How to Stop Time Clock Fraud: Understanding Time Theft & Tips to Minimize Clocking Fraud
Time clock fraud can start innocently enough: an employee stays late to chat with a colleague, forgetting to clock out until they’re actually walking out the door. Or perhaps it happens a bit more intentionally, with a team member running a few minutes late and calls from the commute to ask a friend to clock them in so that they avoid a late clock-in on their record.
Whether accidental misclocks or intentional buddy punching (and everything between), employee time theft is a real challenge facing virtually any business with hourly workers.
And frankly, the statistics are staggering.
According to a report from Robert Half International, employers lose an average of 4.5 hours per week, per employee to time theft. The most common type of employee theft is “buddy punching,” a practice by which employees will clock other employees into work before they are actually present at the work site. In fact, the American Payroll Association estimates that 75% of American companies lose money due to buddy punching.
But before we explore the different types of time clock fraud, let’s first understand exactly what constitutes theft of time in the workplace.
Overview: What is Time Theft?
Broadly speaking, time theft or time clock fraud refers to the practice of deliberately altering the time that an employee clocks in or out on a time clock in order to receive additional pay or to cover up lateness or absences. This can be done by physically altering the time on the clock, using a device to change the recorded time, or having another employee clock in or out on behalf of the person committing the fraud.
Time clock fraud can be difficult to detect, as it often involves only small increments of time and may go unnoticed if it is not being actively monitored. However, it can have significant financial implications for a company, as it can result in the overpayment of wages and a loss of productivity.
To prevent time clock fraud, employers can implement measures such as requiring employees to use biometric identification (such as fingerprint or facial recognition) to clock in and out, using time clocks with tamper-proof features, and regularly reviewing and comparing time records with other sources of data, such as security camera footage or work logs.
Types of Time Clock Fraud
Employee time clock fraud can occur in a number of ways, with varying degrees of intent by the employee. In some cases, time theft occurs accidentally from missed punches or poor time & attendance tracking through the employer. But in other cases, the intent is more deliberate, with employees intentionally reporting time not worked, failing to clock out for unpaid breaks, and asking co-workers to clock them in when they are not physically present.
Named by the APA as the most common type of time clock fraud, buddy punching refers to the practice of one employee punching in or out for another employee, usually for the purpose of covering for a late arrival or an early departure. This is often done to help a friend or colleague, but it is considered unethical and can result in disciplinary action or termination of employment.
In some cases, employees may commit time fraud while still technically being on the clock. This unauthorized overtime occurs when the employee works additional hours beyond the scheduled or agreed upon work schedule without prior approval from a supervisor or manager. This can include working through lunch breaks, coming in early or staying late, or working on weekends or holidays without proper authorization. And in many of these cases, the employee may not even be malicious in their intent, instead just arriving early or leaving late to get legitimate work done.
Unauthorized overtime can be a particularly challenging problem for employers because it can lead to increased labor costs, decreased productivity, and, if not compensated appropriately, can be a violation of labor laws that warrants additional costs through fines and penalties.
A missed time clock punch occurs when an employee fails to clock in or out at the beginning or end of their shift, or during scheduled break periods. This can happen for a variety of reasons, such as forgetfulness, technical issues with the time clock, or a lack of understanding of the timekeeping system. A missed punch can result in inaccurate record of the employee's hours worked, which can lead to payroll errors and potential disputes over compensation.
In perhaps one of the most intentional examples of time theft, blatant timesheet fraud occurs when an employee directly and deliberately falsifies times in and out of the clock. This can include exaggerating the number of hours worked, falsifying the start and end times of their shift, or claiming to have worked on days when they were actually absent. Fortunately, as we’ll discuss a bit later, this is one of the easiest forms of time theft to combat and prevent.
Costs and Consequences of Employee Time Theft
Time clock fraud can have several consequences for both the employer and the employee. For the employer, it can lead to financial losses due to employee time theft, decreased productivity, and an increased workload for other employees. And when those financial losses do occur, they can be significant. A recent study by the APA estimates that time theft costs companies as much as 7 percent of their annual payroll.
For the employee, it can result in disciplinary action, including termination of employment, and potentially damage to their professional reputation. Additionally, it is illegal in many jurisdictions to falsify time records, so employees may face criminal charges as well.
What Time Card Fraud Costs Businesses
As we’ve discussed, time clock fraud can be costly for businesses, and the exact cost can vary depending on the scale and frequency of the fraud.
According to a study by the American Payroll Association, the average employee steals 4.5 hours of paid time per week, which can cost a business thousands of dollars per year. Additionally, businesses may also incur additional costs associated with investigating and addressing time clock fraud, such as the cost of implementing new timekeeping systems or hiring additional staff to cover for missing productivity. It may also lead to lower morale, increased turnover and a negative impact on the company's reputation.
