Stop Losing Money to Timesheet Fraud: An Employer Guide (+ Sample Termination Letter)

What is timesheet fraud?

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Timesheet fraud involves any intentional action an employee makes to get paid for work they did not do. Actions may include anything from clocking in for a coworker, exaggerating the number of hours worked on a project, or not recording long breaks. 

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The motivations behind timesheet fraud can vary, but some of the most common causes of timesheet fraud include financial gain, a desire for more free time, and a sense of entitlement.

Why does timesheet fraud happen?

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Many companies still require their employees to manually record their time entries. Although fostering a culture of trust between employers and employees is good, this time reporting system leaves room for potential timecard falsification.

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Employees may take advantage of lax oversight or manual timekeeping processes to inflate their work hours or engage in fraudulent practices, such as "buddy punching."

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Even though adding a few extra minutes now and then to your timesheet or covering for a late coworker seem harmless, over time these seemingly minor discrepancies accumulate, leading to significant financial losses for the employer.

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Is timesheet fraud a felony?

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While timesheet fraud is not typically classified as a felony, it can have serious legal consequences. 

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Depending on the severity of fraud and relevant laws, employees caught falsifying timesheets could face disciplinary action, termination of employment, or even criminal charges. In some instances, timesheet fraud is considered theft and results in fines or imprisonment.

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For example, in Massachusetts, obtaining property through false pretenses with the intent to defraud constitutes larceny, a crime punishable up to five years in prison with a $25,000 fine.

The most common types of timesheet fraud

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Timesheet fraud can significantly impact a company's bottom line. We've listed some of the most common types of timesheet fraud below. 

1. Inflation of work hours

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This form of timesheet fraud happens when employees exaggerate the time they spend working.

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For instance, a worker might clock in 15 minutes early or clock out 15 minutes late each day, accumulating several hours of unearned pay over time.

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Inflating work hours can also involve rounding up hours to the nearest hour or half-hour. Paying for 30 minutes of unearned wages may not break the bank initially, but the amount can add up significantly over time.

2. Buddy punching

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Buddy punching is a time fraud practice that involves one employee clocking in or out for another. This form of time theft allows the absent employee to avoid work or receive payment for time not spent working.

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For example, a colleague might clock in for a friend who is running late, or an employee might ask a coworker to clock them out early so they can leave early without their manager's knowledge.

3. Extended breaks

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Taking extended breaks is a popular form of timesheet fraud. This practice involves employees taking longer breaks than permitted or taking unauthorized breaks during work hours.

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Instead of taking a 30-minute lunch break, employees might extend their break time to 45 minutes or an hour and fail to report the accurate time.

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4. Logging regular time as overtime

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This type of timesheet fraud happens when employees falsely report their regular working hours as overtime to receive higher overtime pay.

For example, an employee might work their usual 8-hour shift but record 10 hours worked, claiming the extra two hours as overtime.

5. Ghost employee

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This type of timesheet fraud involves a fraudster (often a manager, supervisor, or payroll personnel) collecting the wages of a fake employee. To collect the ghost employee's paycheck, the fraudster creates a fake employee in the company’s payroll system or uses the details of a former employee. The fraudster then falsifies employee timesheets by recording hours the ghost employee worked.

6. Favoritism

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Managers and supervisors that show favoritism in the workplace give preferential treatment to certain employees. Mangers may show favoritism by ignoring poor attendance and allocating tasks unfairly.

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Managers may assign a task to their favorite employee that would have cost the company less and been completed more efficiently if another employee had done it.

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PRO TIP: Time fraud isn't limited to employees. Employers can also engage in unethical practices, such as misclassifying  employees to avoid overtime pay, failing to compensate for off-the-clock work, or automatically deducting break times even if employees didn't take them.

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The impact of timesheet fraud on businesses

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The consequences of timesheet fraud can have a devastating impact on your business. The ripple effect that follows timesheet fraud causes a range of problems that extend far beyond financial losses.

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Financial and operational impacts

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Direct financial loss: The most immediate impact of timesheet fraud is the direct financial loss you experience for paying employees for time they didn't work. This significantly impacts your profitability and budget.

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Inaccurate billable hours: If you bill clients according to the hours an employee worked, timesheets with false reports lead to inaccurate invoices and potential disputes.

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Incorrect estimates for future workloads: Inflated time records can skew your estimations for future projects. This may result in understaffing, missed deadlines, or over budgeting.

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Reduced productivity: The overall productivity and efficiency of your business suffers when employees fail to do the work they claim to have done.

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Legal and reputational risks

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Legal repercussions: In some cases, timesheet fraud can expose businesses to legal action from employees or government agencies enforcing labor laws. For example, if an employer withholds wages based on suspicion of timesheet fraud, employees may take legal action for unpaid wages or wrongful termination and attract scrutiny from government agencies enforcing labor laws.

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Non-compliance with labor laws: In regions with strict regulations, like California, inaccurate timekeeping, particularly regarding meal and rest breaks, can result in penalties, wage theft allegations, eventually damaging your company's reputation. For more information on potential consequences, read our article on Time Theft in California.

