TimePays, Here Are Your Articles for Wednesday, January 27, 2021
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Payroll Risk Management Strategies


In 2020, the IRS published an alert urging employers and taxpayers to beware of tax scams, including payroll phishing schemes. And that's only the beginning when it comes to payroll threats.

In general, employers must also guard against:

  • Noncompliance with payroll laws, whether intentional or unintentional.
  • Payroll fraud by employees.
  • Misuse of self-service technology.
  • Unforeseen disasters that can disrupt the payroll function, such as fires, storms, hurricanes, pandemics and terrorist attacks.

These threats can severely hinder business operations, damage the bottom line, or harm the company's reputation. So, it's essential to have payroll risk management procedures in place.

Payroll risk management is about establishing and maintaining guardrails for preventing and combating payroll threats.

Also called "internal payroll controls," these guardrails help protect your business against payroll scams, noncompliance, and disturbances stemming from disasters.

To develop appropriate safeguards, you'll need to take a sweeping look at your payroll responsibilities, processes and systems. Then, create solutions to improve weaknesses. 

Below are situations to consider.

Phishing Scams

The IRS has warned that employers, tax professionals and taxpayers need to guard against phishing schemes designed to steal Form W-2 details and other tax information. In addition, direct deposit and gift card scams are on the rise since more people are working from home because of the COVID-19 pandemic.

Be sure to train your payroll employees on how to spot, thwart and report payroll phishing scams. 

Payroll Compliance

Determine the federal, state and local wage-and-hour and employment tax laws your business must comply with. Generally, these include hours worked, minimum wage, overtime, meal and break periods, exempt employee compensation, child labor, timekeeping, recordkeeping, and mandatory and voluntary deductions.

Create standardized procedures for administering your wage-and-hour and employment tax responsibilities, and for verifying accuracy.

Employee Payroll Fraud

Use a timekeeping system that vastly reduces the chance of time theft by employees, such as an automated platform that eliminates "buddy punching."

Route timecard information to the employee's manager or supervisor for approval before sending the data to payroll for processing.

Segregate payroll duties to avoid one employee or department having sole control over your payroll function. If your business has only one payroll employee, assign a qualified backup, such as someone in accounting.

Double-check your payroll transactions for each pay period to verify that wages are paid to employees who actually earned the wages.

Perform a thorough preemployment background check on employees who will be handling payroll duties.

Confirm that your bank has procedures for detecting and reporting fraudulent payroll checks.

Employee Self-Service Technology

Inform employees that:

  • Unauthorized use of the self-service portal is prohibited.
  • They should keep their login credentials for the portal private.
  • They must enter only accurate information when updating their payroll/HR information through the self-service portal.

Disasters and Emergencies

Develop a payroll continuity plan that enables you to fulfill your payroll obligations in the event of a disaster or emergency.

If you outsource payroll, the provider should have a contingency plan for meeting designated payroll duties during disasters and emergencies.

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Scott Johnson
(617) 298-1000
12 Welch Avenue, #7
Stoughton, MA 02072
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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