• 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.

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!

Related Links

• PEO Services: A Guide to Grow Your Company
• 9 HR Best Practices for Small Businesses
• It’s Compliance Not Rocket Science | Our HR Compliance Checklist Makes It Easy

Here are 5 of the toughest HR compliance challenges companies of all sizes face, with examples of compliance rules and recommended best practices to help you stay ahead of the compliance curve.

5 Toughest HR Compliance Issues Every HR Leader Should Know

We know that HR responsibilities fall way beyond throwing job-anniversary parties. From hiring to payroll, HR leaders handle a variety of compliance issues related to employees. So we’ve given you a birds eye view of some of the toughest HR compliance rules that, like Ross and Rachel, are just complicated.

1. Identifying the compliance requirements that apply to your business

Being compliant requires learning which laws apply to your organization and understanding what they require you to do. That’s easier said than done. While there’s no shortage of compliance rules that apply to all employers – employment taxes, wage garnishments, termination pay, and unemployment insurance, just to name a few — there are plenty of small, nitty gritty details that determine whether some rules apply to your business. 

Some HR compliance rules, like great modern art, are open to interpretation. Laws like the Family and Medical Leave Act and whether or not you are legally required to pay an intern are somewhat subjective and require some serious compliance expertise to master. (Did you know that your employees need to meet 3 qualifications before they’re eligible for FMLA leave?) 

The little complexities and ever-changing nature of compliance makes it difficult for even the best human resources professionals to know what rules actually apply to their business. One of the ways to sort through the madness is to pay attention to your business size. For example, some compliance laws only apply to businesses of 50+ employees. 

We’ve laid out the laundry list of compliance requirements for your business, whether it has 1 employee or over 100. Check out or checklist to help you determine what compliance laws apply to your business.

Download Now

2. Employee benefits regulations

Most companies offer their employees a laundry list of benefits – PTO, health insurance, tuition reimbursement, disability insurance and retirement savings – just to name a few. It can be confusing for compliance newbies to determine what benefits are good perks, and what ones are federally required. 

Employee benefits fall into two categories: those required by law (social security and medicare) and those an employer chooses to offer voluntarily (vacation time.)  Businesses are bound by federal law to offer certain employee benefits — and it takes some research to know which benefits a company has to provide its full-time workers. Federal mandatory employee benefits include:

• Social Security and Medicare
• Unemployment insurance
• Workers’ compensation insurance
• Family and Medical Leave Act (FMLA) protections

But what makes employee benefits compliance truly complex are the mix of federal and state laws that employers must adhere to. The following are just a few examples of the most complex mandatory benefit requirements.

Unemployment Insurance

Take unemployment insurance for example. Employers are required to contribute to unemployment insurance through payroll taxes at both the state and the federal level, to assist workers who lose their jobs. While this is a federally required benefit, since unemployment insurance is administered by individual states, the cost of this insurance and amount required for each employer varies from state to state. 

Disability Insurance

While disability insurance is not a mandatory federal benefit, it is one of the legally required benefits for employers in California, Hawaii, Rhode Island, New Jersey and New York.

Health Insurance

Under the Affordable Care Act, applicable large employers (ALEs) risk a potential assessment if they do not offer adequate and affordable coverage to their full-time employees and their dependents and at least one full-time employee receives a premium tax credit. (ALEs are companies with an average of 50 or more full-time employees, including full-time equivalents, during the prior calendar year.) The coverage should also meet minimum essential coverage requirements and minimum value.

3. Complying with wage laws

If everyone needs payroll, why is it so complicated? Payroll may appear simple, but it’s really a complex administrative function. For one, even a small error can ruin the whole process, and leave you with some pretty mad employees. (Don’t mess with payroll, people.) 

