Where Are You Losing Money on Payroll? How to Spot and Fix Inefficiencies
Jessica Packard
Last update on:
July 11, 2025 8:15 AM
Published on:
A 50-person construction company in California notices that their profits are dropping, even though sales appear to be steady. Following a full audit, they realize the culprit isn’t customer turnover or faulty equipment, but payroll issues like buddy punching, inaccurate manager edits, and time rounding.
Payroll management is one of the most essential and expensive functions of any business. However, many companies unknowingly lose thousands of dollars every year due to poor time tracking practices that lead to non-compliance.
Even relatively minor issues like employees rounding up time and managers adjusting missed punch-ins can lead to major losses and disgruntled workers. If you’re not looking out for these pitfalls, you’re putting your business at risk.
In this guide, we’ll explore:
Where businesses lose money on payroll
The real cost of inefficient payroll
The most effective ways to detect hidden payroll leaks
How to reduce payroll costs by automating your payroll, eliminating the risk of fraud, and ensuring compliance with relevant laws
Many business leaders already know they’re losing money on payroll unnecessarily. What isn’t so obvious is where that money’s being lost, and how exactly payroll inefficiencies are sapping the business’s revenue.
To give you a better idea of how payroll inefficiencies could be affecting your bottom line, here are 5 common payroll sinkholes that we’ve helped our clients control and monitor.
Buddy punching
Buddy punching is a classic payroll drain, where your employees punch in for their absent colleagues, often resulting in paid hours that were never actually worked.
This often results from traditional, physical punchcards and shared PIN systems. Remote workers may also be able to log hours without verification, further increasing the number of invalid hours that will be prompted for payment.
PayrollOrg estimates that 2.2% of gross payroll is lost every year due to some form of buddy punching. That’s $110,000 in annual losses for a 100-employee business with a $5M per year payroll.
Missed and late clock-ins
Missed or late clock-ins occur when employees forget to clock in or formally end their shift. This may force managers to manually estimate the hours worked, raising the risk of overestimated hours and people being overpaid.
Though you may think the difference in these kinds of estimates are negligible, even 5 minutes of daily overpayment across 50 employees can add up to 21 weekly hours. That works out at losses of $1,050 per month, assuming a pay rate of $25 per hour.
Additionally, estimating an employee’s worked hours is a violation of the Fair Labor Standards Act (FLSA), which could expose your business to costly audits and fines.
Mileage overreporting
Mileage overreporting is where a worker intentionally inflates the miles traveled on their shifts as a way to receive higher reimbursement.
Like the issue of missed and late payments, mileage overreporting is an issue that seems negligible at first glance, but can quickly build up to be a much more significant problem.
At a mileage rate of $0.67 per mile, overreporting just 10 miles per week per employee can cost $17,400 per year in an organization of 50 employees.
Manual timesheet errors
If your organization relies on old school paper timesheets, which you then transcribe into shared spreadsheets, you could be at risk of human error chipping away at your profit margins.
Envision Digital estimates that manual payroll processes have a 1-8% error rate, and that going back and fixing these payroll errors adds an additional 3-5 hours of work to each payroll run.
Though the cost of lost productivity can be damaging enough, human error when drawing up timesheets can lead to much larger issues.
A typo in worked hours that isn’t remedied fast enough can trigger wage disputes or even lawsuits. These kinds of incidents will strain your funds and resources, and could cause serious damage to your brand’s reputation.
Missed breaks
Employees failing to use their legally-mandated breaks can risk expensive legal challenges brought against your organization, especially if you have to ensure California break compliance.
How much this kind of hazard might cost your business can vary depending on the applicable state or federal laws.
In California, workers who don’t take their breaks are entitled to 1 hour of premium pay per missed break, while PAGA lawsuits can cost an organization $100-$200 per employee per pay period.
At these kinds of rates, just 5-10% of shifts having violations can see a business being ordered to pay tens of thousands of dollars in premium pay.
How to detect payroll leaks at your business
Most businesses with large and mobile workforces are aware of the issues that lead to payroll sinkholes, but lack the processes or bandwidth to monitor them effectively.
By systematizing the way you check for payroll losses and maintaining a reliable paper trail, you can equip your management with the tools they need to start effectively plugging leaks.
