Payroll

Most big companies have multiple checks in place to prevent payroll fraud, but even the big dogs are not immune from nefarious practices seeking to compromise information or steal money. If you’d rather not have a jealous employee swindle your fruitcake factory or a payroll administrator use other people’s personally identifiable information for their own benefit, then your company better have them in place, too. 

Understanding Payroll Fraud

Payroll fraud is alarmingly prevalent. Still, because it usually starts out with small amounts of money or practices that are camouflage behind standard operating procedures, it often goes unnoticed for a long time. Unlike someone stealing a car whose owner will be looking for it shortly, payroll fraud can be more insidious. What’s worse is that some perpetrators do not even recognize their actions as criminal. They may feel entitled to the funds they’re misappropriating, whether by “adjusting” their payroll records to reflect extra vacation time or clocking in without actually working. These examples aren’t hypothetical—they’ve been committed by police officers and firefighters alike.

What is Payroll Fraud? What Are the Risks?

Payroll fraud involves the misappropriation of funds through various deceitful means. This could include paying “ghost” employees or vendors. These entities appear legitimate but exist solely to siphon off money. These ghost entities might be former employees who’ve quit, been terminated, or passed away but still receive paychecks, or fictitious vendors purportedly providing services.

Another common form of payroll fraud occurs when employees falsify their work hours, either by clocking in without working or having someone else clock in on their behalf. This type of fraud costs businesses billions annually, with small businesses being particularly susceptible. These schemes can go undetected for years, causing significant financial damage before they are uncovered.

How to Prevent and Detect Payroll Fraud

Given the varying setups of companies, payroll fraud can sometimes be alarmingly easy to execute. While smaller payroll departments are at higher risk, larger corporations and even nonprofits are not immune. Prevention is the best defense, as it not only deters potential fraudsters but also facilitates early detection. As is usually the case, the resources invested in prevention are minimal compared to the potential costs of fraud.

Conduct Thorough Hiring Practices: Verify candidates’ identities using tools like the Social Security Administration website, E-Verify, or the IRS website. Perform background checks before hiring and periodically afterward to ensure ongoing integrity. Apply consistent scrutiny to all employees, regardless of their position.

Separate Duties: Especially in smaller businesses where one individual might handle multiple roles, it’s crucial to separate responsibilities. Ensure that no single person is responsible for making entries, writing checks, and auditing books. Implementing a system of checks and balances can significantly reduce the risk of fraud.

Conduct Regular Audits: Perform both internal and external audits to detect fraudulent activities. Regular audits, ideally on a quarterly basis, can uncover discrepancies early, preventing extensive damage.

Responding to Suspected Payroll Fraud

Even with preventive measures in place, anomalies can still occur. If you notice any red flags, it’s crucial to investigate further.

Look for Unusual Behavior and Ghost Employees: Watch for signs of ghost employees, such as payroll discrepancies or unusual behavior. Employees who never take time off might be hiding something.

Provide Reporting Channels: Establish hotlines or other confidential reporting methods for employees to report suspicious activities. Often, those working closely with payroll can identify issues before management does.

Follow the Money: Investigate financial anomalies such as multiple employees using the same bank account, payments to unknown vendors, or unusual expenses. If anything appears suspicious, conduct a thorough investigation, either internally or by hiring external experts, ensuring discretion to avoid alerting potential fraudsters.

Payroll Fraud by Businesses

It’s not just employees who can commit payroll fraud. Businesses themselves can be guilty. Companies that misclassify employees as independent contractors to evade payroll taxes and other employment costs are committing payroll fraud. If you suspect your worker classification practices might be problematic, consider a free consultation to discuss.

The Bottom Line

Now is the perfect time to identify potential vulnerabilities in your payroll system and establish a robust action plan. Although payroll fraud can be incredibly frustrating and costly, it is also highly preventable. If managing payroll in-house feels overwhelming, consider outsourcing to experts who can minimize the associated risks. Schedule a free consultation to learn how we can streamline your independent contractor payrolling compliance processes–ensuring peace of mind and operational efficiency.

Payroll fraud is incredibly common. White collar crimes can be slippery because they aren’t always as obvious as someone swiping a stack of bills from the cash register. Some perpetrators likely don’t even think of themselves as thieves. They’re just “redirecting” funds they feel should be theirs anyway, “manipulating their payroll records” to show they had extra vacation time, or clocking in when they’re not actually on duty. Those last two, by the way, were done by police officers and a firefighter, respectively.

What is Payroll Fraud? What Are The Stakes?

