Mastering Payroll Data Security: The Overlooked Threat in Payroll Compliance

From the desk of the CEO

Welcome to "Compliance Simplified," your go-to source for the latest insights and strategies in compliance management. In this edition, we're diving into the fascinating—and often overlooked—world of payroll compliance and data security. Buckle up!

As payroll professionals, you’ve got compliance, accuracy, and timely payments nailed down. Yet, there's one crucial point that often gets missed, and not spoken about enough: data security. While nailing payroll compliance is essential, protecting this critical information from cyber threats is equally critical. Ironically, it's the latter that poses the largest threat today.

I once heard that “data is the new gold” and I couldn't agree more. Data is easy to get for a relatively low price these days, gold… not so much. Payroll companies are like gold mines for data. Plus data breaches are in the news far more than bank heists, right?

Accuracy, Timing, and Compliance vs. Cyber Threats

I always get the sense that many payroll professionals consider information security an IT issue. Sure, payroll professionals appear all over GDPR and data-sharing protocols, but what often doesn't get considered is lurking cyber threats. In a data-rich industry, this mindset is a risky strategy? Data security isn't just IT's playground; it's a core part of payroll compliance, and for the overall business, needs to be everyone's concern.

It's Not Just an IT Problem, It's a Business Problem

When a data breach hits, it doesn't just knock on IT's door—it barges into the entire business. The fallout can be massive:

• Financial Losses: Think fines, legal fees, and compensation costs.
• Reputational Damage: Trust, once broken, is hard to rebuild. Employees, customers, partners and your competitors will remember.
• Operational Disruption: A data breach can bring your operations to a grinding halt and the fallout lasts months if not years in reconciling the issues post-breach.
• Employee Engagement: If you’ve ever failed to pay a single employee, there’s a lot of noise. If you fail to pay tens if not hundreds, it's deafening - And it's your payroll department who will hear most of it.

These implications make it clear: data security is everyone's concern. Payroll professionals must push IT departments to ensure robust data security measures are in place. And IT departments must push payroll professionals to be vigilant to potential threat strategies dominating this industry.

The Real-World Impact of Ignoring Data Security

Imagine this: your payroll system is a compliance champion, processing payments flawlessly. But then your payroll software is hit with a data breach. Disaster recovery is initiated and systems go offline. The consequences? Catastrophic.?

A monthly payroll is almost impossible to process without the system it relies on, a weekly payroll is much worse, multiple payrolls with differing pay dates (which is commonplace in large single and multi-country organisations), you get the idea. The fall-out from a system being taken offline forcing rapid and pressured manual payroll processing to expectant employees takes months, if not years to reconcile due to the mass volumes of under and overpayments, and potentially affects every single employee across the business.

There is no doubt that the payroll industry is being targeted. There is a very good reason for that. Fragmented technology supply chains leave multiple backdoors open, huge amounts of manual involvement, large volumes of users with access to systems, geographical spread of localised processing, multiple third-party involvement in the payroll lifecycle. Off the top of my head, listed the following but a google search revealed many more horror stories, and many more don't head the media.:

• MoD Data Breach: The personal information of UK military personnel was compromised due to a third-party payroll provider.? Read more here.?
• Zellis / MoveIT (hit British Airways, Boots, BBC): The cyber criminals broke into a prominent piece of software to gain access to multiple companies in one go, data stolen included staff ID numbers, dates of birth, home addresses and national insurance numbers. Read more here.?
• Payroll giant SDWorx: Experienced a cyberattack leading it to shut down all IT systems for its UK and Ireland services, SDWorx’s customers include Primark, Asda, Marks & Spencer and WHSmith. Read more here.?
• Sainsbury’s Payroll company Kronos: In 2021, lost a week's worth of data for its 150,000 UK employees as a result of an attack. Read more here.?
• US Payroll Giant UKG: Data of 45,000 employees shared with other companies due to a breach. Read more here.
• Sage: An internal login issue led to the breach of customer data. Read more here.??
• Frontier payroll software: In November 2021, an unauthorised party hacked Frontier’s software. The breach included personal information from a payroll system used by NSW Health, impacting 1600 current and former Ministry of Health employees. Read more here.?

