What is 'payroll fraud'?

Payroll fraud refers to the illegal manipulation of payroll processes or systems for personal gain. This can include activities such as creating ghost employees—individuals who do not actually work for the company but receive paychecks; altering hours or wages to inflate earnings; or misrepresenting employment status to access unauthorized benefits.

In essence, payroll fraud undermines the integrity of the payroll system and can lead to significant financial losses for the organization, as well as potential legal repercussions. Understanding this definition is crucial for payroll professionals as it helps them identify and mitigate risks associated with payroll processes.

Other options, while related to incorrect payroll practices, do not encapsulate the broader, criminal aspects of payroll fraud. Incorrect reporting of overtime hours or falsification of employee benefits may involve errors or mismanagement but do not necessarily indicate the illegal intent that characterizes fraud. Misclassification of employment status suggests a misunderstanding or improper categorization rather than an active manipulation for personal gain.