Payroll fraud is a misappropriation of funds that can happen a variety of ways. It could happen in the form of paying “ghost” employees or vendors. Such entities look legitimate but exist solely as a front. They may be workers who’ve quit, been fired, or died but are still receiving paychecks. They could be vendors that seemingly provide a service, but are in fact, nonexistent.

Another form of payroll fraud is when a worker clocks in when they’re not working or has someone clock in for them when they’re running late. Any form of falsifying hours falls under the umbrella of payroll fraud. Businesses lose billions in reported cases and small businesses are especially vulnerable. The duration of the schemes varies, but some businesses only find out after a worker has been fleecing it for years.

Resources to Prevent And Detect Payroll Fraud

Depending on a company’s setup, payroll fraud can sometimes be remarkably easy to pull off. Businesses with small payroll departments are most vulnerable, but it happens at the big companies and even feel-good nonprofits, too.

As usual, the best approach is prevention. Preventive measures discourage a would-be fraudster from trying something unsavory in the first place. They also make it easier for companies to catch perpetrators early on. Any resources a company puts toward preventative measures pales in comparison to the potential cost of lax procedures.

1. Hire with discretion. Use the Social Security Administration website, E-verify or the IRS website to confirm candidates’ identities. Continue the process by conducting a background check before hiring anyone as well as at regular intervals even after they’re on the team. Institute a process and apply the same level of scrutiny to every employee at every level.
2. Separate duties. This applies especially to smaller businesses where one person fills multiple roles. If the same person makes entries, writes checks, and audits the books, they have too much power and can cause problems. Separating duties when possible and having a system of checks and balances (pun intended) in place goes a long way toward preventing fraudulent behaviors.
3. Conduct audits. Both internal and external audits can identify fraudulent activities and each has benefits. When used in conjunction, these efforts can pay off big time by preventing issues or detecting them early. Quarterly reviews are a healthy standard practice for companies of all sizes.

Something Doesn’t Seem Right. Now what?

So let’s say you’ve taken preventive measures to minimize risks and something still doesn’t add up. If you see any red flags, it’s time to dig.

1. Watch for ghosts, unusual behavior, and anything out of the ordinary. Twitter made headlines in 2022 attempting to identify if there were ghost employees sucking up payroll. This article identifies other red flags to watch out for. Hint: an employee who never takes a day off may not be as dedicated as you think.
2. Provide an outlet for other employees to report suspicions. Company leaders can’t have their eyes on everything and it’s often the ones in the trenches that will be first to identify when something is amiss. Organizations with hotlines receive more tips to potential fraud than those without.
3. Follow the 💰. Corruption always leaves a trail. If more than one employee uses the same bank account, unknown vendors are receiving checks, and unusual expenses are popping up, it’s worth looking into. If something seems like it could be amiss, investigate. If you have the resources to conduct a thorough internal investigation, that’s a good place to start. If not, hire someone to do it for you. And do it quietly so you don’t tip off the fraudster(s) before you have all the information you need.

Can Businesses Conduct Payroll Fraud?

We’ve talked about the workers, but companies can be guilty of a different kind of payroll fraud as well. Businesses that misclassify employees as independent contractors to avoid paying payroll tax and other costs associated with employees are also guilty of payroll fraud. It’s not the focus of this post, but we cover worker classification in depth. Contact us for a free risk assessment if you think your worker classification practices could use a second look.

Bottom Line

Now is a great time to identify vulnerabilities, and determine a course of action. Most payroll fraud, while incredibly frustrating and costly, is highly preventable. If you’d rather offload some of your payroll completely, call 303-526-4900 or email us. We minimize the time, effort, and risk associated with worker classification, payroll, and more.

A good payroll service is effective with even the most intricate, multifaceted, heavily-regulated industries around. Video production is up there with the toughest industries (it’s called a production for a reason)! Media managers oversee an incredible about of details for multiple teams of independent contractors and freelancers and, when their productions get big enough, it can be a huge relief to outsource some of the most tedious aspects of their work to partners who specialize in those aspects. Enter a video production payroll service that specializes in breaking the relentless cycle of onboarding, chasing signatures, coordinating invoices, verifying timekeeping and researching the ever-changing Department of Labor compliance guidelines. 

What to Look For in a Video Production Payroll Partner

Effortless Onboarding

One of the most tedious and high-stakes aspects of engaging independent contractors is the up front paperwork. There are endless ts to cross and is to dot. Add the ever-changing compliance requirements from the Department of Labor and it’s enough to justify serious attention to the subject. But productions require serious attention in so many other areas so a partner that can simplify onboarding can make seriously better for media production teams. A payroll service that you can confidently outsource all of onboarding clerical work to will be one that is proactively addressing all the compliance issues related to engaging video crews and/or production teams.