Here’s just a few reasons why payroll is complicated:

• Ever-changing payroll laws. It’s hard to hit a target that’s always moving. Your payroll team needs to be aware of any changes that are happening at the federal and state level. While making changes to payroll policies, it’s best to get the new policies validated by experienced officials or external payroll firms.
• Taxes. Between income tax, Social Security taxes, unemployment taxes and more – there’s just too many tax rules to stay on top of. Many companies are moving towards payroll management systems to automate their payroll calculations. Did we mention that you also need to have a list of voluntary deductions for each employee and reimbursements need to be accounted for? 
• Employee attendance calculations. Managing employee time off and attendance is another line item that goes into calculating payroll, and that can be hard to calculate manually. To streamline your operations, you can implement HR software with payroll, attendance, and time off features.

Here’s an HR pro tip: have you tried outsourcing your HR or using a PEO? Rely on the companies you partner with for employment-related compliance services to help with payroll. There are plenty of benefits to using a PEO and outsourcing your payroll function. If you’re thinking about outsourcing HR, get started with us and we’ll work with you to help manage HR.

4. Anti-discriminatory hiring processes

The recruiting landscape has officially shifted to the digital space. The shift to remote work in the past few years has created an influx in remote hiring and virtual interviews. But some challenges never change. HR leaders still need to be experts on recruiting compliance and help lead company execs to avoid being bested by changing regulations. 

It’s easy to fall into a verbal tripwire, especially in a Zoom meeting. Seemingly innocent questions — are you married? What church do you go to? — are seen as discriminatory and can land you in hot water with federal law. As with the job announcement itself, it is best to have interviewers steer clear of any questions or discussions that touch on the areas of race, religion, sexual orientation or any of the other topics covered by anti-discrimination law.

For HR professionals, the real challenge is making sure that everyone – from the executive team to newly-minted managers – know what they can and cannot do. Our advice? Try using compliance-approved interview scripts and distribute them to any interviewers that aren’t as HR savvy as you.

5. Correctly classifying workers

It’s no secret that classifying workers can be confusing and time-consuming. Federal and state laws do not define the terms full-time, part-time, or temporary employees, so it’s up to the employer to define these terms. For example, A full-time employee generally is defined as one who works a “normal work week,” which is generally 40 hours a week. But some companies define the work week as 37.5 hours or even 35 hours depending on the work day and meal schedule. HR leaders should be sure that full-time and part-time classifications are defined as part of a company-wide employment classification policy so that they are consistent throughout the organization. 

The main reason why correctly classifying workers is so tough is because members of the same team can be classified in many different ways. You could have several different classifications on your workforce including:

• Full-time employees
• Part-time employees
• Temporary and seasonal employees
• Independent contractors
• Statutory employees and non-employees
• Interns
• Volunteers

Clearly, classifying employees isn’t something you can generalize. Solidifying the definitions of employment classifications is critical because it defines your employees’ eligibility for benefits, overtime pay and their tax status.

Here are just a few examples of complex classifications: 

1099 Vs. W2 Employees

 A 1099 worker is an independent contractor, which means they’re technically not an employee. 1099 contractors may work part-time or full-time hours, which can make it easy to confuse them with your other W2 full-time employees. But it’s an important distinction to make because, as a result of the short-term nature of their employment, 1099 contracted employees generally do not receive any benefits and have to pay their own income taxes. 

HR leaders need to be sure that they don’t misclassify 1099 contractors vs. W2 employees. Besides DOL litigation costs, there are potential federal civil penalties of $2,074 per violation (generally one penalty per misclassified employee), state penalties (which will vary), and in some cases the potential for jail time.

Exempt Vs. Non Exempt

Although full-time, part-time and temporary employee classification are up to the employer to define, exempt and nonexempt classifications are governed by FLSA law, which includes minimum wage and rules for overtime pay. Whether an employee is exempt or non-exempt determines whether they are eligible for overtime pay. 

