Payroll Security Best Practices in 2023

Whether you manage payroll in-house or with the help of a qualified provider, a host of confidential and sensitive information is involved in the process. From employee data like social security numbers and addresses to individual or business bank information, without responsible payroll policies and security measures in place, this information could be exploited by a cybercriminal or even a new, existing, or departing employee. The costs and reputational damage caused by such events can be significant and long-lasting, which is why it’s essential to develop a strategy to minimize those risks.

Payroll Security Best Practices in 2023

To keep your business and your employees protected, there are a number of key steps to ensure payroll best practices in 2023 and beyond. In this article, we’ll outline the actions you can take to assess your current payroll security, update policies, and determine whether you have the software, resources, and support your business needs to remain protected from potential data breaches.

Conducting a Payroll Security Audit

The goal of any payroll security audit is to closely evaluate your current payroll processes and systems to determine if your business and its employees are vulnerable to any security breaches, whether internally or from outside cybercriminals.

Who you involve in this process will depend on whether you manage payroll manually (in-house), work with an existing provider, want to switch to a new provider, or would like to outsource payroll to a qualified provider for the first time. Generally speaking, if you manage even part of your payroll process internally, it’s best to speak with your current payroll staff about what they perceive as the strengths and weaknesses of the current approach. Issues could range from a lack of adequate training, the use of outdated software, low-security storage of physical documents, or concerns about certain policies – like using paper checks containing personal information rather than direct deposit. If your company has an IT department, they will also be well-suited to comment on and assess potential security issues related to current payroll processes.

Finally, if your business has encountered any security issues or breaches in the recent past, use those instances as historical data to gauge which aspects of your process could be improved to avoid future issues.

Updating Policies Based on Your Audit

A thorough audit conducted internally or in collaboration with your new payroll provider should help you to identify policy updates that would considerably improve the security of your payroll process. This could include some or all of the following:

  • Mandating login credential updates every 60 to 90 days. By requiring this of employees – alongside multifactor authentication and/or strong password choices – the risk of unwanted access to your payroll platform is significantly reduced.
  • Upgrading computer security, software security & encryption. Whether you choose to back up your data to a cloud-based system, implement firewalls to prevent unauthorized access, or upgrade encryption on all company devices and computers, any or all of these decisions can reduce the likelihood of security breaches.
  • Promoting direct deposit over paper checks. Paper checks are more vulnerable to incidents of payroll fraud and can also expose sensitive information, including SSN, employee address, and more. If you continue to pay some or all of your employees using printed checks, sensitive employee information should be omitted from future payments. Remember that although certain states permit employer-mandated direct deposit, most require voluntary enrollment by an employee.
  • Quickly Disable Access for Departing Employees. Unfortunately, acts of payroll fraud are more likely to occur around the time of job separation. Ensure that any departing employee’s access to your payroll software is disabled and any relevant passwords are changed or reset as soon as a job termination or resignation has been finalized.

Choosing High-Quality Software & Prioritizing Training

Another core best practice is to choose high-quality and high-security payroll software that simplifies payroll processing for you and your employees. Once you’ve identified a payroll system that can capably integrate with other HR functions (timekeeping, scheduling, benefits administration and more), you’ll need to offer ongoing training that keeps your employees informed about how they can protect their personal information while using the payroll system. This can include simple steps like logging out consistently after using the system or keeping employees informed about updates to your software/platform, especially if they use the software on multiple devices. If you’re working with a qualified payroll provider, they should be able to automate updates across company devices in real time.

Additional Employee and In-House Security Considerations

Finally, as you consider best practices for in-house payroll management, remember that many internal data and security breaches can be prevented through the following policies:

  • Limiting payroll access exclusively to employees who must use the software as a key part of their job responsibilities. When possible, splitting payroll duties between multiple employees is also a good idea – not only to delegate responsibilities, but to reduce the possibility of internal acts of fraud.
  • Conducting thorough background screenings when considering new applicants or making conditional offers of employment. 
  • Securing any and all paper payroll documents. If your business still uses a paper-based approach, this can lead to increased vulnerability (illegal access) to employee information if it is not properly and regularly secured by payroll staff.

Enjoy Streamlined and Secure Payroll with Workforce PayHub

Managing payroll processing in-house can be a time-consuming, costly, and complicated process. In addition to monitoring accuracy with payments and deductions, employers are also tasked with keeping payroll systems secure and in legal compliance with local, state, and federal labor laws. That’s why Workforce PayHub offers a comprehensive payroll solution that easily integrates with other HCM functions, allowing you to focus exclusively on your mission and business growth. Contact us today to let us know how we can support your work.

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Eric Jones
Payroll Security and How to Protect Payroll Data If I Outsource My Payroll Processing, What Happens with the Money Movement?
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