These incidents underscore a critical point: no matter where the breach originates, the primary employer's credibility takes a hit. Payroll professionals must be the spearhead of data security, advocating for stringent measures and working hand-in-hand with IT. Compliance is important, yes. On-time payments are important, yes. But, securing your systems and services against cyber threats needs to level up to the top 2.

The solution to mitigate risk and truly ensure data security? Implementing a Third-Party Risk Management (TPRM) SaaS Tool that will revolutionise your compliance landscape, identify, assess, remediate, and mitigate risks within your IT department and external vendors, ensuring compliance and protecting your sensitive data. Areas of risk need to be remediated and where applicable added into supplier commercial agreements to form a contractual obligation.

Investing in risk management means investing in the future stability and growth of your company. It means protecting your gold, and for those providers out there, your client's gold. Secure your operations, gain sight of your largest risks, build trust with your employees and clients, and maintain a competitive edge in the industry. “It’ll happen to someone else” isn't a strategy that holds well after a breach.

Case Study: Ensuring Robust Data Security

This is why we’re proud to highlight our partnership with a leading payroll technology and services provider in Europe to turbocharge their risk management framework. The results were game-changing:

• Enhanced Security Posture: Proactively identified and mitigated security risks.
• Increased Visibility: Gained a holistic view of risks across internal and external operations.
• Improved Compliance: Achieved greater adherence to industry information security regulations.
• Cost Savings: Realised savings through automated risk assessments, remediations and mitigations.

Quantifiable metrics achieved by the customer were:

• A baseline cost reduction to manage risk assessments of 74.4% (saving the customer ￡262,089 GBP per year)
• Days involved in completing assessments reduced by 94% (unlocking 195.83 working days per month)
• Assessment lifecycle reduction of 44.4% (reducing the completion of assessments by 20 working days per assessment)

These metrics are beyond compelling.

The ROI difficult to measure is the functionality provided by the solution, the improvement in assessment comprehensiveness, the audit capability throughout the assessment process, the single platform for all stakeholders to interact with, the intuitiveness, the supplier experience, the dashboards, the analytics, huge levels of automation, agile reassessments, the reduction of skills for resources to administer the assessments. The biggest ROI is without doubt the overall improvement of risk posture and the mitigation of a breach.?

Less effort, less cost, faster assessments and a higher risk posture - all the dials pointing in the right direction, all thanks to C2 Risk’s VRM platform.

This partnership demonstrates that regardless of who ‘holds the responsibility’ for cyber threats, businesses need to ensure systems (and third parties in its ecosystem) are secure from cyber threats.

Taking Action: Collaboration is Key

To truly protect your payroll data, collaboration between payroll professionals and IT departments is essential. Here’s what you can do:

1. Advocate for Security: Champion robust data security measures within your organisation.?
2. Assess Third-Party Risks: Ensure that third-party providers adhere to strict security standards.
3. Stay Informed: Keep on top of the latest cybersecurity threats and compliance requirements.

The takeaway is clear: payroll professionals must actively engage in data security. It's not enough to ensure payroll compliance; safeguarding data from cyber threats is paramount. By working closely with IT departments and third-party suppliers, you can create a secure payroll ecosystem.

Every aspect of payroll operations needs robust data security measures baked right in. This isn't just about ticking boxes on a regulatory checklist; it's about actively managing and mitigating risks, including those from your third-party suppliers.

By taking a stronger stance on data protection, payroll providers can not only safeguard sensitive information and protect their reputation but also build long-term compliance and trust with their clients.

If you’ve made it this far, don't forget to subscribe and stay tuned for more insights and strategies in future editions of "Compliance Simplified". Should you want more information on C2 Risk's payroll solutions, drop me a message or contact the C2 team at [email protected].?

Best regards,

Will Jackson