Time Clock Fraud: Identify and Prevent It with These 7 Tips

Every day across the globe, time clock fraud robs organizations of their hard-earned revenue. Whether employees are doing this intentionally or unintentionally, employers are the ones left paying for unworked hours.

This behavior isn’t uncommon, with as many as three-quarters (75%) of organizations reporting having time stolen from them in this way.

Perhaps more worryingly, a study from Quickbooks found that this time theft can cost US employers an average of $11 billion a year.

The problem is that the opportunity for time clock fraud is prevalent in the workplace, and therefore, some workers will try to profit from this. Once this has begun, it typically takes 18 months before this fraud is detected.

To help you combat this issue, it’s important to recognize the signs. We’ll take a look at what time clock fraud is, how it occurs and how you can prevent it in your workplace.

What is time clock fraud?

Time clock fraud, sometimes also called time card theft or just time theft, is when an employee is being paid for work or hours they haven’t actually done.

An example of this might be taking a 10 minute personal phone call at work. Or someone might punch in before spending 15 minutes putting their belongings in their locker, making a coffee and chatting to colleagues about the weekend.

All of this is time they’re being paid for, yet they’re not actually working. As this time accumulates, it can be very damaging and costly to businesses. And because the employee isn’t doing the full amount of hours outlined in their contract, this is considered fraud/theft.

8 types of time theft

Time clock fraud isn’t as simple as just punching in and then taking a while to actually sit down and get to work.

There are several different types of time theft, and different ways employees are being paid while not working. Eight of the most common types include:

1. Buddy punching: This type of time clock fraud involves an employee asking their co-worker to clock in or out for them. This is typically done so that the employee can arrive late or leave early while still appearing to be present for their full hours
2. Starting late: For employees who don’t have to clock in, they may arrive at work late without reporting it
3. Finishing early: Similarly, employees might sneak off a little early without asking permission from their manager to do so
4. Taking longer breaks: Some employees may take breaks that are longer than their allotted time
5. Taking frequent breaks: Alternatively, some may take unauthorized breaks during their shift or keep popping out frequently to do tasks unrelated to work
6. Taking on unauthorized overtime: Some employees will put in additional hours, sometimes paid at time-and-a-half that they didn’t need to do. This means they’re claiming extra pay for hours that haven’t been asked of them or authorized by their manager
7. Doing personal tasks during work hours: From booking doctors appointments and checking personal emails to gaming and checking social media, doing unrelated tasks doing work hours is a type of time fraud
8. Claiming to be rostered on: For businesses still using paper scheduling, it’s easy to lose track of hours. Some employees claim they were scheduled to work, even when they weren’t, knowing the manager might struggle to verify this

The impact of time theft in the workplace

Although it might seem harmless to sneak off a little early or take a personal call at work, this can have a number of negative implications on the workforce and the business as a whole – here’s how:

It costs the business money

One of the biggest problems with time clock fraud is that it costs the business money. A study from the American Payroll Association estimated that time clock fraud costs companies anywhere between 1.5% and 5% of gross payroll each year.

It leads to a decrease in productivity

As well as being costly, time clock fraud can also impact employee productivity. Firstly, employees who clock in and waste time chatting or doing personal tasks take much longer to get started on their actual work.

Secondly, this negative and lazy behavior can catch on. If others see someone chatting, they stop too, or perhaps they know that their colleague answers calls or personal emails at work and begin to think they can get away with it too.

All of this leads to a snowball effect that has a negative impact on productivity.

It can damage morale 

For those that notice their employees being slower to start, cutting out early or whatever else it may be, it can become very disheartening. They see others getting away with time theft while they work hard during their contracted hours.

This can have a damaging impact on their overall happiness and morale, and over time this can get worse and have a negative effect on the larger workforce and company culture.

How HR leaders can combat time clock fraud

HR teams set out contracted hours when onboarding new employees, write and circulate important company policies and take disciplinary action against those breaking the rules. This puts the department in a strong position to help combat time clock fraud.

However, it certainly shouldn’t be a solo effort. By collaborating with the accounts department as well as the technical team and management, there are several steps they can take to identify and tackle time theft. These include:

1. Setting out a strong policy

The first important step is to set out a specific time clock fraud policy. Unfortunately, many organizations have neglected to get a specific and established policy in place in this area.

By doing this, you can help employees to understand what’s expected of them and notice any of their own behaviors that might contribute to time theft, whether intentional or not.