Here’s a quick checklist of things your organization can do to start detecting payroll losses more effectively.
Audit your timekeeping records
Many issues that cause holes in your payroll can be detected early by the timekeeping data you have.
If you notice two or more employees who tend to have identical punch-in times, this could be evidence of buddy punching.
If you have GPS data from work vehicles available, you can also cross-check this against known employee locations to ensure location information isn’t being manipulated.
Analyze manual timesheet modifications
Assuming your timesheets are recorded using cloud-enabled software, you should be able to see how often managers at your organization manually edit these logs.
While legitimate manual updates are going to be necessary now and then, if you notice managers making amends frequently, it could be the symptom of a pervasive issue with payroll management.
Check mileage logs against real routes
If you pay your workers by the miles they clock on assignments, a simple navigation app like Google Maps can be used to check your logs against the actual distance of routes.
Frequent errors and odd detours in your workers’ driving could be a sign of a mileage overreporting issue at your business.
Monitor break compliance closely
If your workers and managers aren’t up-to-date on relevant break legislation, this could lead to a widespread issue with break compliance that can open you up to expensive legal challenges.
Make sure to run reports on shifts that go on for longer than 5 hours without a recorded break, and check for patterns in the teams, managers, or job sites where this occurs frequently.
Cross-check payroll data against timesheets
One of the most labor-intensive, yet effective ways you can investigate and fix payroll issues is checking your employees’ timesheets against actual payroll, and flagging any discrepancies where the data doesn’t match.
Though this won’t provide much useful data on the issues draining your profits, it can highlight the employees and teams who may be at the root of any problems you do have.
Fixing payroll leaks with Timeero
Nobody wants to let payroll issues go on sapping their profits. However, like many business leaders, you may find it difficult to tackle these problems using the tools and management techniques you’re used to.
Fortunately, time tracking software like Timeero can help you tackle your business’s payroll challenges with automated, reliable solutions.
Here are 4 key Timeero features you can use to start resolving payroll issues at your organization.
Geofencing and GPS Verified Clock-Ins
Timeero’s intuitive GPS-verified Time Clock App lets you set parameters so that your employees can only punch in and start tracking their hours when they’re in a designated area. This means you can draw a customised border around the job sites employees are assigned to, allowing them to track paid hours only when they arrive at work.
Draw custom geofences around work areas to prevent instances of time theft.
When employees are restricted to starting their shifts only when they’re in the right place, you’ll be able to eliminate buddy punching and stop employees submitting false time logs.
Real-time alerts
Timeero’s real-time alerts will let your managers know the second that an employee punches in late, or misses one of their scheduled mandatory breaks.
Managers receive automatic email notifications when employees are late to their shifts.
This will support managers’ efforts to monitor and combat payroll inefficiencies, and make it easier for you to enforce break compliance throughout your organization, reducing your exposure to legal challenges and having to give premium pay.
Mileage tracking and route verification
Timeero’s automated GPS tracking logs the exact routes your employees take when they’re on the job.
View your employee’s exact driving routes with Timeero’s Route Replay.
By cross-referencing this data against the mileage claimed by employees on their time sheets, you can prevent mileage claims being inflated, and ensure you’re not paying for distance that workers never actually covered.
Automated reports with seamless tool integration
Using the data collated from the punch clock, GPS tracking, and other features, Timeero can generate automated, comprehensive reports on the hours each employee works in a given period.
This will not only eliminate the need for manual data entry and help you save time, but also ensure a higher degree of accuracy for the final timesheets you use to pay your workers.
You can seamlessly synchronise our tools with popular payroll software including QuickBooks, Gusto, and ADP, allowing your finance controllers to process accurate paychecks using the platforms they’re comfortable with.
Timeero integrates with many popular payroll solutions.
Streamlining payroll for stronger margins
Payroll inefficiencies affect businesses of all sizes and industries. Whether your office manager makes repeated calculation errors or employees turn in timecards late, every company struggles with payroll problems at some point.
The good news is, with the right technology and effective communication you can minimize and even eliminate the impact payroll inefficiencies have on your business.
Jessica Packard is a B2B SaaS content strategist lead who helps companies turn SEO and content into real growth. With a mix of creativity and data-driven thinking, she builds strategies that drive traffic, generate leads, and make content a core part of the business.
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