Your business, whether large or small, isn’t immune to payroll scams. These tricks siphon funds from your business, negatively impacting its performance and profitability. You need to be on the lookout for these scams to avoid them.
Here are some common payroll scams, and how you can prevent them:
1. Phishing
An incidence of scams occurs when employees try to impersonate another individual in your company. When they ask for a change, they ask you to change direct payment details. For instance, their email may be fake, but it looks like a real one representing an employee in your firm.
These payroll scams occur when the impersonator has all the information regarding the actual employee. Once you fulfill the request to change banking details and use the sender’s email and name, you divert the employee’s payroll to the fraudulent account.
How can you avoid the scam?
Educate your employees to be alert when communicating through emails and inform them how to detect suspicious texts and report them. Be cautious of any request to change bank information using mail. Validate accounts with workers before you employ them. And don’t click or reply to suspicious mail.
2. Falsifying Wages
Workers do this by themselves or administrators before the payroll runs to raise their wage rate and increase sales by tampering with the actual paycheck. Such payroll scams may lead to losses. Also, false wages may contribute to unwanted pay and benefits for a prolonged period.
How to avoid the scam
Avoid using one person to authorize payroll, approve the timesheet, or produce the signing check. You can employ several managers who check the files involving employee wage information and classification details. It would help to segregate payroll processing duties into random managers for authorization, distribution, and reconciliation.
3. Employee Misclassification
This occurs when you purposefully or accidentally mislabel an employee as an independent contractor. Such an incidence of payroll scams allows the employer to avoid paying overtime, remit employment taxes, insurance, or the worker’s compensation and benefits. Your company could face fines for such payroll.
You need to ensure someone working for your company is an independent contractor or employee to determine how you would facilitate their payment. When employers misclassify employees, they should be punished by the law to avoid taxation.
How to Prevent them
In some cases, it can be tricky to identify if an individual is an independent contractor; your company can do this by distinguishing their credentials. Identify if you train your workers to do their work and provide the necessary tools and equipment. Also, you can consult legal counsel to understand their determination.
4. Ghost Employee Fraud
This is an occurrence where a non-existing worker received a paycheck from your company. You can experience this if a former worker still receives payment or a current employee sets up a fake account in the payroll system. Such cases may be rare, but employees from medium-sized and large companies engage in such payroll scams.
How Can You Prevent it?
Implement an effective off-boarding system that forgets essential details and steps for purging exiting employees from the payroll. You need to double-check the payroll system with user permission and convert cash and check to direct deposit or pay cards to easily track the payment. Confirm if every employee is legitimate and their pay rate is accurate.
Payroll scams can drive the profitability and performance of your business into the ground, and it’s essential to identify and prevent them. But it can be quite challenging handling them alongside your core business activities. You can partner with us, so we take care of your payroll while you attend to the core functions of your business. For more information, please contact us today.