When creating this policy, you need to make sure it covers:

• What time clock fraud is, and what falls under this category
• The negative impact it can have on the business
• The steps employees can take to ensure this doesn’t happen
• How the company will be monitoring this type of behavior
• What will happen to those wilfully ignoring the time clock fraud policy

It’s also a good idea to remind them that time clock fraud doesn’t just breach company policy – it’s actually illegal.

Once you’ve created the policy and had it written out and proofread, you can begin to circulate this to all employees. You should also make the policy accessible at all times, perhaps somewhere on the company’s intranet, employee app or by asking all staff to save this to their files. 

2. Monitoring and approving timesheets

While a strong policy will outline the rules, it can’t always stop those that intend to commit time clock fraud. However, there are other steps you can take, such as monitoring timesheets.

Whether these are filled out manually or online, lots of timesheets go directly from the employee to payroll processing. This increases the risk of mistakes, as well as fraudulent information.

If timesheets are regularly reviewed and monitored by HR to ensure all the time worked aligns with the schedule, this can mitigate these risks. What’s more, HR can encourage all managers to check and approve the timesheet before submitting it to payroll.

If employees know that their timesheets are being checked every week/month, they’re less likely to lie about their hours worked.

3. Automate your systems

You’d be surprised how many businesses still rely on paper timesheets or manually clocking in and out with a punch card. Nowadays, there are many tools that allow you to automate these systems and create a better workforce management strategy.

You can automate the clocking in and out of employees. This helps to tackle buddy punching, as well as those who regularly arrive late or leave early.

You can create better schedules, eliminating any scheduling mix-ups and giving you something to compare the timesheet against. You can also automatically calculate overtime, which will reduce the risk of employees clocking up unnecessary or unauthorized extra hours.

For example, one automated system you might use ensure that employees are only checked-in to work once they’ve signed in from their workstation in the office. This can stop them from logging in while on the commute or asking a buddy to do it for them.

But whatever system you choose, there are lots of ways you can move from manual techniques to automated processes that allow for better workforce management. So it’s worth investigating which of your systems could do with an update and doing some research into the most effective automation tools for tackling time clock fraud.

4. Listen to feedback from employees

An important role of HR is dealing with employee happiness and company culture. This might involve asking employees for feedback on their team or department. This can be done through one-to-one meetings or perhaps even through anonymous employee surveys. This gives people a chance to be open and honest without fear of repercussions.

It might feel a little underhanded like you’re asking employees to spy on one another, but employee morale can dip if workers see their colleagues regularly committing and getting away with time clock fraud. Therefore, looking into employee feedback could be the ideal solution to identify and stop time theft while also increasing staff happiness.

Learn more: The Ultimate Guide to Continuous Listening

5. Compare employee timesheets

Another way to identify possible time clock fraud is to compare timesheets from different employees, particularly if you suspect someone might be committing time theft. If an employee’s timesheet is always different from their peers’, it might be time to investigate why.

6. Monitor screen usage

There are plenty of employees out there who waste time surfing the web, looking at social media or doing personal tasks while at work. This modern phenomenon has become known as cyberloafing, and it could be costing businesses across the globe as much as $85 billion a year in lost time.

By monitoring computer screens, you can determine if an employee uses non-work-related websites or if they sit there doing nothing at all. This doesn’t need to be constant; it can just be the odd check-in using a system that allows you to take a screengrab from their computer.

However, it’s worth noting that workplace monitoring will depend on various different federal and state constitutional laws, so you may need to find different ways around this depending on where you’re based.

Learn more: How to Tell if Your Employees Are Actually Working

7. Install surveillance on the property

This may not be an immediate solution to time clock theft, but having cameras around the property can help you to spot those who are constantly sneaking off for a break or who frequently turn up late.

Be careful not to place surveillance in lunch/break rooms or bathroom facilities, as this can breach privacy laws and make staff feel uncomfortable. However, you’re within your rights to secure the property, and the cameras might act as a deterrent against those hoping to commit time clock fraud.

You can also use the footage as proof should you need to.

Final thoughts

Every year, time clock fraud sees employees getting paid for hours they’re not present and involved at work. It might only seem like 10 minutes here and there, but it quickly adds up and can cost businesses millions of dollars each year – not to mention that repeated time theft can be a huge drain on productivity and morale within the workplace.

As such, time clock fraud needs to be stamped out as soon as possible. To do this, HR departments need to think about getting a strong policy in place that outlines what time theft is and how it will be dealt with. They can also monitor timesheets, screen time and surveillance more carefully.

That said, one of the biggest changes that organizations can make to combat this is to automate systems such as scheduling, timekeeping and payroll. Being proactive and getting new measures in place is vital if businesses hope to identify time clock theft and combat this in the future.