When a Payroll Company Steals (And What You Can Do About It)

by May 5, 2022CMMA Blog, Payroll, Uncategorized0 comments

When you trust someone to handle your company’s payroll, you better make sure that partner is worthy of your trust. We’ve seen everything from individuals siphoning small amounts over long periods of time to a payroll company diverting millions from employee accounts .

How to Protect Yourself From Payroll Fraud

How Do You Know You Can Trust a Payroll Company

Trusting a company to handle huge chunks of change (in tandem with your reputation) is no small thing. So why would employers process payroll through a third party?

While paying people may seem like a simple task, it can actually be very complicated, time-consuming, and laden with risks. In many cases, employers hand off payroll to third-party companies to avoid having to navigate the minefield of laws governing taxes, family leave, benefits and more. Outsourcing payroll is a way for companies to mitigate risks and offload a time-consuming, labor-intensive task to a company that specializes in that area. It’s like having a whole HR team without having to hire an internal HR team.

How Can Large Chunks of Change Just Disappear?

When businesses outsource payroll, they send a sum to cover all expenses (including payroll and taxes) to the payroll company who then distributes the paychecks.

A simple typo could lead to an employee receiving extra pay. In that case, a payroll company has the authority to retroactively cancel the check or even withdraw the overage from the account directly. It seems in the case we linked above, the company not only withdrew funds specified for legitimate paychecks, but went further by withdrawing higher amounts than the original paychecks. The result: $35 million in missing funds. It’s an egregious scandal. The offending company shuttered its doors and scrubbed social media accounts, leaving companies scrambling to pay their employees.

Yikes. So How do I Find a Reputable Company?

Good question. Employers trust payroll companies to manage huge sums of money. Even small problems can have cascading effects. If the money doesn’t make it into an employee’s account or shows up late, said employee may face overdraft/late fees. From there, the frustration and time to fix the problems only build. What’s worse: even if they’ve hired a payroll company, employers can still be held responsible for payroll issues. So yeah, you could say it’s pretty important to get it right. It’s worth doing your due diligence to make sure you’re dealing with a legitimate company.

Factors to Consider When Choosing a Payroll Partner

Longevity: A company that’s been around for 30 years without scandal is a good sign. Chances are they’re not running a long game of doing the hard work to build a solid reputation and systems that work just to defraud people later.

Security measures: Payroll companies have HUGE amounts of personally identifiable information (PII) running through their systems daily. With that level of sensitive info, they must have rock solid security measures in place. Make sure your partner:

  • Encrypts everything at multiple levels
  • Treats all sensitive information as Personally Identifiable Information (PII) and in accordance with HIPAA recommendations
  • Doesn’t allow any sensitive data to go offshore
  • Has regular third-party security checks and annual penetration tests
  • Has a redundancy system that backs up and saves data if something goes wrong

Insurance/guarantees: Even once you’ve done the work of ensuring the above, you still want to find out exactly who is on the hook if a mistake does happen. If a payroll company doesn’t submit payroll taxes on time, for example, the company could be held responsible. You need some assurance that if the payroll company messes something up, it will also clean it up.

Ask questions: Corrupt behaviors tend to start with warning signs. If you think something may be awry, start asking questions or hire someone to look into it.

Bottom Line

Most of this kind of fraud, while incredibly frustrating and costly, is highly preventable. As usual, the best approach for protecting yourself is preventing problems in the first place. Any cost or perceived hassle of doing your research and hiring a reputable company (👋 ) in the first place pales in comparison to the potential cost of lax research. You can rely on PayReel  to assume the responsibilities and get you back to the business at hand. We make sure everyone gets paid quickly and easily and have Client Relationship Managers on call around the clock to answer your questions. Call us at 303-526-4900 or email us if a payroll partner would benefit you.

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