Payroll Play 5/10: How to ensure payroll security in 8 steps [Deductions checklist]

Protecting your payroll data is super important. We've got to watch out for things like data breaches, sneaky ghost employees, and bogus time reports.

Whether you're just starting in business, growing like crazy, or going through some M&A, make sure your payroll security is locked down tight.

I hope this guide with key protection steps helps you out. So let’s get started.

Scenarios

1) You might establish a security policy in the startup phase.

2) You may also want to strengthen it during periods of rapid growth, such as hiring new employees or expanding into new markets.

3) Or you have to revise payroll protection policies during organizational restructuring or downsizing.

Actions

1. Select a reputable payroll software vendor or service provider

• Vet payroll service providers and third-party vendors for their payroll risk management.
• Establish clear contractual agreements regarding payroll data security and confidentiality.
• Regularly audit third-party systems for compliance with payroll security standards.
• If needed, find backup and recovery solutions

2. Update the software regularly

• Some cloud payroll software updates automatically (compared to on-premise solutions). So you don’t need to pay extra for updated versions.
• Monitor data access and segregate duties.

3. Secure data access

• Set up logging systems to monitor who accesses payroll data, any updates made to it, and who initiated those updates – noting what was changed and when. This will help identify the cause of any errors or fraud in case they occur.
• Consider changing passwords every 60 to 90 days, it’s a good rule of thumb.

4. Backup and restore your data regularly

The 3-2-1 backup strategy is recognized as one of the best practices for information security:

Make 3️⃣ copies of your payroll data daily or more frequently (original data and two backup copies) on 2️⃣different media (cloud service, an external hard drive, or a flash drive) with 1️⃣ copy in a remote location for disaster recovery.

5. Train remote and in-office employees about payroll data security

• Explain to employees the sensitive nature of the data handled by them.
• Educate them on how to spot common scams with emails or text messages.
• Prevent leaving computer screens open to prying eyes. Enable auto-lock on computers after X minutes of inactivity.
• When working in public places, it’s better not to use an unsecured Wi-Fi network.

6. Conduct a payroll system audit

Perform assessments to identify payroll fraud or potential system weaknesses:

• Check the organization's payroll policies, benefit plans, and procedures.
• Verify the accuracy of staff timekeeping records.
• Compare payments with hours worked.
• Verify overtime hours calculation method.
• Review payroll tax and other deductions. [checklist for US payrollers]
• Check compliance of the payroll system with external regulations such as GDPR or CCPA.
• Detect any deficiencies or potential risks within the system.
• Segregate duties: one person prepares payroll, the second patroller authorizes, and the third runs the checks.

7. Shred physical documents containing sensitive payroll data before disposal.

8. Create an incident response plan

• Assign roles and responsibilities.
• Conduct regular drills and simulations to test the effectiveness of the incident response plan.

Expected results

• Reducing the risk of data breaches and payroll fraud.
• Ensuring accurate payroll processing.
• Ensuring continuity of business processes.
• Ensuring confidentiality of sensitive payroll data.

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