Time theft in the workplace is a common and expensive problem.

It can take years to find out that an employee is stealing, and the longer it goes on, the more it costs. Statistic Brain estimates that employee time theft costs businesses $50 billion every year.

Companies often overlook the potentially serious impacts of misreported time. Small discrepancies add up to big numbers over months and years of fraudulent time reporting.

It’s like a small leak in a big boat — it may not flood you all at once, but let it go long enough, and it will still cause you to sink.

Time theft costs businesses about $50 billion every year.

This type of theft can cause major profitability problems. Statistic Brain reports that it causes up to 33% of business bankruptcies!

On average, employees who report extra time on their timesheets steal 4.5 hours of wages each week.

Those hours add up quickly. That’s almost 6 weeks of wages over a year of misreported timesheets. Imagine your $20 per hour employee is engaging in the average amount of time theft; you lose $4,680 in stolen wages to that employee every year!

Time theft isn’t just adding extra hours to timesheets. There are lots of ways that employees and contractors steal extra money from businesses. In this guide, we’ll talk about types of time theft and how you can prevent it.

Employees who add hours to their timesheets add an average of 4.5 hours of wages every week. That adds up to 6 weeks of stolen pay per year!

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What is time theft?

Time theft means that employees or contractors manipulate the system to get paid for hours they haven’t worked. There are a lot of different types of time theft, but they all boil down to a person claiming wages without having worked to earn them.

Time theft can hurt productivity so much that low performance becomes your new normal.

Aside from the obvious cost of paying for work with no results, a team member who steals time creates an expensive ripple effect within your company.

Productivity suffers across your entire team. It’s demotivating for a hard-working employee to watch someone else make the same amount of money for less work and worse results.

Even employees who bill their time accurately suffer performance issues in teams where time theft is a problem. You may not even realize that the overall productivity of your team is far lower than it could and should be. Low performance can become your new normal.

As morale is negatively affected, other employees are more likely to adopt similar behaviors. They’ll take more breaks, show up late and leave early, and use work time for personal tasks more often.

In some cases, an employee who regularly gets away with timesheet fraud might encourage their coworkers to do the same.

The longer you go without addressing time theft, the worse it gets.

This is a complex problem.

Types of time theft

The longer you go without addressing time theft, the worse it gets. A team member who is hesitant at first is likely to become bolder as they continue without repercussions.

In order to spot this expensive problem in your own company, you should understand the different ways that people might steal time.

Buddy punching

Even though old school punch clocks are a thing of the past, the practice of manually clocking in and out is still common.

Buddy punching

Buddy punching happens when employees help each other fool the clock. Instead of punching in at arrival and punching out when they leave, a person has their coworker start or stop the clock on their behalf.

There are a few different ways this happens.

In some cases, the entire team participates in a buddy punching scheme. The first person who arrives at work punches everyone in, and then the last person to leave punches everyone out. This gives the entire team the longest shift possible, no matter what hours they actually worked.

Other times, it’s less organized. An employee who is running late might ask a friend to punch them in, or someone might leave early and get a coworker to punch them out at the end of the day.

No matter how it happens, the bottom line is that buddy punching means you’re paying wages for people who aren’t even physically at work.

Timesheet fraud

Forging or altering timesheets to get paid for extra hours is called timesheet fraud.

Sometimes, timesheet inaccuracies are accidental. This happens a lot with manual timesheets, and while it’s not the same as timesheet fraud, it can still be expensive for your company.

Though time tracking software is far more accurate than paper timesheets, companies who use software can still experience timesheet fraud. Watch for employees who frequently alter their records.

A lot of employees round their timesheets to the nearest hour, even if that means they’re getting paid for 15 or 30 minutes that they haven’t worked. They may not intend to inflate their timesheets unfairly, but that extra time adds up.

Here’s a common example:

Let’s assume you have an employee who is supposed to work from 8 AM until 5 PM with an hour lunch break. That employee actually arrives around 8:15 every morning, takes an extra 10 minutes for lunch every day, and always leaves the office by 4:30. Still, they file their timesheets to reflect that they followed their assigned schedule.

