B2B Payments

Tackling Payroll Fraud Begins With The Timecard, Says OnTheClock

Payroll is facing risk exposure from all angles. Cyberattackers are increasingly targeting payroll payouts, while manual data entry introduces the risk of errors. Lackluster reporting increases the risk of non-compliance with Department of Labor regulations, while legacy systems make fraud and inflated paychecks an easy crime.

Many of these issues originate at the beginning of the payroll process with employee time tracking, a process that traditionally requires workers to track their own hours, placing the burden of accurate payroll on themselves.

This opens the door to more than one way a business can lose money. Two of the largest ways, errors and fraud, are “huge issues,” said Dean Mathews, founder of time tracking solutions provider OnTheClock.

“If employees are not using an automated [time-tracking] system, they’re coming from things like hand-written notes, word of mouth, texts, or no time tracking at all,” he told PYMNTS in a recent interview, adding that many OnTheClock clients previously relied on employees to email or text their weekly hour calculations to managers.

“That shifts the calculation down to the employee level,” he said.

With an estimated 78 million hourly workers in the U.S., the risk of inaccurate or intentionally inflated hour recordings is vast.

Research published last year from Hiscox found that employee theft costs U.S. businesses an average of $1.13 million, with small and medium-sized firms making up the majority of those cases. Analysis of nearly 400 U.S. federal court cases involving employee theft in the U.S. revealed payroll fraud to be the fourth largest type, yielding $9 million in lost funds for employers.

And that’s just the payroll fraud that was eventually discovered and made public.

“We do have a portion of our accounts [that] come out to us, and the story goes: ‘My employee of 15 years, who I trusted, I just found out they’ve been stealing 10 hours a week from me,'” said Mathews.

Use of an automated time tracking tool like OnTheClock can mitigate much of this risk for error and fraud – but not all of it. Mathews said that his company’s own studies show that many clients were automating time tracking, but printing out physical copies of those time sheets to payroll.

“What that implies to us is that someone, somewhere is hand-keying in that data,” he said. “There’s that problem of error and extra time taken to generate payroll.”

As with many B2B FinTech solutions, OnTheClock is addressing this challenge through integration and enhanced data sharing capabilities. Its most recent integration, announced last week, links into Thomson Reuters’ payroll solution, allowing payroll professionals to automatically obtain and manage time tracking data when calculating and distributing wages.

Accurate paychecks are critical for any employer. There is the obvious issue of lost money if a worker is overpaid, but Mathews emphasized other ways that inaccurate payroll can cost a business. Manual data entry, for example, requires valuable time and resources from professionals who might otherwise be performing more strategic tasks. The risk of non-compliance is another issue for employers, highlighting the role of automated data entry and management to ensure accurate records in the case of an audit or Department of Labor investigation.

A report from The Workforce Institute at Kronos Incorporated, which was published in March, revealed that most surveyed HR and payroll professionals admit to “questionable” practices when it comes to compliance resulting from a lack of time and resources, with one of the most common issues arising when payroll is processed before timecards are checked by managers.

Payroll errors also run the risk of unhappy workers, and in today’s tight labor market, a loss of talent can be detrimental to a business. Separate research from The Workforce Institute revealed that 54 percent of Americans have experienced at least one kind of payroll problem, which may include being paid too little. Hourly and gig workers experience these issues more frequently, the report noted.

Data sharing and API-powered integrations into payroll platforms are an essential component of OnTheClock’s strategy moving forward, said Mathews, as well as an important tactic to combat fraud and errors in time tracking and payroll. But there are other technologies easing friction, too. One of the rising dominant tools in this space is the mobile device, said Mathews, with employees and employers alike demanding access to time tracking functionality on their smartphones.

The trend is ushering in additional technologies deployed by OnTheClock to curb the risk of fraud in other ways.

“A common is question is, ‘Now that my employee can clock in and clock out on their phone, how do I know they’re not at home, or on the road still? How do I know they haven’t left early and clocked out an hour later?'” he said, adding that tools like GPS, geo-fencing and IP restrictions can all ensure employees are where they need to be at the time of clock-in and clock-out.

Mobile and remote access to time tracking platforms is also becoming increasingly useful for gig workers who need to juggle multiple employers and jobs at once, Mathews added, noting that smartphones and mobile devices are likely to further disrupt the time tracking and payroll space as employers deploy technology to combat fraud and errors.

“Mobile is a big deal,” he said. “We see the future of time-keeping going probably somewhere between 80 to 90 percent mobile over the next 10 years. We really believe the desktop is going to be significantly removed, at least with small to-medium sized businesses.”

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