
Payroll fraud is an ongoing risk for businesses, particularly when working with third parties like umbrella companies.
It can result in serious financial and reputational damage, as well as directly impacting employees.
By taking proactive steps, businesses can protect themselves and their workers from falling victim to fraudulent practices.
Why payroll fraud matters
Fraudulent payroll practices can pull businesses into tax avoidance schemes, whether intentional or accidental.
This can lead to fines and loss of trust from clients and employees.
Beyond financial implications, payroll fraud directly affects workers by reducing their income or causing unexpected tax liabilities.
So, what practical steps can your business take to combat payroll fraud?
Conduct regular audits
Regular payroll audits are essential for spotting discrepancies in pay rates, deductions, or employee records.
This applies whether payroll is managed in-house or through a third-party provider.
Choose umbrella companies carefully
If your business uses an umbrella company, ensure you carry out thorough due diligence. Check their compliance record, accreditations, and reviews from other businesses.
Taking the time to verify their processes can prevent fraud before it starts.
Educate your team
Equip your HR and payroll teams with the skills to identify red flags, such as unexplained deductions, irregular pay rates, or discrepancies in payslip details.
Training can help them act quickly to resolve issues.
Encourage whistleblowing
Foster a workplace culture that encourages employees to speak up if they notice irregularities.
Providing a confidential reporting channel can help identify and address payroll concerns before they escalate.
Use available tools to strengthen checks
HM Revenue & Customs (HMRC) has released a new payroll fraud detection tool that can be an additional safeguard for businesses and employees alike.
The tool allows users to input payslip data and receive an estimate of what should have been paid, flagging potential errors or fraudulent activity.
While it is still in public beta, it is a useful resource to ensure transparency and compliance.
Building trust with employees
Payroll fraud directly impacts employees’ finances.
Providing them with resources to check their payslips and demonstrating your commitment to compliance can build trust and transparency.
For more advice on payroll fraud and how to tackle it, please contact us today.