What is Time Clock Fraud, Impacts, and How to Fight it?

One of the most common challenges in the current industrial revolution is dealing with time clock fraud. Falsification of timesheets has become more common in recent days than expected.

Everyone is getting affected by such activities, especially, small businesses.

Large corporations often have systems to handle time clock fraud. However, small businesses usually lack teams dedicated to tracking theft and monitoring employee hours. Despite this, it’s important not to ignore time fraud. 

Effective monitoring and further necessary steps can help protect against such losses. This blog is to help you understand the term, the most common types of time clock fraud you’ll face as an employer or owner, consequences & legal actions, punishments, and steps to prevent all of these. By further recognizing the issue, employers can create a more honest and productive work environment.

Time Clock Fraud Meaning and Definition

In the field service industry, everyone has heard of time clock fraud. Even though it's common no one would admit to committing this. Did you know that 19% of employees in a company committed time theft?

You would be shocked to know that– one out of five employees takes part in time clock fraud! Also, 43% of hourly workers admit to inflating their work hours during shifts.

But what does it mean? What is time clock fraud?

First of all, this is an unethical and fraudulent activity. Time clock fraud refers to any deceptive practices workers or employees use to manipulate their recorded work hours. This can include methods like buddy punching—where one employee clocks in or out for another—or falsely reporting hours worked.

For a better illustration, suppose you are working in a manufacturing plant and one of your colleagues arrives late at work. However, you clock in on his behalf. It helps your colleague to avoid the consequences of being a latecomer. Eventually, receiving the pay for hours not worked.

In another scenario, a restaurant worker manipulates their time card by altering the clock-in and clock-out times. This shows that the worker has been working longer hours.

Both cases are clear examples of time clock fraud. Also, referred as time card fraud nowadays.

So overall, this fraudulent essentially involves any effort to deceive employers or managers regarding the actual time spent on the job.

The Most Common Types of Time Clock Fraud

Lying on your timecard has various forms. This time clock fraud– it can be done in a number of ways for a number of reasons. For example, trying to increase your overtime work, disguising a long break, hiding late counts, and others.

While a lot might be in your mind– trying to figure out some of the common ways of time theft, here are the most common types of time clock fraud in recent times:

Buddy Punching

This is the most common one among time clock fraud. Buddy punching occurs when one employee clocks in or out for another. It happens often to help a colleague avoid being late or to inflate hours worked.

This is especially prevalent in environments where employees have easy access to each other’s time cards or digital clock-in systems. Suppose your friend arrives late to their shift. However, you as their friend clock them in on time to avoid getting penalized. Overall, your friends get paid for hours they haven’t worked.

Falsifying Hours Worked

Employees may exaggerate the number of hours worked by manipulating their timesheets. This could involve reporting hours that were not actually worked or failing to account for breaks.

Ultimately, it leads to inflated paychecks. This is also known as the inflation of work hours.

Take this for example– Mr. X leaves his office job an hour early but later updates his timesheet to show a full workday! This extra hour adds up each week, giving him pay he didn’t earn.

Rounding

Some employees may take advantage of the timekeeping policies that allow rounding of clock-in and clock-out times. For instance, if a company rounds to the nearest quarter hour, an employee might clock in just before the cutoff to gain extra time that wasn’t actually worked.

For instance, someone starts their shift at 8:10 am, however, clocks in at 8:10 am. They are just rounding the time to the nearest quarter hour. If this happens each day—they are getting extra 10 minutes of work time each day. Eventually, this results in unearned pay over time.

Time Theft

This refers to situations where the employees are paid for hours not worked– more than often through manipulation of clock-in times or taking extended breaks without reporting them.

Time theft can also include being paid for overtime hours that were not actually worked. Suppose you clocked in for your shift at a warehouse but took an extended lunch without cooking out. Ultimately, you are getting paid for the time you weren’t working! This is an exact example of time theft.

Misreporting Breaks

Employees might falsely report shorter breaks than actually took. Eventually, this increases their total worked hours. It can be difficult to track, especially in environments where the breaks are not closely monitored.

Let’s take a cashier for example. He or she takes a 30-minute break but reports it as only 15 minutes on their timesheet. Over time, these extra minutes add up to paid hours she didn’t work. This type of time clock fraud is an ideal example of misreporting breaks.

Overlapping Shifts

In some cases, employees may hold multiple jobs and clock in at two different places simultaneously. This blatant form of fraud is referred to as overlapping shifts.

