What Is Payroll Security?

As an employer, you’re responsible for keeping your payroll data secure. Here’s what you should know about protecting sensitive payroll information.

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Payroll security refers to the processes you put in place to protect the sensitive information stored by your company’s payroll software. To process payroll, you need your employees’ Social Security numbers, contact information, bank data, and tax details. Hackers and identity thieves can use this information to ruin your employees’ credit scores and upend their lives. In turn, employees could sue you for damages, which would tank your company’s reputation and bottom line.

It’s up to you to safeguard the information you collect from employees to process payroll and calculate taxes. Below, we’ll explain more about why your company needs payroll security and what best security practices look like in today’s workplace.

Table of contents

Why do you need payroll security?

The best payroll software already has payroll security protocols in place. Popular payroll companies like Gusto should explain their payroll security processes in detail on their websites. Before you commit to a payroll company, you should find that information on the company’s site and familiarize yourself with it.

However, you should still adopt your own internal practices to help your payroll software keep employee data safe. After all, your payroll software might have the best data encryption in the world, but it won’t matter if one of your employees breaks security protocol—leaving the data open to a hack.

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5 essential steps for payroll security

Along with choosing a secure payroll system with the right level of data security for your needs, take these five crucial steps to protect your business’s sensitive information.

1. Update your payroll software as frequently as possible

Whenever your payroll software provider tells you to update your payroll software to the newest version, you should do so—now, not later. If you put off the update for a week or month, you run the risk of forgetting to update altogether. And since software updates often include changes to the software’s privacy and security practices, your data will be at risk until you implement the update.

2. Clearly assign responsibilities

Your payroll software should allow you to set user permissions that control who has access to which functions. Most users need to access their own data and nothing else. But if your human resource or accounting department runs payroll each pay period, individuals in those departments will obviously need expanded software access.

As a business owner, you should be aware of every employee who has access to sensitive payroll data. Remember that the fewer people who have access, the better, so try to limit expansive access to your payroll department only. Hopefully, this will reduce your risk of user error and the potential for security breaches.

Outsourced payroll

Outsourcing your payroll to a virtual accounting company with a payroll department can take some payroll security stress off your shoulders. While you’ll still need to implement the best data security practices, the accounting firm you work with will take on some (if not most) of the responsibility for your payroll data security.

3. Set clear security expectations for individual employees

Depending on the type of payroll system you use, your employees probably have their own logins with self-service access to information about pay stubs, tax forms, benefits, and other essential payroll data. If just one employee forgets to set up two-step verification, they’ve created a massive gap in your security that a capable hacker can exploit.

Additionally, your employees might use a payroll app to clock in and out or request time off. If so, make sure to outline your security expectations for employees accessing payroll data on personal mobile devices. To comply with the best cybersecurity practices, employees should use two-factor identification and create a unique, strong password that they update frequently.

4. Perform frequent payroll audits

Auditing your payroll records means sporadically checking the tax forms and paycheck data stored by your payroll software. Doing so can help you identify recording errors that could be costing your company money.

Payroll audits can also help you detect time theft, a type of payroll fraud that occurs when an employee intentionally logs incorrect work hours. During an audit, you can juxtapose your recorded time clock data with the company’s internal payroll records to catch instances of payroll fraud or embezzlement.

As a rule of thumb, you (or your HR or accounting team) should take the time for an accounting audit once a year. However, since small payroll mistakes can add up to big financial problems, consider auditing your payroll records quarterly—or even monthly if you have the time and staff.

5. Implement mandatory security trainings

Every employee in your company should be up to date on your company’s data security protocols, including your payroll security. This obviously includes the employees in charge of running payroll each pay period, but security trainings should apply to the entire company.

If yours is an international company with a global payroll system, it’s even more essential for your employees to stay on the same page about payroll security. You’ll have a hard enough time getting all the in-office employees in one location to follow the same security protocols to avoid a data breach. When your workers are scattered across the country or globe, that task is even harder—and even more essential.  

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The takeaway

When you follow the five security practices listed above, you’re helping your payroll processing software help you protect employee information. Keep your employees safe and your business out of trouble with the Internal Revenue Service by implementing any payroll security practices you’ve neglected. Making a few small changes today can save you a world of financial trouble down the road.

Interested in finding a payroll processing system that will simplify payroll while minimizing your risk of a data breach? Any provider on our list of the year’s best payroll for small businesses should fit the bill nicely. 

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Data as of 11/4/22. Offers and availability may vary by location and are subject to change.

Kylie McQuarrie
Written by
Kylie McQuarrie
Former Business.org staff writer Kylie McQuarrie has been writing for and about small businesses since 2014. Her work has been featured on SCORE.org, G2, and Fairygodboss, among others. She's worked closely with small-business owners in every industry—from freelance writing to real-estate startups—which has given her a front-row look at small-business owners' struggles, frustrations, and successes.
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