Feb 09, 2026

How To Secure Payroll Data

From confidential information to bank routing numbers and everything in between, it's no wonder payroll security is highly protected. Read through to learn how biometric verification, data encryption and monitoring for suspicious activity can safeguard this information.

Protecting sensitive information and ensuring regulatory compliance require proactive risk management. There are several measures organizations can take to reduce exposure to both internal and external threats.

Watch for internal threats

Ghost employees are fictitious team members that have been added to payroll to collect paychecks, often created and managed by someone within the payroll department. Buddy punching occurs when one employee clocks in or out for another. 

Biometric time clocks can help prevent this type of fraud. Time theft, such as exaggerating hours worked or failing to record breaks accurately, can also affect payroll accuracy. Implementing clear time-tracking policies and monitoring employee hours can reduce this risk.

Unauthorized salary increases or bonuses through changes to payroll records or salary structures are another form of internal fraud. Workers' compensation fraud, such as exaggerating injuries or falsifying claims, can increase insurance premiums. 

Underreporting income, falsifying deductions and failing to remit withheld taxes may result in severe legal penalties and financial losses. HR staff can sometimes be complicit, with intentional data leaks or unauthorized disclosures of sensitive information. 

Limiting physical copies of payroll documents and shredding unused materials can prevent data from falling into the wrong hands.

Consider remote-work risks

Employees who work from home may use personal devices and networks that have lower security than the office. This increases exposure to risk and reduces direct oversight. Unsecured Wi-Fi networks and phishing scams are common threats. 

Educating employees on data security best practices, such as using encryption and VPNs, helps protect company networks when accessed remotely.

Protect against cyber threats

Hackers and cybercriminals can exploit vulnerabilities in payroll systems. Restrict access to payroll systems to prevent unauthorized changes or data theft. Ensure all software is up to date with the latest security patches. 

Regularly monitor payroll processes for identity discrepancies and unauthorized access. Use secure offices, locked cabinets and access control systems to protect servers.

Train employees to recognize threats such as phishing emails designed to steal payroll information, ransomware that encrypts files and demands payment, and the importance of data encryption to protect information while in transit. 

Verify that payroll inputs are accurate, including revised compensation details, new-hire salary information, actual days worked and overtime hours. 

Maintaining smooth data flow between HR information systems, time-tracking methods and payroll helps reduce errors and ensures accurate reconciliation of head count, gross payout, net payout and deadlines.

Enhance security measures

Implementing multifactor authentication adds an extra layer of security by requiring a code in addition to strong password policies. 

Conduct regular audits to review who has access to payroll data, how it is stored and how it is transmitted. Establish a backup-and-recovery plan to quickly restore data in the event of a disaster. Testing the plan ensures it works effectively in a real crisis.

Consequences of failing to secure payroll data

Failing to protect payroll information can lead to financial losses, reputational harm and reduced employee trust, which can lower morale. Continuous monitoring helps identify potential security threats. 

Automated alerts can notify you of suspicious activity so you can lock access, shut down systems and investigate before serious damage occurs. Conduct vulnerability testing regularly to ensure security protocols remain up to date.

Protecting payroll data is not just a best practice but a legal obligation. HIPAA requires the protection of employees' personal and medical information from unauthorized use or disclosure. 

Federal law mandates safeguarding financial information and preventing unauthorized sharing. Payroll data contains highly sensitive information, making it a prime target for cybercriminals. 

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