It’s quite challenging to detect without thorough monitoring. Like, a person named Mike has two part-time jobs. He clocks in remotely for one job while finishing his shift at another. Both employers end up paying him for the same hours!

Remote Time Manipulation

With remote work on the rise, time clock fraud has adapted to new methods. Many remote workers now use technology to inflate their work hours. For instance, about 50% of remote employees admit to logging in without actively working.

Some use screen-sharing or mouse-jiggling software to appear active while doing personal tasks. Others simply log in but step away for long periods, making it look like they’re working.

For businesses, this type of fraud can add up quickly. Studies show it can lead to productivity losses of up to 20% in remote teams, impacting both efficiency and payroll.

Some other typical time card fraud includes:

• False sick time – Employees call in sick but use the day for personal errands, claiming paid leave.
• Unapproved overtime – Several reports have found that employees work unauthorized overtime, expecting to be paid extra without prior approval.
• Multiple device logins – Workers and employees log in from multiple devices to appear active while they’re not actually working.
• Taking paid personal calls – It has become a common scenario for employees to take personal calls while clocked in, claiming work time—but still falls under time clock fraud.
• Frequent clock corrections – Employees frequently request time adjustments, adding minutes to their shifts.
• Shift swapping without approval – Employees trade shifts with others to hide lateness or missed shifts.
• Unauthorized breaks – Employees take additional or extended breaks without reporting them.
• Using idle or auto-run Software – Employees use apps that keep screens active, simulating work hours.

Time Clock Fraud Consequences

The consequences of time clock fraud come in numerous forms. None of them are favorable for the company. 

Consequences for employees

When employees engage in time clock fraud, it doesn’t just risk their paycheck—it can impact their career and reputation. Overall, it brought serious consequences for the employees.

For employees, the risks far outweigh the short-term gains of time thefts. 

Disciplinary action

Caught employees face warnings, suspensions, or even termination. In fact, about 75% of companies report firing employees over time clock fraud.

Damage to reputation 

Dishonest behavior reflects poorly on an employee’s integrity. A damaged reputation can hurt their future job prospects also. According to many reports, one out of three employers are hesitant to rehire workers involved in a time fraud case.

Legal trouble

The worst consequence of time clock fraud for employees. You might even hear the question ‘Is time clock fraud a felony?’ Well, fraudulent time reporting can be considered theft. So in cases where time fraud is extensive or ongoing, employers may decide to pursue legal action.

This can lead to criminal charges, especially if fraud involves high-value payroll losses. If convicted, employees might face fines, restitution orders, or even jail time. Beyond criminal penalties, a record of fraud can make it difficult to secure future employment, as companies often conduct background checks.

Ultimately, the legal risks make time clock fraud a gamble that could end in a criminal record, not just a lost job.

Limited growth opportunities

Once you are caught in a time card fraud case– managers are less likely to promote you. No one wants to support an employee who has a past fraudulent case. This will eventually limit your growth potential, often permanently. 

Consequences for Companies

Financial loss is the greatest consequence for any company that facing time clock fraud deliberately. For example, say you’re paying an employee $15 an hour for a 40-hour week. Now imagine they claim just one extra hour of overtime every week without actually working it.

With overtime paid at $22.50 an hour, that’s an extra $22.50 each week. Over a year, it adds up to $1,170. Multiply that by a few employees, and you’re looking at a costly problem.

This is just one of the many consequences a company will face due to time clock fraud. Aside from this, there are several other consequences a company might face due to time card fraud.

Reduced positivity

When employees manipulate their time, it leads to inefficiency. Teams have to compensate for those who work fewer hours than they report, which strains productivity and morale.

Higher operational costs

Fraud drives up payroll and administrative costs. HR or payroll teams often spend additional time monitoring, auditing, and correcting timesheets—time that could be better spent elsewhere.

Legal and compliance risks

The Fair Labor Standards Act (FLSA) requires accurate tracking of employee hours. Companies found in violation due to fraudulent reporting can face fines, back-pay requirements, and compliance penalties.

Impact on company culture

When time clock fraud goes unaddressed, it signals a lack of accountability. Honest employees may feel undervalued, leading to lower morale and higher turnover.

Damage to reputation

Clients and stakeholders may lose confidence in companies with ongoing issues of fraud and mismanagement. This can impact a company’s reputation, especially if news of such practices becomes public.

Operational Consequences 

Considering your team's growth and revenue, this might be the most significant consequence of time card fraud. It is one of the biggest hindrances to your company's growth in the modern-day work environment.