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Damaged reputation: Timesheet fraud erodes trust within the workplace, leading to poor employee morale, disruption of teamwork, and difficulty attracting and retaining top talent.‍

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PRO TIP: Under the FLSA, employers bear the ultimate responsibility for maintaining accurate time records and ensuring prompt payment for all hours worked, even if timesheets are incomplete or inaccurate. In the event you suspect fraudulent activity, continue to issue fair compensation for all hours your employees reported.

How to stop timesheet fraud

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How you choose to prevent timesheet fraud will vary depending on what leads to the behavior in your specific workplace. To help you brainstorm prevention measures, we’ll start with the most efficient step to take: switching to an automated time tracking system.

Implement time-tracking software

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By transitioning from manual timesheets to a reliable time and attendance system like Timeero, you can protect your business and ensure accurate payroll. 

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Here's how Timeero helps you combat timesheet fraud:

• Eliminate buddy punching and ensure accurate clock-ins: With GPS, geofencing, and facial recognition, you can rest assured that your employees are where they're supposed to be when they clock in or out.

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• Stay on top of overtime: Timeero's time tracking system allows you to easily set overtime thresholds. The app conveniently alerts management when employees approach or exceed the predefined threshold. By monitoring overtime, you will be able to prevent unauthorized overtime claims and manage labor costs.
  
  
• Ensure compliance with break laws: Your employees can track their break times accurately to ensure your business stays compliant with labor laws, especially in areas with strict regulations.
  
  
• Monitor your workforce in real time: With Timeero, you can view your employees’ locations in real-time. The app provides a live overview of who’s working along with each employee's current location and hours worked. These insights allow you to easily verify reported hours worked against assigned schedules. If there are any discrepancies, you can address them immediately.
  
  
• Maintain control and transparency: By assigning user roles and defining timesheet approval processes, you can successfully reduce the frequency of errors while encouraging accountability.  To increase the accuracy of reports, Timeero keeps a detailed history of all changes made to timesheets. For additional verification, the app allows your employees to digitally sign their timesheets indicating the hours reported are correct.

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For businesses with a mobile workforce, timekeeping systems equipped with GPS and geofencing functions have become the standard. To explore the benefits of using time-tracking software specifically made for field teams, check out our article on the best field employee tracking apps.

Other proactive measures to combat timesheet fraud

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While using a time-tracking app is one of the best ways to combat timesheet fraud, there are additional steps you can take to prevent timesheet fraud from occurring in your workplace.

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1. Establish clear policies and procedures regarding time theft

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Create a company policy that clearly defines your company’s timekeeping and attendance rules, including your expectations for accurate reporting of breaks and overtime. 

Your time-theft policy should thoroughly explain the consequences employees will face if they choose to commit time theft.‍

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2. Encourage a culture of integrity and educate employees

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Educate your employees on the importance of submitting accurate timesheets and explain the negative impact time theft has on the company. You can do this by conducting training sessions, including reminders in your company’s communications, and recognizing and rewarding honest behavior. 

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As you create an open and supportive environment, employees will feel comfortable reporting their concerns about suspected fraudulent behavior.

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3. Implement fair workload management

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Employees who are overworked are more likely to falsify their timesheets. Be sure you regularly assess employee workloads for fair and reasonable task distribution.

4. Review timesheets regularly

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Managers should consistently review timesheets and make note of inconsistencies, unusual patterns, or excessive overtime. 

You will most effectively prevent timesheet fraud by addressing discrepancies right away.

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5. Conduct surprise audits

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Periodic timesheet and payroll records audits can help you identify suspicious behavior or cases of potential fraud. Because employees do not know when audits will occur, they are more likely to work their full shifts and report their true hours worked.

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6. Enforce strict submission policies

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Enforce strict deadlines for timesheet submissions to discourage last-minute, potentially fraudulent entries. You can also require detailed descriptions of work performed during reported hours, especially for overtime.

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7. Don't ignore minor cases of fraud

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Addressing even minor discrepancies sends a clear message that time theft will not be tolerated in the workplace.  By consistently enforcing your company’s timesheet policy, you are fostering a culture of honesty and respect for company time and resources.

What are the consequences of timesheet fraud?

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Employees that are caught committing timesheet fraud can face various consequences, depending on the severity of the offense and company policies.

Consequences may include:

• Termination of employment: Timesheet fraud is often grounds for termination of employment.
  
  
• Legal consequences: In some cases, employees may face legal action, including fines or even imprisonment, if the fraud is considered a form of theft or fraud.
  
  
• Repayment of wages:  Employees may be required to repay any wages they received for hours they did not work.
  
  
• Damaged reputation:  Even if employees avoid legal consequences, their reputation can be damaged, making it hard for them to acquire future employment.

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Dealing with employees' fraudulent activities can be tough, even more so when you have to let them go. To help you during this challenging process, we've created a sample termination letter for timecard fraud. You can download, print, or use it as a guide and modify it according to your needs.

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Are you ready to take control of your employee’s time tracking and eliminate timesheet fraud? If so, Timeero is the solution you've been looking for. Our advanced features, including GPS tracking, geofencing, and facial recognition, ensure accurate and transparent timekeeping.

FAQs about timesheet fraud

Can you get fired for timesheet fraud? 

Yes, timesheet fraud is a serious offense that can lead to termination of employment.

How common is timecard fraud? 

43% of employees admit to padding their time cards, so timecard fraud is quite common. For reference, businesses lose billions of dollars each year due to timecard fraud.

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