to identify and mitigate potential risks. By partnering with BambooHR, you gain access to a dedicated team focused on maintaining the highest security standards, allowing you to confidently focus on growing your business while we handle your payroll needs securely and efficiently.

Sign up for a free trial to explore more features and see how BambooHR can support your company with comprehensive payroll security features, and so much more!

Or, to discover the latest trends in payroll strategy and how to catch expensive mistakes before they happen, download our ebook, “The State of Payroll.”