Nonexempt employees are typically hourly (with some exceptions.) Exempt employees are typically executives, managers, professionals, administrative staff, and/or outside sales whose job descriptions meet criteria for non-exempt status as defined by the U.S Department of Labor.It’s a tough compliance issue that can trip up even the best of HR leaders. But it’s important to get right because the penalties of misclassifying employees can be big. Wal-Mart misclassified 4,500 employees back in 2011, which ended up costing them $4.8 million in back wages. Ouch.

Today, HR in the manufacturing space faces many challenges ranging from addressing injuries to training supervisors and everything that falls in between. Once company leaders and HR departments address these challenges, they can curb attrition and improve the retention rate of the employees.
Below is a list of some of the top HR challenges facing the manufacturing industry and a few tips to address them properly.

Retraining

The Manufacturing industry is introducing new technologies every day to make its operations fast and efficient. Today, companies are automating job tasks that were possible through manual work. With new technology, manufacturers have to retrain their employees so that they understand these new machines and how to use them for an efficient work environment.

Earlier, companies used to fire existing employees and hire new ones with the right skill set for the job. But today, recruiters don’t have that flexibility, as they must invest time in looking for the skills that may be needed in the future while recruiting new workers.

Companies should estimate the requirement of the workforce and then match the demand with their current workers. The remainder should be retrained to support the existing employees to move forward without compromising their work.

Recruitment

Earlier, word-of-mouth and classified ads might have been sufficient for all producers to hire skilled workers. But that’s not the case in the 21st century, as manufacturers have to be more creative when luring pure talent and young generations, including people of Gen Z and millennials in their 30s. Here’s how HR members can recruit the right talent suitable for their job.

Building Relationships With High Schools

The HR team can talk about career placement, and job offers with students at colleges, community colleges, high schools and trade schools, to encourage students to consider manufacturing careers. Invite students and school personnel to tour your company so that they can see all that you have to offer. That way, they will see your company and experience the culture inside the facility. It will encourage them to work with you in the industry.

Build Company Awareness Online

Plants and factories are often installed in non-popular industrial parks, making it challenging for potential employees to physically know their presence in the market. To combat this potential lack of awareness, start showcasing your services and promote your business online to get recognized by potential employees.

Training And Preparing Supervisors

Lack of proper management can lead to work burnouts, unhappy employees and low revenue. Everybody in the organization works for a bigger picture, and supervisors have to keep track of their workers to ensure everything is done right. To ensure effective results, supervisors need to understand the people working under them and connect with them on a personal level, like learning more about their hobbies and families, as they are humans too.

With that knowledge, leaders can spark a conversation using a few open-end questions with their employees to know them better, like is there anything you need help with? Or how was your weekend? Or how’s your kid doing? Striking conversations with these questions can help supervisors build a strong relationship with their workers.

The manufacturing industry can organize mentorship and leadership programs to ensure all supervisors have the right skill set to handle the workforce under their command.

Leave And Injuries

Besides other sectors of the economy, manufacturing contributes the highest injury rates, and those injuries can enforce the protection of workers’ rights under federal and state laws. The ADA (Americans with disabilities act), the FMLA (family and medical leave act), workers’ compensation rules, and other laws can intersect here.

Once an employee in the manufacturing industry gets injured, everything gets complicated for the employers. For instance, if a worker gets a back injury, they can get 12 weeks off, according to the FMLA. But an employer may fire them if they don’t show up after those weeks are up.

However, if the worker has a note that shows they need at least 21 weeks to recover, the ADA will need the employer to grant more time. At this moment, employers need to be mindful and find work within the company that does not intersect or put pressure on their injury. Remember, an employee should go through a necessary screening process to determine an ideal position after they come back from an injury so that you can avoid any lawsuit.

HR teams work day and night to fill their organizations with employees and manage other challenges side by side while keeping the bigger picture of the company in mind. After all, a right leader treats their people with equality and values their opinion so that there is no workplace politics and everybody feels heard.

How HR Outsourcing Services Can Help

When you work with an outsourcing partner like EmPower HR, your manufacturing company will have a team of experts, ready to tackle the challenges outlined above — so that your company can continue to prosper and grow.