Time Fraud: How time fraud effects business and costs

Whether you realize it or not, chances are your employees have been stealing precious dollars away from your business due to time fraud, and you’re not alone. Many companies are constantly struggling with how to combat time and labor fraud, a behavior that is quietly costing employers hundreds of thousands in labor dollars every year. According to data found by the Alinean and Kronos Value Assessment Tool, companies could be losing up to $535,000 to time fraud annually.

It’s true that not all time fraud errors are created equal. Honest employee time clock mistakes get caught in the same pile as deliberate acts to get paid for time not worked. Time fraud usually falls in one of the following areas:

  1. Buddy Punching

  2. Rounding-Up / Extended Breaks or Hours

  3. Wrong Pay Codes Applied / Pay Rate Errors

Buddy Punching

Buddy Punching is when an employee is clocked in by another employee while not at the job themselves. Often, the employee punching the time clock is logging in through an online portal or punching time on paper time sheets to act as another employee to extend hours, clock in early or leave late, and take shorter breaks. Many times, employees don’t see an issue in falsifying time for a peer if it’s only a few minutes here and there, but these minutes are silently adding up over the year. According to a Nucleus Research report, 19% of employees admit to buddy punching for a coworker.

Buddy punching can quickly take a toll on your business, however, automated time-tracking systems, GPS enabled mobile time clocks, and biometric time clocks can all make buddy punching more difficult. When you’re able to forego the paper punching, create location specific accountability for employees into their own time cards or use advanced technology such as biometrics (fingerprint or facial recognition), your business is less likely to lose money to this common time fraud practice.

Rounding Up / Extended Breaks

Rounding up is when hours are falsified usually through an online system. Many times, clocks have a grace or rounding period from 5 to 10 minutes on either side of the hour. If an employee is constantly coming in around 7:53 am and your system has a rounding period of 5 minutes on each side of the hour, your employee is receiving pay for 7 extra minutes each day. If they are repeating this habit 5 times a week, your employee is costing your company 35 extra minutes of paid time not worked each week (Kronos.com). 

With more states adding mandated employee breaks, employees are finding more opportunities, knowingly or not, to practice time fraud. Taking an extra five minutes on break may seem harmless, but if these practices become widespread or habitual, it can continue to cost your business. If you’re one of many employers that offers regular breaks requiring no punching in or out, you may be setting yourself up for further time fraud as well. Employees may take advantage of these breaks using an extra 5, 10, or 15 minutes for personal business while racking up unproductive paid company time. In fact, 43% of U.S shift workers “steal time” and include personal activities as paid company time (IBID - Kronos.com).

Combating rounding up doesn’t have to be hard. Simply taking inventory of where your rounding system is falling flat may be an easy place to start. If you know that your employees are consistently taking advantage of the extra 7 minutes a day, as in the example above, it may be time to review your rounding rules to better fit your business’s time patterns by creating a new rounding rule from 5 minutes to 8 minutes on either side of the hour.

Wrong Pay Codes Applied / Pay Rate Errors

Generally by accident, an employee or manager may commit time fraud by entering hours against an incorrect pay code or pay rate. If your system is manual, or admittedly difficult to use, your employees could unknowingly choose incorrect pay codes and cost your business money in the wrong areas. It’s possible to move to a solution that only allow managers and employees to see only relevant pay codes, rather than a general pay code list accessible by the entire organization. Making this switch may also remedy the issue of pay rate errors. Some pay codes may have different rates for different employees, without a clear indication of this, you may be over or under paying certain employees. 

Take back control of your time

Mitigating time fraud can save your company hundreds of thousands of labor dollars each year. However, identifying and managing time fraud may be confusing for companies who are still using manual processes or haven’t approached the issue head on. Taking the guesswork and inaccuracy out of manual processes can create real-time visibility into employee hours. It’s important to create and utilize systems to combat losing business revenues, increasing operating expenses and negative impacts on profitability due to time fraud. This can be accomplished through utilizing time and attendance software and biometric devices to more accurately monitor your employees and their time.