Payroll Fraud 101: Five Ways to Maximize Protection and Ensure Prevention when Payrolling Employees

As a staffing agency owner, keeping your business safe from fraudulent activity should be a top priority, not an afterthought. Payroll fraud, in particular, is a scam that can cost your staffing agency thousands of dollars. These types of scams can go undetected, resulting in financial damage.

Advancements in technology only further fuel this activity, making it easier for individuals to commit fraud, but harder for organizations to detect their suspicious behavior. Especially with payroll fraud on the rise, there’s never been a more important time to lock down your safeguards and protect your agency’s funds.

No one is immune to fraud, which is why it’s key to build a strong line of defense that stops scams early and, ideally, keeps them from happening at all. We want to arm you with the warning signs and recommended steps to help avoid falling victim to payroll fraud.

Here are five ways to maximize protection and ensure payroll fraud prevention.

Investigator Hat On In The Early Stages of Communication

Becoming your own investigator is the first line of defense to protect your agency from payroll fraud. Externally, there are a number of ways to stay ahead of suspicious client activity.

First, examine all touch points of business verification with a magnifying glass. When approached by a prospective client, look up the business online. Use third-party services to verify the business’s registrations and ownership details. Then, call the number listed under the organization’s name, and send an email to the owner mentioned on the website. Always request a completed and signed W-9 form to confirm the registered business name, EIN, and authorized signer. Sleuthing around online and conducting these basic checks help you determine if the organization is legitimate.

Another step to consider is verifying the sender’s email domain for any slight variations or alterations, like omitted punctuation or letters—both of which can be red flags of fraudulent communication. Examples to look out for include:

• com instead of fedex.com
• com instead of amazon.com

These steps are crucial when engaging with prospective businesses to ensure your staffing agency isn’t walking into any traps.

Become a Background Check Sleuth Online and In-Person

Background checks are another important piece of keeping your agency protected from payroll fraud. Tapping background check firms can help you with this, and while it might be an extra step in the hiring or new business process, it’s one that can help your organization save thousands of dollars in the event of payroll fraud.

Employee verification is an extension of background checks, helping your staffing agency to verify an employee’s information rigorously to ensure the person is who they say they are. Here are steps in the employee verification process that shouldn’t be overlooked:

• Verify I-9 supporting documents in person, if possible
• Review social security cards carefully to confirm their originality and that they are not digital, tampered, or altered with
• Verify that the name listed on the social security card is an exact match to the name listed on the individual’s driver’s license, down to the initials and spelling of the name
• Review both front and back copies of driver’s licenses for validity and ensure you get a copy of both
• Monitor employee email formats, under the same client, for consistent patterns (e.g., First Name + random number @ domain), as this may indicate fraudulent account setups
• Assess employee home addresses for validity, checking for genuine residential addresses and flagging PO Boxes or suspicious commonalities

Make In-Person Connections A Priority

Once you’ve taken the appropriate steps to verify their existence and legitimacy online, it’s also important to get to know prospective clients beyond the Zoom screen.

One way to ensure you’re engaging with a legitimate company and trusted partner is by conducting on-site visits. Visiting the site location and meeting with the owner allows you to come face-to-face with them so that you know they’re not an imposter hiding behind a screen or under the facade as a prospective customer. The benefits of touring the location include:

• Putting a face to the name to gauge authenticity and validity
• Getting a better pulse check on the prospective client’s intentions
• Conducting the same safety site evaluation that you would if you were placing employees there

Create Robust Payroll Policies

An organization is only as robust as the policies it puts in place, so make sure your agency has established clear-cut, enforced payroll policies with no gaps or loopholes. Payroll review considerations include, but are not limited to:

• Employee count versus business size: Ensure the number of employees requested aligns with the client’s business scale and operational needs
• Salary versus hourly classification: Verify that employees who are paid salary are in roles that are classified as salaried, and that what they are paid is consistent with industry standards for that position
• Executive payroll review: Identify if executives — owners and stakeholders included — are listed on payroll. If they are present on payroll, especially alongside other highly paid executives, it might indicate payroll abuse
• Compensation consistency and overtime: Look out for unusual redundancy or discrepancies in salary or hourly pay and overtime across different roles

Payroll policies establish compliance while promoting fairness and transparency, and supporting risk mitigation within your staffing agency. With structure and visibility around all payroll processes, you can better protect your agency from any suspicious or fraudulent activity.

Employee Training As the Norm, Not the Exception

Last but not least, training employees so that they’re up-to-date on the latest payroll fraud prevention tactics and red flags to be wary of can make all the difference in safeguarding your agency. Training includes keeping employees informed on the latest fraud detection techniques and making sure they feel confident speaking up if something seems off.

For example, if they come across a client who asks to complete their own I-9 verifications, submit employees for payroll with uncommon names, or any other unusual requests, your employee should feel supported in raising a flag for additional review. Training employees to detect and stay away from fraudulent activity should be the norm, not the expectation, within your organization.

Don’t Wait, Take Action Now

Vigilance is key to preventing payroll fraud. But having a trusted partner to lean back on when handling payroll administration services helps bolster your operations and defense so that no stone is left unturned.

This isn’t our first rodeo. We’ve seen fraudulent schemes occur in the past, but despite technology and scams becoming more refined and elusive, there’s an underlying theme linking them together: If an opportunity appears exceptionally strong or unusually perfect, it’s important to conduct thorough due diligence, as it may not reflect the full picture.

Our team at ESSG is here to help. While you focus on keeping looming threats and fraudulent activity at bay, let us handle the rest. We offer accurate and stress-free payroll services for reliable payroll processing, compliance and reporting, time and resource savings, and more. You don’t have to take it all on your own.

Want to learn more about how we can serve as your strategic payroll partner? Look no further than ESSG. We have you covered.