What is Timesheet Fraud? A Guide to Promoting Timekeeping Integrity

Imagine your business is losing part of its revenue every year. For every $500,000 you make, $25,000 is stolen. Now, imagine your employees are the ones stealing it.

Unfortunately, occupational fraud is a reality for US businesses, which lose 5% of their annual revenue to this type of theft. Timesheet fraud falls firmly within this category.

When you don’t follow accurate timekeeping practices, you’re opening the door to timesheet fraud. The consequences go beyond overpayment, extending to a tarnished reputation and a less productive workforce.

Luckily, time theft isn’t difficult to spot, and there are plenty of ways to prevent it.

TL;DR — Key Takeaways

• Timesheet fraud is a crime, and employers and employees may face legal action.
• The warning signs of time theft include long or frequent breaks, false data entries, inflated work hours, buddy punching, and favoritism.
• You don’t need to spy on your employees to pinpoint timesheet fraud—try using timekeeping software, conducting audits, and analyzing employee behavior instead.
• Software like Toggl Track makes tracking hours easier, allowing you to pinpoint bottlenecks and make the most of your resources.

What is timesheet fraud?

Timesheet fraud occurs when employees dishonestly report their work hours to receive payment for time they didn’t work. 

This could be something as small as a remote worker logging into their work system 15 minutes before actually starting on tasks. Or it could be something more serious, like biased managers falsifying timesheets for their favorite employees.

The scale of the issue isn’t what’s up for debate. Timesheet fraud should concern any business because paying for non-existent labor leads to financial losses. It also unfairly burdens honest employees who engage in accurate time tracking.

Is time theft an actual crime?

As soon as there’s deliberate falsification for financial gain, it’s considered a crime. The FBI won’t break down your door if your lunch accidentally went two minutes longer than permitted. However, receiving wages under false pretenses can lead to disciplinary action for employees and even criminal charges.

Time theft is often a just cause for dismissal. This means you can be fired for inaccuracies when logging the number of hours you worked without receiving severance pay or a notice of dismissal.

A recent case in Canada resulted in a remote worker losing out on these benefits due to the company’s time theft policy. As she was unable to explain some 50.76 logged hours on her timesheet, a court found she was not entitled to her severance pay or notice of dismissal.

Business owners aren’t immune from committing time theft either. They might add a “ghost employee” to the payroll system—AKA an employee who collects wages but doesn’t exist. According to the Fair Labor Standards Act (FLSA), the employer is ultimately responsible for keeping accurate records.

So, if one of your employees is committing payroll fraud, and you don’t catch it, you might find yourself in legal trouble.

5 most common types of timesheet fraud

Timesheet fraud can take many shapes and forms. Some are more innocent than others, but the bottom line is they’re all fraud. These are the five most common types.

1. Long breaks

No one is saying breaks aren’t deserved (or necessary)—but employees must clearly label them as break times. Recording extended breaks as hours worked inflates total hours and is deceptive. It causes companies to lose out on productivity because individuals and teams complete less work.

Employees actually following their work schedules might feel demoralized when they see others breaking rules without punishment. Even worse, they might start taking unauthorized breaks themselves, compounding the problem.

2. False data entries

Workers who want to appear more productive might give their timesheets…a bit of a makeover. This could look like hourly employees saying they started work early but then sipping their coffee and scrolling social media for 30 minutes. Or adding extra hours to a project when working with manual timesheets. 

3. Inflation of work hours

Some employees will deliberately inflate their work hours on timesheets, including recording normal hours as overtime hours to receive overtime pay. 

When employees consistently fudge their hours—even by a small amount of time—it can lead to extreme overpayment. Say you have 10 employees at your company, each adding 15 minutes to their daily timesheet.

4. Buddy punching

Buddy punching occurs when employees clock in or out for one another, basically letting someone get paid for time they didn’t actually work and excusing lateness.

If other coworkers catch on, this kind of timesheet fraud can shake up ‌trust and accountability in the workplace. It’s like finding out someone is cheating in a team game—no one wants to play by the rules anymore.

5. Favoritism

Favoritism in the workplace can influence timekeeping when, for example, a manager overlooks a favored employee who openly manipulates their hours. They might even do it for them.

This skews work records and also sends a message that rules aren’t applied equally, deflating employee morale. Minor favoritism like this can undermine the whole vibe of trust and fairness at work.

The consequences of timesheet fraud for businesses

The immediate consequence of timesheet fraud is overpayment. You’re paying workers for labor they didn’t perform. Money that could’ve been invested back in the business is going into someone’s pockets unfairly.

But the ripple effects of timesheet fraud go beyond financials. When colleagues catch wind of someone gaming the system, it can lead to a drop in overall team spirit. This kind of shift in team dynamics can be more damaging than the initial financial loss.