Curious what time fraud may be costing your company? Check out the Time Fraud + Slow Clocking Calculator to see what your time theft costs may be.
What Are the Laws Around Time Theft
The laws around time theft vary by jurisdiction. In the United States, federal laws such as the Fair Labor Standards Act (FLSA) and state laws regulate the payment of wages and overtime, requiring employers to keep accurate records of the hours worked by employees, and it is illegal for employers to falsify or alter these records. While there are no federal laws around time clock fraud specifically, falsifying time sheets can be litigated under a number of fraud-related statutes.
In 2014, a contractor for the NSA made headlines when she was charged with making false claims to the government around falsifying timesheets. Those charges came with a maximum of up to 5 years in prison and $250,000 fine.
Additionally, many states have their own laws regarding time theft and timekeeping. Some states have specific laws that prohibit employees from falsifying time records, while others have laws that make it illegal for employers to fail to keep accurate time records. In addition, some states have laws that allow employees to file a complaint or lawsuit against an employer for unpaid wages or overtime, which can include time theft.
Overall, it is important for both employers and employees to be aware of the laws and regulations regarding time theft in their jurisdiction to avoid any potential legal issues.
Tips to Prevent Time Card Fraud
Clearly, time clock fraud has the potential to create significant losses for virtually any business. So can it be reduced or prevented altogether? The good news is that yes, with proactive planning, there are strategies and ways to reduce time clock fraud.
Have a Clear Time Clock Policy in Place
The first one may seem simple and obvious, but it’s definitely a must: put in place a clear time clock policy. This set of rules and guidelines that govern the use of time clocks can help ensure accurate and fair tracking of employee time and attendance, and to help prevent time theft or other forms of abuse of the time clock system.
These policies should include clearly defined rules for punching in and out, guidelines for overtime and leave time, and procedures for dealing with errors or discrepancies in the time clock data.
Use Biometric Time Clocks with Facial Recognition
Biometric time clocks use unique physical characteristics, such as facial recognition, to identify employees and record their time and attendance. These unique identifiers make it more difficult for employees to clock in or out for each other, reducing the possibility of time theft through buddy punching.
Biometric time clocks offer a number of benefits to combat time theft, including:
- Eliminating the need for employees to remember their employee number or punch card, reducing the possibility of errors.
- Being user-friendly and easy to use, which can help to minimize training time and costs.
- Eliminating the need for paper time cards and manual data entry, making them more cost-effective than traditional timekeeping methods, and
- Offering the ability to be easily integrated with payroll and HR systems, helping to automate the process of tracking employee time and attendance.
And biometric time clocks with facial recognition have some clear advantages over fingerprint time clocks, including the ability to operate completely touchless or with minimal touch configurations.
Require Employee Attestation Around Time Worked & Break Periods
Employee attestation is a process in which employees confirm or attest to the accuracy and completeness of information related to their employment, including their hours worked, their compliance with company policies, or their adherence to certain rules or regulations.
The purpose of employee attestation is to ensure that employee-provided data is accurate and to hold employees accountable for the data they provide, and to create an audit trail to prevent fraud or errors in the timekeeping process, which can be extremely costly to businesses.
Track Locations with GPS for Remote / Mobile Employees
Time clock fraud management is difficult enough in a fixed work location, but these issues become exponentially more challenging when managing remote or mobile employees. When employees work in multiple locations, work from home, or change worksites based on the project or day, tracking their time at those locations accurately must rely on technology.
Using GPS tracking from mobile devices, employers can ensure that employees are actually working where they say they are. For instance, NoahFace time clock software includes a mobile app that automatically captures the GPS location of each clock in and clock out for every employee. Employers can also establish geofenced locations within the app that prevents employees from clocking in or out unless they are physically within the designated location.
Be Proactive with Restrictions and Alerts
Another step in preventing employee time theft - particularly those cases of “accidental” theft when employees clock in early or stay late - is to proactively restrict the times each employee can clock in or out. By restricting the in and out times, an employer can actually automatically enforce the time clock policy in place.
And speaking of proactive, having a time and attendance system in place that notifies managers of violations or concerns about an employee’s time can go a long way in resolving and preventing theft of time.
Time Clock Fraud Wrap-up
Clearly, employee time theft is a serious challenge facing businesses of every size. Whether intentional or accidental, these incidents can create ballooning payroll issues that cost companies thousands, hundreds of thousands, or even millions of dollars in annual losses.
But the good news is that through proactive approaches, employee education, policy management and, importantly, smart time clock solutions, there are measures that a company can take to prevent these losses.