5 Ways Timeclock Fraud Hurts Your Business & How to Stop It

LightWork® Software

Timeclock fraud is an ever-prevalent problem for businesses, big or small. Fortunately, an increase in technology usage with time tracking has reduced the ability of employees to commit timeclock fraud. Timeclock fraud happens when an employee records hours that they did not work and collects a paycheck for them. While still somewhat damaging to larger corporations, for smaller businesses, even just a few instances of timeclock fraud can severely cripple their finances. The Fair Labor and Standards Act says that the burden of tracking employee hours falls completely on the employer, but it does not specify how to track the hours worked. That being said, there are plenty of ways for businesses to have their employees log their time, but many have issues with efficiency and even more deal with major inaccuracy. Below are some common ways timeclock fraud happens:

Inflating Hours/False Entries

Inflating time most commonly happens with paper-based time logging, as that is the easiest way for employees to put down different hours than they worked in actuality. For instance, if they came in late or left early, they could put down that they worked the hours they were supposed to. This makes double the work for their supervisors, as they have to be extra attentive to be sure that the hours recorded by their employees are accurate. Otherwise, the business could be paying for work hours that weren’t earned.

This method of timeclock fraud is also possible with machine-stamped time cards: employees can purposely clock out a while after they have already stopped working, cushioning their time. What’s more, company policies that round time up to the next 15 minutes may work in their favor, with employees deliberately clocking out even a minute past.

Buddy Punching

Machine-stamped time cards often fall victim to timeclock fraud by buddy punching. Buddy punching is when an employee clocks in/out for a coworker, even when they may not be there in actuality. While machine-stamped time cards are the most common and easiest way for buddy punching to occur, it is also possible with systems with just a simple employee log-in: coworkers can share their log-in information.

This method of timeclock fraud costs U.S. businesses more than $373 million each year, according to a study done by the U.S. Bureau of Labor Statistics in 2015.

Break Abuse

Long lunches and extended breaks are a common form of time theft. Employees can easily extend their lunch breaks, especially when clocking in or out for their breaks is not required. Another costly “break” is smoke breaks: U.S. businesses pay almost $6,000 extra every year per smoking employee, according to a 2013 study by the University of Ohio.

Working Unauthorized Hours (Overtime)

Working unauthorized hours, especially overtime, is another form of time exposure. However, under the Fair Labor Standards Act, you are still required to pay for it, as the burden of prevention is on the employer. Unfortunately, this is a more costly form of time theft, as any overtime worked constitutes a rate of pay at 1.5 times the normal amount. Unauthorized usage of overtime that’s left unaddressed can also lead to the assumption that employees can work overtime whenever they want, without any repercussions. While you have to pay the employee for the hours they worked, regardless of the amount, the Fair Labor Standards Act does not prohibit policies against unauthorized overtime, or disciplining employees who breach those policies.

Human Error

While the most innocent form of time theft, human error is still common, depending on the time logging system. For instance, if employees are to record the hours that they worked at the end of their work period (which could be days or weeks later), how can they be expected to accurately remember how long they worked? Simply put, they can’t. Additionally, illegible handwriting and inaccurate typing can be to blame, depending on how they are recording their time.

Resolving the issue of timeclock fraud does not have to feel like pulling teeth, especially in the accidental instances of human error. Developing clear company policies can help communicate to your employees what is expected of them during work hours and prevents assumptions on what is or is not a break. However, be sure to not infringe on any of their rights as an employee, such as required break times for nursing mothers. You can always read the latest rules on the National Labor Relations Board website to ensure that your policies are following the law.

Another way to resolve timeclock fraud is to implement a system that prevents it from happening in the first place. Biometric TimeClocks block employees from clocking in for each other, which stops buddy punching altogether – these timeclocks usually require a fingerprint to clock in. Additionally, Biometric TimeClocks integrate with software, which negates the possibility of human error throughout the time logging process.

LightWork Time resolves these issues of timeclock fraud by utilizing Biometric TimeClocks that directly communicate with LightWork Software. This software also integrates into virtually any HRMS, payroll system, or even excel spreadsheet for easy deployment and consistent user experience.