If timesheet fraud isn’t caught early on, it can tarnish a company’s reputation in the long run. Clients and partners prefer to associate with businesses they can trust, not those with a reputation for defying labor laws. 

Regulatory bodies have little tolerance for fraudulent practices, and the penalties can be severe—not to mention the legal fees and company time spent untangling any legal proceedings. 

How to detect timesheet fraud

Implementing a company-wide time tracking software is one of the easiest and most reliable ways to prevent timesheet fraud and accurately track time spent on tasks. 

(Psst, check out Toggl Track…🫣)

Even so, software can’t cover manual time card fraud, so pairing a dedicated tool with other time tracking best practices is a strong option.

Step one: Use time tracking software

Different time tracking software have their own functionality, but they’re straightforward for employees to track their time. This makes it easier for you to spot any differences or unusual behavior.

Toggl Track produces detailed reports with customizations to see the data that really counts. It’s compatible with different extensions and platforms, so you can accurately see how your employees are spending their work hours (without being intrusive). 

Drop the manual timesheet systems and boost your team’s efficiency by identifying the high-value activities that best contribute to your business goals.

Step two: Analyze employee behavior

Look out for some of these red flags that might indicate fraudulent activities:

🚩An employee logs way more hours than their coworkers on easy-to-do tasks

🚩An employee consistently makes last-minute changes to their hours right before submitting them

🚩An employee logs a bunch of hours but has very little work to show for it

🚩An employee reports hours worked when they shouldn’t, like during holidays or non-working hours

Step three: Conduct regular audits of employee timesheets

Regular audits are like a health check of your company’s employee timekeeping. They can pinpoint any inefficiencies silently draining your company’s resources. Plus, they deter time theft because employees know their time records are going to be audited.

Set a clear schedule for when these audits will occur—monthly, quarterly, annually, you name it. As a best practice, use a checklist each time to ensure nothing slips through the cracks. You should rotate which team members conduct the audits—or use a third-party company to keep them objective.

Time tracking software like Toggl Track generates different reports and analytics to explore. Pair these with ‌audits to make data-backed business decisions, then communicate these findings with your team to maintain an open conversation.

How to promote timekeeping integrity and prevent timesheet fraud

Despite workers’ strong feelings against being spied on, 78% of employers engage in remote work surveillance, according to an ExpressVPN survey.

This practice often negatively affects workers, impacting their mental state and even their productivity levels. Unsurprisingly, 48% of employees would be willing to take a pay cut to avoid employer surveillance.

Toggl strongly opposes surveillance. There are plenty of other (less violating) ways to promote timekeeping integrity, including the following:

Create a culture of transparency

Open communication prevents misunderstandings or misuse. When you create a culture of transparency, employees feel more comfortable raising potential issues.

But how do you foster a work environment where honest time reporting isn’t just encouraged but becomes the norm?

✅ Keep communication channels wide open and regularly discuss timekeeping policies

✅ Foster a positive workplace culture so employees truly feel part of the company

✅ Create a safe space for employees to raise any red flags about others’ behavior or share suggestions for improvement

​​✅ Lead by example and make sure team leaders always follow company policies

Implement strict policies

You’d never start a board game and expect players to follow the rules without explaining them first, right? The workplace is the same. Establish clear timekeeping and attendance policies if you want your employees to be honest and fair.

• What time does the workday start?
• How should employees track time spent on tasks?
• Is there an approval process for overtime?

Spell it out in simple, jargon-free language and ensure it’s accessible to everyone.

Then, enforce these policies consistently. No favoritism! It’s crucial for HR or payroll administrators to maintain integrity, and that’s where technology becomes your best friend. 

Provide ongoing training and education

Regular training sessions clarify the dos and don’ts of timekeeping. They also ensure everyone is recognized for the actual time they put in. To really engage employees to track time the right way, make these sessions interactive and relatable:

• Use role-playing exercises to demonstrate common timekeeping problems and how to handle them
• Incorporate quizzes with small rewards to keep the energy up and reinforce learning
• Create fun demos showcasing your time tracking software and how easy it is

These training sessions should focus on mutual benefit and cooperation.

Accurate timekeeping isn’t just about following rules—it’s about respecting and supporting each other’s work-life balance and career growth. When employees understand this practice protects and benefits everyone, they’re more likely to take it seriously and participate honestly.

Prevent timesheet fraud with Toggl Track

Timesheet fraud isn’t just a financial drain; it’s a full-on reputational hazard that slashes productivity and entangles you in legal headaches.

Attendance systems don’t work when your team is remote, which is increasingly the case for modern workplaces. That’s where software Toggl Track can proactively eliminate timesheet fraud from your company. 

With discrepancy alerts, real-time tracking, and advanced reporting, Toggl Track is your solution to time theft. Create a free account today and start preventing timesheet fraud (no spying necessary).