Each week, that employee gets paid for 4 hours and 35 minutes that wasn’t worked.

This type of time theft can also happen when employees add hours to their timesheet to get overtime pay or to cover up times when they weren’t at work as scheduled. The discrepancies can be huge.

Even companies who use time tracking software can experience some timesheet fraud, though automated timesheets are much more accurate.

Employees may alter their time tracking information or claim that they forgot to turn on the software in order to add hours to their paycheck. Watch for major alterations or employees who frequently “forget” to start their work timer to spot possible timesheet fraud attempts.

Abusing breaks and personal time

Your employees should take breaks. It’s great for their mental health and productivity. In a lot of cases, you’re also legally required to give your employees paid breaks during their shift.

It’s also okay for employees to occasionally handle personal business from the office. A healthy work environment leaves room for people to balance their life priorities with their work. As long as productivity doesn’t suffer, there’s no harm in employees handling a little bit of personal stuff during work hours.

Problems only arise when employees abuse their breaks and personal time, causing major productivity issues that cost you thousands.

Abusing breaks and personal time

For example, a team member who calls their dentist from work to make an appointment is probably not committing time theft. You don’t need them to clock out to make a quick call.

However, an employee who regularly browses social media, does their online shopping, chats with their friends, and drives to the local coffee shop a couple times every day is probably costing you a lot of money.

There are two things you should consider about this type of time theft.

First, how much are employees actually working while they’re at work? You could be paying for hours of work every day that isn’t getting done.

Second, what is the cost of employees using company equipment for personal purposes? You pay for resources like ink and paper, internet access, and utilities. Non-business use of company property can result in extra expenses.

Unauthorized overtime

Paying extra for overtime makes sense when you need to get things done on a tight schedule, but most companies require overtime to be approved first. After all, overtime pay might not be in the budget, or the work might not justify the extra expense.

Once the hours are worked, you’re legally obligated to pay those wages. That includes overtime pay.

Some employees try to pad their paychecks with unnecessary overtime hours.

According to the Fair Labor Standards Act, you must pay for that overtime. For hourly employees, that means time and a half for anything over 40 hours in a work week, whether you authorized it ahead of time or not.

Time theft through unauthorized overtime is usually obvious. You’ll see that an employee works more than 40 hours per week, even after you’ve asked them to stop at 40 hours.

If you have an employee who continues to put in unauthorized overtime, you may need to have their manager keep track of their hours throughout the week. Once they reach 40 hours, the manager must send them home to avoid the extra pay.

Refusing to pay overtime for hours that have already been worked can land your company in hot water. For a repeat offender who doesn’t comply with overtime policies, termination of employment might be your only option to stop it.

How to stop and prevent time theft in your company

That’s a lot of information to digest. The main question is this:

How can you prevent time theft?

You might be tempted to carefully monitor your employees to make sure they’re working all the hours they bill, but take care. Micromanagement hurts performance, and it can actually make time theft worse.

One of the most common reasons employees commit time theft is because they feel like their company is trying to take advantage of them. They feel that they’re underpaid and undervalued for the work that they do, so they pad their paycheck as a way to even the score.

Micromanagement seems like a solution, but it actually makes time theft worse.

There’s a feeling of “us versus them” in these situations, and fudging timesheets or taking extra breaks is a type of small rebellion against what feels like an unfair arrangement.

Of course, disliking your job doesn’t mean it’s okay to steal from your employer.

You can stop time theft and create a better working environment with these strategies.

1. Create a clear time theft policy

The first step to preventing employees from stealing time at work is to define your company’s time theft policy. Include:

  • Behaviors you consider time theft
  • Behaviors which are not time theft, but have the potential for abuse
  • The consequences an employee may face if they break the rules

Once your policy is created, make sure to clearly communicate it to your team. Sending an email and asking for agreement isn’t enough. Discuss why you created this new policy and make sure everyone understands what it means.

Create a clear time theft policy

Start by explaining all the situations that you consider time theft.