When workers are dishonest with their time reporting, it affects scheduling, productivity, and resource allocation. Overall, operational consequences become inevitable at some point. 

Skewed performance metrics

Time theft skews productivity and performance data. This makes accurate employee evaluation difficult. In turn, it leads to poor decisions and misallocated resources.

Inaccurate scheduling

Managers rely on accurate time data to create effective schedules. Time fraud can lead to overstaffing or understaffing, which disrupts operations and impacts service quality.

Increased administrative overhead

Companies may need to invest more time and resources in verifying timesheets, investigating discrepancies, and implementing more robust time-tracking solutions, which raises operational costs.

Addressing operational consequences is essential to ensure smooth business processes, especially for small businesses. Also, for accurate performance assessment, and optimized resource management.

Punishments for Time Clock Fraud

The punishments for time theft in jobs depend on several factors, including the severity of the fraud, the amount of money involved, the offender's employment history, company policies, and whether it was a repeat offense.

Additionally, consequences can vary based on state laws and the specific circumstances surrounding the case, such as whether the fraud was premeditated or involved collusion with others. Understanding these factors is crucial for both employers and employees in navigating the implications of time clock fraud.

Termination of employment 

Its inevitable get your employment terminated. Unless you have a great reputation among the management team and have respect within the office environment. Also, the time theft case is not severe.

However, in cases of time theft, most companies will terminate the employee immediately. Time fraud is a breach of trust, and employers take it seriously, especially when it becomes a repeated offense. 

Legal prosecution

Certain laws ensure that time clock fraud may be prosecuted as fraud or fraud. In serious cases, it can lead to felony charges, carrying hefty fines and prison time. Misdemeanor charges may apply in smaller cases, but even then, legal consequences can be life-changing.

Restitution orders

This is a must– even if you don’t get charged or prison time for your timesheet manipulation or time clock fraud activities, you’re likely to ask for a payback. Actually, employees found guilty of time fraud are often required to pay back the unearned money.   

You might just get a humble reminder from your employer at first. However, if you refuse, they can file against you. Courts issue restitution orders, forcing you to cover the financial damages caused.

Industry blacklisting

A history of fraud can prevent employees from finding new employment, especially within their industry. Employers often share this information in background checks, affecting the employee’s professional future.

Loss of benefits and severance

Employees guilty of time card fraud can lose important benefits and severance pay. This means they may forfeit health insurance, retirement contributions, and bonuses.

Without severance, employees face greater financial strain after losing their jobs. This can make it difficult to cover everyday expenses and transition to new employment. Ultimately, the consequences of time card fraud can severely impact an individual's financial stability and well-being.

Time Card Fraud Punishment Cases

The previous section highlighted the severe consequences of being involved in time card fraud. But let’s delve deeper into the facts and real cases that illustrate just how serious these offenses can be in the United States.

Understanding these incidents and their punishments will clear any doubts about the ramifications of committing time card fraud. 

The federal case of $1.4 million

Back in 2019 a time card fraud case literally shocked the whole US! A former Joint Base Langley-Eustis 52-year-old female civilian employee was sentenced to four years in prison for extensive timekeeping fraud. 

As a secretary for the U.S. Air Force’s Communication Support Squadron, she falsified over 42,000 hours of unauthorized overtime, sick leave, and holiday leave from December 2001 to July 2018. Her actions led to losses exceeding $1.4 million, making it one of the largest time clock fraud cases.

She manipulated the computer time and attendance systems. She even used a colleague’s login without permission to hide her actions.

The consequences were severe: she received a four-year prison sentence and was ordered to repay the full $1.4 million. Holt’s case highlights the serious repercussions of time theft, especially involving large sums and government property. 

The NSA contractor’s falsifying timesheet case

A contractor for the National Security Agency (NSA) pleaded guilty to submitting 79 false timesheets. She stole about $65,000 for work she never did. She claimed to work for two Department of Defense (DoD) contractors but only worked for one.

Although her workstation was at NSA headquarters, it’s unclear where her supervisor was located during the approvals. This lack of oversight contributed to her fraud. The contractor faced serious consequences of one month in prison and a $40,000 fine.

The management-directed fraud case at Saba

Fraud escalates with executive involvement. A former CEO of Saba, a talent management software company, was ordered by the SEC to refund $2.5 million in bonuses and stock options. This was due to a scheme by two vice presidents who had customer service reps and consultants falsify timesheets. Their actions inflated financial results by about $70 million over five years.