Online Timekeeping And Painless Payroll

Video productions are a world of their own! It’s not uncommon for one contractor to fulfill multiple roles with different pay rates. Tracking the rules around overtime, special holiday rates, and making sure team members get the breaks they are entitled to by law can be overwhelming. An online service that keeps track of those details is a game changer. Look for one that also allows workers to input their information and supervisors to approve everything in one place. In a world with so many complex details, automation is key. The best payroll service allows media managers and supervisors to stop chasing people for paperwork, invoices, and time sheets while minimizing hiring costs and optimizing production efficiency. 

The Bottom Line

If a service that automates and streamlines everything from the hiring process to payroll, PayReel’s digital platform is where it’s at. It is the perfect resource for your specific production needs. Find out how we can help you make your next production your smoothest yet.

For some businesses, getting out from under onboarding, vendor payment, classifying temporary employees, and other hiring/payroll demands makes all the difference. It can free them up to focus on the central aspects of their business.  Some of the top issues intertwined with payroll are overtime rules, federal and state compliance, insurance requirements for workers, benefit eligibility / management, and worker classification. Each of these issues is a world unto itself—with corresponding needs. It takes a solid foundation of knowledge to handle them accurately. Plus, anytime you’re dealing with payroll, the stakes are high! Businesses have an ethical obligation to pay people accurately and in a timely manner as well as a legal obligation to abide by the rules and regulations.

10 Questions to Help Determine if Hiring a Payroll Partner is Right For You

1. Do you regularly hire independent contractors and/or temporary employees?
2. Is the time required for said hiring and onboarding a stressor/hindrance to other aspects of your work?
3. Does red tape ever cause frustrating bottlenecks?
4. Has your company’s hiring process ever hindered you from being able to onboard a worker quickly enough to accomplish your goals?
5. Have you ever made a bad hire because of a time crunch?
6. Do you ever end up fighting payrolling fires?
7. Would outsourcing payroll (and/or corresponding issues such as worker classification) free you up to focus on more profitable/interesting aspects of your business?
8. Do concerns about compliance, worker classification, IRS audits, and workforce headcount keep you up at night?
9. Have you ever lost favor with one of your best contractors by paying late?
10. Do you have a reputation among contractors for paying late?

Not everyone needs a service to handle payroll. For those who do, though, it can be a game changer. If you answered yes to any of the questions above, it’s worth taking inventory and considering what kind of partners could change the way you do business.  A good partner makes classifying, onboarding, and paying freelancers painless, paperless, and personalized. Any company that needs quick/frequent access to qualified contractors or that wants to take all the risk out of dealing with the independent workforce could be a good candidate to outsource payroll. If that’s you, we’re ready to chat about whether PayReel’s independent workforce engagement solutions make sense for you. It’s about time.

Time is money. And when you have a tendency to get buried under onboarding, vendor payment, classifying temporary employees, and other hiring details, time is priceless.

10 Questions to Determine Whether to Hire Someone to Handle Your Payroll

1. Do you regularly hire independent contractors and/or temporary employees?
2. Is hiring and onboarding one of the most time-consuming parts of your role?
3. Do your payment processes or corporate legal concerns cause frustrating bottlenecks?
4. Is your desk/desktop cluttered with binders, folders, and paperwork?
5. Have you ever made a bad hire due to a time crunch?
6. Do you get pulled into fighting payrolling fires more than once a quarter?
7. Would a high level of service free you up to focus on other aspects of the business?
8. Do concerns about compliance, worker classification, IRS audits, and workforce headcount keep you up at night?
9. Have you ever lost favor with one of your best contractors by paying late?
10. Do you have a reputation among contractors for paying late?

1-4 Yeses: Not everyone needs a service like PayReel. Startups and small businesses can often handle their own payroll.

5-8 Yeses: Hiring a payroll service would take a load off your plate and free you up for the parts of your business you do best. Give us a call to identify your biggest challenges and how a payroll service could address them.

8-10 Yeses: We need to talk. Today. Your blood pressure probably went up as you read the list above. For those who need quick/frequent access to qualified contractors or who want to take all the risk out of dealing with the independent workforce, PayReel is a headache free solution. PayReel’s independent workforce engagement solutions make classifying, onboarding, and paying your freelancers painless, paperless, and personalized.

If you think you’d benefit from a payroll service, contact us. It’s about time.