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Feb 21, 2024 Matt Venuto

7 Payroll Security Best Practices Every Small Business Should Know

7 Payroll Security Best Practices Every Small Business Should Know

You juggle countless responsibilities as a small business owner, from managing inventory to marketing your services. With limited hours in the day, it’s easy to let proper payroll security slip down your priority list. 

Breaches, wiring errors, and even theft. Just one incident can cost you thousands in losses — plus legal and compliance headaches. That’s why taking a few fundamental steps to lock down your payroll systems guards your bottom line and protects sensitive employee information entrusted to you.

This guide walks through seven simple payroll security best practices for small businesses. We’ll outline the dangers you’re leaving yourself open to by not addressing these basics and cover how partnering with the right secure payroll provider can help keep your payroll safe.

The Importance of Payroll Security Best Practices 

Payroll security is especially critical for small businesses since you often have tighter budgets and operations. With limited resources, you need to be even more intentional to avoid the consequences of poor security, like payroll fraud, data breaches, or falling out of compliance with state and federal laws.

Partnering with a payroll provider that prioritizes security can provide extra protection without spending a significant budget on safeguarding your tech. Working with a partner also lets you keep your payroll process secure, simple, and efficient without becoming a security expert yourself. 

For example, ConnectPay uses robust encryption, access controls, and audit trails to safeguard your data and processes while simplifying payroll. This way, you can focus on running your business instead of staying up-to-date on the latest cybersecurity best practices — we do that for you!

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7 Payroll Security Best Practices Your Small Business Needs 

Just knowing you need to keep your payroll safe isn’t enough. Here are seven payroll security best practices you can use to start protecting your operations today.

  1. Restrict Who Has Access to Your Payroll System

    Enforcing team-wide accountability and control over payroll login credentials is important. Why? Employees who leave the company or don’t have good intentions can still access sensitive data if you don’t maintain these credentials.

    The payroll security best practice is to designate specific payroll and HR admins with exclusive access through distinct login credentials. Generally, employees don’t need the same level of access and permissions. They just need to view their own payroll details and punch in and out. Taking a role-based approach to system permissions gives employees enough access to their information without creating security risks or compromising your process.

  2. Use Strong Passwords

    Employees with weak passwords might accidentally tee up your payroll system for hackers. For example, someone accessing your payroll system could secretly change direct deposit information and steal wages before anyone notices. You must keep intruders out for your employees’ safety and keep internal data and information secure.

    Encourage your team to use distinct and complex passwords for each system and application that touches payroll and personnel data. Strong passwords should be at least 8 characters,  include symbols, numbers, capital letters, and more —- not just common dictionary words. You can also take payroll security to the next level with a password manager app. These apps generate completely random, hardened credentials for each account and store them securely in an encrypted cloud.

    Taking these steps frustrates guessing and cracking attempts. With strong, unique passwords guarding every payroll component, you lessen your risk of a disastrous breach through a careless password mistake.

  3. Enable Two-Factor Authentication

    If strong passwords create a closed door for potential hackers, enabling two-factor authentication (2FA) is like adding a deadbolt. Payroll systems with 2FA require a secondary step (beyond just inputting a password) to get into the system. Typically, this involves entering a code sent via text message or generated through an authenticator app.

    Without 2FA, it’s simpler for cyber criminals to log in if credentials ever get compromised by a password breach or down system. They could steal funds and data and cause compliance violations before anyone notices. Fortunately, many modern payroll solutions–like ConnectPay–have 2FA capabilities built directly into their software. You just have to enable the feature and designate which verification method employees use when logging into payroll dashboards. Adding this extra credential check helps keep your accounts secure even if an employee's login information leaks.

  4. Train Employees to be Security Conscious

    People are imperfect; everyone makes mistakes! Unfortunately, human errors (like clicking on phishing links or using weak passwords) are the reasons for most damaging data breaches. If your employees fall for phishing attempts, malware could be downloaded into your systems which can allow outsiders a way in to steal funds or information. Reusing passwords or having multiple team members use the same account also raises your security risk.

    That's why ongoing security awareness training is so important for your team. Consider having your HR team hold annual cybersecurity refreshers tailored to your common software systems. Cover topics like phishing detection, safe web browsing, strong password best practices, and more to give employees the knowledge to keep payroll data secure.

  5. Keep Sensitive Data Encrypted

    Encryption encodes your files and data so only authorized parties can decode and read the contents. Basically, it protects your sensitive information if it ever falls into the wrong hands. Without encryption, sensitive payroll files with data like employee tax forms, salaries, bank account details, and more could devastate your business if leaked or stolen.

    How do you enable encryption to guard information like account numbers and SSNs from prying eyes during digital transfers? Add it to hard drives storing local payroll files as an extra security safeguard. Be sure to utilize secure transmission methods like SSL/TLS to encrypt data flows between connections with banking and tax partners. 

  6. Audit Your Payroll Security Regularly

    Never assume your data and information are safe without getting hard evidence via periodic audits. Auditing your payroll security helps proactively address potential vulnerabilities before someone exploits them.

    Audits should closely examine all the factors we’ve already covered — multi-factor authentication adoption, password strength, data access permissions, and more — to ensure your payroll systems and employee data are safe. You can’t resolve problems you are unaware of, leaving you exposed. That’s why we recommend consistent quarterly or monthly audits to maintain tight security.

    Use audit checklists to review crucial security components like payroll software configurations, backup testing results, and employee training completion rates. Then, set up a routine cadence to look at your overall payroll security posture. New threats and compliance requirements are constantly emerging. So, the earlier you catch issues and Identify and close security gaps, the better.

  7. Update Your Payroll Software Frequently

    Using outdated payroll software introduces vulnerabilities that could open your systems to attack. A small flaw in an unpatched program can give hackers access to your entire network, including payroll systems. That’s why it’s vital payroll security best practice to review your software often.

    Set a routine calendar reminder to review your payroll system access and permissions regularly. Remove ex-employees from the software so former team members can’t log in. Have current staff change passwords when prompted, and remind them not to share credentials (even with other members of your team). Additionally, keep an eye on login notifications for suspicious new users and investigate odd activity — like an employee request to move from direct deposit to pay card — to keep your payroll tools protected even as your team changes.

Maintain Safer Payroll Security Practices With the Right Partner 

If you take away anything from these payroll security best practices, we hope it’s that safe payroll security must be a priority for your small businesses. Yet, realistically, doing it all in-house requires expertise and resources you might not have at this stage of your business. 

The solution? Partner with a payroll provider who keeps up with payroll security best practices without breaking the bank or putting your team on the back burner.  

At ConnectPay, we use robust encryption, permission controls, and audits to lock down your data and processes securely. You don't have to become a cybersecurity whiz: you have us! Sign up for a free consultation today. We'll discuss potential vulnerabilities in your payroll processes and offer customized ideas to improve them.  

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Published by Matt Venuto February 21, 2024