Some practices like rounding timesheets to the hour might seem minor, but explain how that time adds up and how much it costs on a monthly and annual basis.

This is particularly effective if you’ve had to reduce perks or cut other costs because of budgeting issues. When employees understand how those little behaviors affect their comfort and job security, they’re more likely to be conscious of accidental time theft.

It’s smart to clarify things that aren’t considered time theft, too. Be clear that your team members can take breaks, handle a little personal business, and adjust their timesheets if they forget to track their work.

A good time theft policy is fair. It protects your employees from being underpaid as much as it protects you from overpaying.

Could you afford more perks if you weren’t dealing with time theft? Show your team what they’re missing out on because of all those wasted dollars.

At first, your team might feel like this new set of rules is a way for you to make more money out of their work. If time theft is already a problem, that’s a sign that your people don’t trust the company.

Consider setting a team goal with an attractive reward. If your team reduces timesheet inaccuracies and improves performance, you might offer to provide team lunches a couple of days a week using the money you’re no longer wasting on inaccurate payroll.

Focus on how this policy helps individuals have a better work experience. That will also help as you tackle this next step:

2. Work on your company culture

If you haven’t worked on developing company culture, that doesn’t mean that no culture exists. It means that you have a culture which is out of your control.

The more your employees feel that they are not being treated fairly in your company, the more likely they are to cut corners.

It’s difficult to expect honesty from your team if they don’t feel that they can trust you.

There’s a default attitude in much of the world that employees are victims of the greedy businesses that hire them. Your team might have that attitude, especially if you haven’t put much effort into building a healthy, positive culture.

It’s worth investing time and effort in employee satisfaction. Building trust with people who are already dissatisfied is hard. Do it anyway.

Creating culture is a long road. Fixing a negative culture is even harder.

Investing in culture will pay off for a long time, though. Your team will be more productive and honest when they truly believe that you have their best interests in mind. New employees will quickly adopt that mindset and do their best work from day one.

Go out of your way to show your team that you’re a fair, honest boss.

Even if it feels counterintuitive, your response to time theft should be a better employee experience. When their job feels like a fair deal, employees won’t feel that it’s ethical to steal from their employer.

Practice transparency so that nobody feels like you’re hiding things from them. You might even need to make some decisions that obviously favor the employee experience over profits to prove that people are your priority.

It seems counterintuitive that you should respond to employee time theft by going out of your way to treat your employees better.

Think about it in human terms, though. Most people believe that stealing is wrong. The only reason they’re stealing from their job is because they think they’re justified in taking small amounts from a system where they feel exploited.

When they no longer feel exploited and instead think of their job as a fair deal, they won’t find it ethical to steal.

3. Use the right time and attendance software

One of the best ways to prevent time theft is to ditch manual timesheets and use a good time and attendance software.

Time tracking technology has come a long way since the days of paper timesheets and manual punch clocks. While it’s not impossible to fool time tracking software, it takes more effort to fool the computer.

Even if you have employees who try to beat the system, the right software gives you accurate data that you can use to find and address time theft.

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Using modern time and attendance software helps reduce accidental time theft, too. Here’s what you should look for in a good time tracking software.

  • Ease of use – if it’s too complicated, your team will just ignore it.
  • Productivity tracking – look for software that helps your employees optimize their time
  • Individual controls – your employees all do different jobs, so your tracking should be customizable to suit their roles
  • Automation – if you have to do everything manually, your time tracking will create more work and leave room for human error
  • Transparent reporting – you and your team should both be able to see everything that gets tracked so that everyone can benefit from that information

4. Check in, but don’t intrude

As a leader, it’s your job to make sure that work is going smoothly and time tracking is accurate.

Checking on your team’s progress can easily start to feel invasive, especially after you’ve just given a presentation about time theft. Teams that feel micromanaged rarely perform at their best.

Your time tracking software should help with this. Instead of interrupting work to ask someone how their to-do list is coming along, you can check the time tracking software to spot potential productivity issues. If it looks like there’s a problem, you can easily investigate a little further without pulling anyone away from their work.