Project managers in North America and Europe reviewed the false timesheets from the Indian subsidiary. The SEC found that these managers directed consultants to record time in advance or omit hours worked to meet revenue targets.

The CEO faced no charges but agreed to a $1.75 million civil penalty. The two vice presidents were each fined $50,000. This case underscores the serious consequences of management-directed fraud. 

Ways to Prevent Time Card Fraud

The Fair Labor Standards Act (FLSA) requires employers to keep track of their employees' timesheets. It’s up to the business owner to ensure accuracy and prevent fraud. And it's no small task – time theft costs U.S. employers an estimated $11 billion annually, according to the American Payroll Association. 

Whether it's buddy punching, extended breaks, or padded timesheets, these seemingly minor infractions add up quickly. 

In fact, studies show that the average employee "steals" around 4.5 hours per week through various forms of time theft, according to a report by Replicon.

The good news? Modern technology and smart management practices can help you close these costly loopholes. By implementing the right combination of tools and policies, you can protect your business from time card fraud. Let's explore some practical, proven strategies that can help you prevent timecard fraud without turning your workplace into a surveillance state.

Biometric Time Clocks - Your Best Defense

Gone are the days of simple punch cards. Modern biometric systems using fingerprints or facial recognition are game-changers. According to a study by Replicon, companies using biometric time clocks see a 75% reduction in time theft within the first three months. 

Your employees can't clock in for their buddies anymore – a practice that costs U.S. businesses over $373 million annually.

Smart Time-Tracking Software - Your Digital Watchdog

Let's face it – paper timesheets are prehistoric. Today's time-tracking software comes with GPS tracking and photo verification features. 

A 2023 survey by Workforce Management Institute found that businesses switching to automated systems saved an average of $1,600 per employee annually in corrected time reporting. 

Also, these systems can alert you instantly when something looks fishy, like someone trying to clock in from their couch when they should be at the office.

Clear Policies - Because Everyone Needs Ground Rules

Think of your time and attendance policy as your company's rulebook. Make it crystal clear and keep it simple. Write down exactly how employees should clock in and out, and what happens if they break the rules. 

According to several studies, companies with written time clock fraud policies experience fewer timecard violations. However, don't forget to get everyone to sign it – it's like a contract that says, "Hey, I know the rules!"

Regular Audits - Trust But Verify

Think of timecard audits like regular health check-ups – they keep your payroll system healthy. Set aside time each week to review your timecards.

Keep an eye out for patterns like suspicious overtime or employees always clocking in exactly at 9:00 (seriously, who's that perfect?). The U.S. Department of Labor reports that regular timecard audits can recover up to 7% of payroll costs lost to time card theft.

Smart Clock Placement - Location Matters

Put your time clocks where supervisors can see them. Think of it like putting your cookie jar in plain sight of the kitchen – it naturally discourages sneaky behavior! For office settings, place time clocks in high-traffic areas or near supervisor stations, not tucked away in some forgotten corner. 

For remote workers, set up geofencing – it's like a virtual fence that only lets employees clock in when they're actually at work. If someone tries to clock in from their local coffee shop instead of the office, the system will flag it immediately.

Some companies have even gotten creative with their clock placement strategies. One manufacturing firm placed their time clocks near quality control stations, killing two birds with one stone – supervisors could monitor both product quality and attendance at the same time. 

Train Your Managers - They're Your First Line of Defense

Your managers need to know what to look for. Train them on spotting common tricks like buddy punching or timesheet padding. 

According to the Society for Human Resource Management (SHRM), companies that provide time theft prevention training to managers see a 31% decrease in payroll losses from time fraud.

Concluding Remarks on Time Clock Fraud

Time clock fraud might seem like a minor issue, but the impact on your bottom line is anything but small. However, to put a stop to this, you don’t need to turn your workplace into Fort Knox. By combining smart technology with clear policies it's totally manageable.

You need a dash of common sense too. You don’t want to spoil your workplace and make a scene while trying to resist time theft. An employee’s productivity heavily depends on their mood. Hence, a positive work environment is a must. 

Remember, it's not just about catching wrongdoing – it's about creating a culture of accountability where everyone plays fair. 

Last advice– the best defense against time clock fraud is a proactive approach. Start with one or two strategies that make the most sense for your business, and build from there. After all, protecting your payroll integrity isn't just good business – it's fair to all your honest, hardworking employees.