Payroll and confidentiality go hand in hand. The former involves executing the tasks necessary to pay employees and operate the business legally; the latter involves protecting the financial data used in the payroll process. As a small-business owner, you should take steps to ensure that your payroll information stays confidential.
Payroll generally includes employee and employer data. Employee information includes employee name, address, Social Security number, date of birth, mandatory deductions such as payroll taxes and wage garnishment, pay rate, pay frequency, earnings such as regular and overtime wages, salary, bonus and commission, employee benefits such as retirement contributions and health insurance premiums, and bank account information for direct deposit purposes.
Employer information includes the employer’s payroll liabilities, such as federal and state unemployment taxes, Medicare and Social Security taxes, the amount the employer pays for employee benefits such as 401k match and health insurance, and in some cases, the employer’s bank account information.
Confidentiality of employee payroll data is critical because a leak can result in discord among employees and compromise the employer or employee’s financial situation. For example, two employees perform the same job; however, you decided to pay one of them at a slightly higher rate because she has more experience than the other worker. If the lower paid employee discovers that she’s being paid less, it can result in her feeling resentful. In such a situation, there’s not much the employee can do provided she’s being paid at least the federal or state minimum wage. Still, she’s likely to feel under-appreciated. Further, a leak of an employee’s direct deposit information or the employer’s financial data can cause the respective bank account to be compromised by fraudulent activity.
Wages and Salary Discussion
It can be difficult to maintain the security of certain payroll information, particularly if an employee chooses to share his own data with other workers. Still, you can take certain measures. For example, so employees know where they stand, include in the company handbook that your compensation and benefit packages are competitive but also depend on job performance and experience. Note that although the practice of employees discussing wages with each other is typically frowned upon, you cannot make it company policy to ban such discussions. Federal labor law and some states have provisions that say employers may not forbid employees from discussing their pay and benefits.
Payroll System Security
Strengthen payroll confidentiality by assigning the necessary payroll tasks to specific personnel. For example, if the employee processes only time cards and tax-withholding forms, his system access should allow him to complete only those tasks. Specifically, do not give him access to wages and deductions data if his job does not require him to have access to that information. Some employers use payroll software to process their payroll in-house, and this software sometimes has accounting or human resources features attached. Always give the employee only the access that he needs. If your small business does not have an information technology specialist, use an IT consultant to set up the computer system so the necessary accesses are given.
Payroll software stores payroll information in the computer system; however, keeping hard copies increases the filing system's reliability and serves as a useful backup. Store hard copies in a secure, locked location. Some employers with only a few employees keep spreadsheet copies of payroll data. In this case, ensure that only the record-keeping personnel have access to the computer drive with the data.
Payroll Staff Security
Even if you have only one payroll person, ensure that she works in a confidential location, separate from other employees. Before you hire payroll personnel, emphasize the importance of keeping payroll data private, such as logging off the payroll software before leaving the computer and not disclosing payroll information to non-payroll staff. To protect sensitive information, you may have the payroll staff sign a confidentiality agreement upon hiring them. Some employers make termination of the payroll staff immediate rather than giving advance notice if there is a leak of confidential information. Check with your state’s department of labor for its termination policies prior to making it company policy.
Only the payroll staff and a restricted number of upper-management employees should have the access code or key to the payroll department. If you outsource your payroll duties to a payroll service provider, ensure that the provider sends the payroll in confidential envelopes to a designated onsite staff member.
The payroll staff should know who is privy to confidential information and who is excluded from it. For example, have a policy listing the payroll documents that internal and external auditors are entitled to see. This limits misunderstandings if an auditor wants to remove or photocopy restricted data from the department. Further, include that an employee’s spouse cannot receive any payroll data for the employee without the employee’s consent. Typically, if the request is from a government agency, you must honor it provided it is presented in written form; these types of queries are usually made by fax, email or mail. If an employee requests to see his payroll records, state law may require that you make these records available to the employee within a reasonable time.
- South West Institute of TAFE: Security of Payroll Information
- California Department of Industrial Relations: Glossary
- Texas Workforce Commission: Salary and Benefit Discussion Among Employees
- Iowa State University: Employee Confidentiality Agreement
- Washington State Department of Labor and Industries: Payroll and Personnel Records
- Comstock/Comstock/Getty Images