The right attitude goes a long way towards smoothing over any ruffled feathers, too.

Teams that feel micromanaged rarely perform at their best. Don’t try to catch people doing things wrong. Instead, look for ways to help make their job easier.

Instead of approaching these checks as a way to look for employees who aren’t doing their job well, change your perspective. You should be looking for problems you can help solve so that it’s easier for your team to get their work done.

Have your team’s success in mind instead of the company’s interests. When you’re genuinely looking out for your employees, they feel it.

5. Speak openly and truthfully with your employees

Good communication is at the heart of a successful company culture.

Communication is more than just telling your employees what’s going on. If it only goes one way, you’re not actually communicating.

Start by being more transparent. Explain why you make decisions. Consider making company information available for your whole team to find easily. Prove that you value open communication by practicing what you preach.

You’re on the right track when your employees are comfortable telling you what you’re doing wrong.

They need to feel safe enough to be honest with you. When people stop telling you about problems, it’s a sign that they don’t think any good will come from their truthfulness. That’s a big red flag.

If your “communication” only goes one way, you’re not actually communicating.

To encourage more openness from your employees, be very careful about how you handle criticism.

Listening to critical feedback is hard, especially when it’s delivered in public. Your employees might not be gentle when they tell you what’s going wrong.

Speak openly and truthfully with your employees

However, hearing criticism from your team is far better than not hearing criticism from your team.

Your employees will only tell you what’s wrong if they believe there’s a chance you’ll fix it. Whether they express their concerns with tact or with contempt, it’s your job as the leader to listen with grace.

If you need some time to process what’s been said, say something like this:

“I appreciate you telling me about your concerns. I’m going to consider this more thoroughly, and I’ll get back to you with an action plan by the end of the week.”

Then do it. Show that you listen and act when people tell you things. Communication at your company will improve drastically when everyone sees that it makes a positive difference.

Hearing criticism from your team is far better than NOT hearing criticism from your team.

What can you do about time theft?

These are all great tips to help stop and prevent time theft moving forward, but what if employees have already stolen from your company? Do you have any recourse?

The short answer is: maybe.

It depends on the situation. Let’s use buddy punching as an example. Let’s assume that Joe punched in for his friend Jen, and you can clearly prove that Jen didn’t arrive until an hour later. If you discover it immediately, you can probably dock Jen’s pay that period for the hour that she wasn’t at work.

Other situations are more complicated.

In the example above, you’re justified in adjusting Jen’s paycheck because she wasn’t even physically present at work during the hours she billed. That doesn’t mean you can legally dock pay for every minute of the day that Jen wasn’t at her desk doing work, though.

You shouldn’t try to withhold pay for things like smoke breaks, handling personal business at work, and browsing social media. Address those kinds of issues with disciplinary action through HR.

But what if you look back through the records and find that Jen has been forging her timesheets for the last 7 months?

Or what if you look at productivity records and find that Joe has spent 2 hours of every day watching movies instead of doing his work?

The first step in extreme cases of time theft is usually to terminate the employee who has been stealing from you. Whether or not you can recover the stolen money is a different question.

Can you sue an employee for time theft?

As an employer, you can sue for time theft if you have clear proof that an employee billed for hours he or she wasn’t at work. However, you’re not likely to recover any costs from less obvious types of time theft like unauthorized overtime, goofing off at work, or extra breaks during the workday.

Wage theft cases against employees are rare. State laws vary, and every case is different. If you want to know your options for recovering stolen wages, you should talk to your corporate attorney to decide on the best course of action.

More often, lawsuits related to time and wage theft are filed by employees against their employer. These suits usually relate to things like payment for hours worked off the clock or unpaid overtime. For example, if a company refuses to pay time and a half for unauthorized overtime hours, the employee may file a suit for the additional wages.

Time theft can be an expensive problem, and in a lot of cases, your options to recover that money are limited. Prevention is your best course of action.

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This post was originally published July 18, 2019. It was updated with additional information and resources on August 11, 2020.