Timesheet fraud: a guide for employers

When employees log their hours, they enter an agreement of trust with their employer. When that trust is broken through timesheet fraud, the consequences can quickly spiral beyond simple payroll discrepancies.

As an employer, being able to spot the deception and knowing what to do when it is discovered is crucial to the maintenance of a positive workplace culture and company finances. In this blog, we will be breaking down what timesheet fraud is, how to spot it, and the best practices you can implement to prevent it altogether.

What is timesheet fraud?

Timesheet fraud describes when an employee intentionally submits incorrect hours to their workplace to receive payment for hours they haven’t worked. It is also described as a form of payroll fraud that has an effect on company finances and largely impacts team morale. This activity can be conducted in multiple ways, all of which have the chance of happening in any sector, but we find that certain types are more common in certain industries.

Recording co-worker hours

Buddy punching is the act of logging co-workers’ hours for them to receive more payment than they’re due. This could be clocking a colleague in at their shift’s proposed start time despite them running late, or it could be clocking a colleague out at their shift’s proposed finish time despite them leaving an hour early.

Inflating hours worked

When an employee arrives late to their shift or leaves their shift early but logs their time as if they worked the entire shift, this is described as inflating their hours. This type of timesheet fraud is particularly common in the hospitality sector, where shift times can vary massively, and with remote workers, who aren’t in an office where their start and finish time can be seen day by day.

Inaccurate recording of breaks

Employees who take longer breaks than they are due and fail to log this accurately are actively committing timesheet fraud. Even if it’s just an extra 15 minutes here and there, all of these pockets of time add up to an expensive sum for the business.

Using company time for personal errands

This type of timesheet fraud rapidly took off during and after the COVID-19 pandemic, when working from home became standard. With around 13% of employees working from home exclusively and a further 28% having the option to do so, this issue has become more prominent in recent years.

The impact of timesheet fraud on businesses

For an employee, a few extra minutes a day may seem unimportant. For a business owner, the impact is significant. Timesheet fraud causes more than just financial problems, and it is an issue that can seep into every corner of a business. Here are the biggest consequences:

Financial loss

Regardless of whether an employee is paid minimum wage or more, a recurring sum of your company’s money will be lost as long as the employee gets away with this fraud.

Relationships with clients can also be impacted. Inconsistencies between hours billed to a project and the amount of work produced can lead to the incorrect billing of clients. This can put a strain on business-to-client relationships.

Decreased employee morale

While many think of financial implications first and foremost, timesheet fraud is also the silent killer of team morale. In sectors that primarily run on shift work and manual clock-in/out methods, the engagement of employees who see each other come and go can take a big hit when they notice a co-worker leaving at three o’clock but signing out for five.

In turn, employee motivation and productivity will begin to decline the longer the fraudulent employee gets away with their deception. Honest employees can end up with a lack of enthusiasm for their role, knowing that a co-worker is getting paid for hours they haven’t worked. Resentment can build, and overall workplace culture can deteriorate, not to mention the risk of other employees choosing to copy their co-worker’s deceptive activity.

Investigative procedures

Under the Employment Rights Act 1996, employers can legally dismiss fraudulent employees without notice so long as a thorough investigation has taken place and sufficient evidence has been provided. While this is useful for employers, workplace investigations can take weeks and sometimes months to carry out. This takes valuable time away from the business and can result in delays to other parts of working life if the business is small.

Warning signs of timesheet fraud

Time theft often shows itself through patterns and regular inconsistencies. This gives HR professionals and managers a better chance of detecting it in its early stages so long as they know what they’re looking for.

Equally, it is important to look out for a mismatch in digital activity, such as when employees log their starting time early in the morning, but are not contactable until much later in the day.

Exact and perfect attendance

This pattern is particularly rife in healthcare and hospitality environments where shift-based workers are relied upon and shift times can vary massively. For example, if a restaurant worker signed out at the exact time their shift was proposed to finish during a very quiet week, managers should raise concerns and look further into how this happened.

Discrepancies in project progress

A noticeable mismatch between the amount of time recorded for a project and the amount of work that has been completed is a sign that an employee might be committing time fraud. This is an example that would be noticeable against long-serving staff members or top talent in your business.

Furthermore, a consistent logging of overtime for tasks or projects that don’t need that much time to complete can be a sign that timesheet fraud is taking place.

Team resentment and rumours

Complaints from other team members about unfair workloads or passing jokes about certain employees never being around can be quite an indicator that something deceptive is taking place. It would be a wise choice to investigate these sorts of comments as soon as possible.

Managing suspected timesheet fraud

Because this fraudulent activity happens so easily behind the scenes, it is important not to jump to conclusions before the right procedures have taken place. The deception can stop just as quickly as it started, meaning rash accusations can end up damaging workplace relationships and have legal repercussions. Here is the structured approach you should follow when tackling the issue:

1. Review your company policies, ensuring that this type of behaviour is clearly defined and that timekeeping expectations are outlined.
2. Gather evidence and identify patterns in past timesheets, email activity and work output before confronting the employee.
3. Hold a private discussion with the suspected employee. Present the evidence gathered in an objective manner and allow them time to explain the discrepancies identified.
4. If fraud is confirmed, follow the disciplinary action in your company policy and do this consistently. Depending on the severity of the incident, a verbal warning may suffice. But in cases of gross misconduct, immediate termination of employment may be necessary.
5. Use all incidents as an opportunity to tighten loopholes and implement stronger controls in the future.

How employers can prevent timesheet fraud with best practices

There are a multitude of ways to prevent fraud in the workplace. Sometimes, a few simple changes are all it takes to deter employees from partaking in such offences.

The best way to start is to draft a clear timekeeping policy that stretches across the entire company. Ensure new employees know that if they’re leaving early, they must sign out at the exact time they head home. Make sure all members of staff are aware that they need managerial sign-off for overtime. It’s these policies that ensure no stone is left unturned and there is no grey area to be taken advantage of.

Furthermore, cloud-based systems are useful for reducing innocent mistakes, such as writing down the incorrect time after misreading a clock. A digital system is much harder to deceive, as an employee’s work time is recorded to the minute, and there is no option to alter timings without managerial consent.

Finally, your workplace culture has a big impact. Creating an open and honest environment where unsure members of staff can come forward with questions regarding how to log their time reduces the likelihood of timesheet fraud. Equally, holding calm conversations with fraudulent employees can make disciplinary processes easier. Coming to a fair agreement with long-standing team members rather than becoming accusatory and irrational can improve the retention of workplace relationships and help retain top talent, even after small incidents of time theft.

How Sapphire HR can help

A good employee monitoring policy isn’t primarily about catching people doing the wrong thing; it’s about curating a workplace where it’s very easy to do the right thing. When tackling timesheet fraud, it’s important to make sure that your team doesn’t feel that their every move is being scrutinised. When introducing new time tracking technology, honest conversations and clear explanations on how to use it reinforce a sense of fairness and a positive workplace culture.

We support businesses struggling with buddy punching and time theft, whether recurring or standalone. We help employers handle investigative meetings with sensitivity and guide them through disciplinary procedures with care. We make holding employees accountable easier by providing objective assistance and maintaining trust between you and your team.

Contact us today for a confidential consultation and let us help you build a more transparent workplace.