Cross-border payroll fraud prevention: risks and solutions

Expanding globally? Now's the time to invest in compliant global payroll solutions to safeguard against risks as you scale. Talk to our team to explore more.

• Cross-border payroll fraud is a growing threat as organisations expand internationally, creating vulnerabilities across multiple jurisdictions.
• Effective prevention requires robust internal controls, secure technology, regular audits, and a strong focus on global compliance.
• Partnering with international employer of record services can significantly reduce exposure to fraud and compliance risks.

Managing payroll across borders is one of the more challenging aspects of expanding overseas. The textured terrain of global payroll can throw obstacles in the paths of SMEs and multinationals alike. Hiring in multiple locations complicates salary remittance, taxes, benefits, and compliance obligations.

Moving into new markets also introduces significant risks related to payroll errors and fraud. For businesses in today’s increasingly digital world, fraud is a growing threat.

New research from Mastercard, surveying 1,800 small business owners in Europe found that fraudsters have targeted 25% of entrepreneurs. The highest rate reported was 38% in Ireland. Figures from FraudSMART show that Irish SMEs lost almost €10m through email-related scams in 2023. Mastercard reports the other worst hit countries as Denmark (35%) and France (29%).

Ideally, you’d like your business to remain fraud-free. But cross-border payroll fraud, in particular, is a nightmare your company does not need.

This particular type of fraud has serious financial consequences. Plus, payroll data breaches can damage your business’ reputation beyond repair. Therefore, it's essential for companies to prioritise preventing fraud by implementing strong safeguards and oversight mechanisms.

Understanding cross-border payroll fraud

What is cross-border payroll fraud? Cross-border payroll fraud refers to deceptive practices that occur when managing payroll for employees in different countries. It can take many forms. These include the creation of false employees, falsified payment amounts, unauthorised bonuses, or the manipulation of working hours.

In some cases, fraud may involve collusion between internal staff and external vendors. Managing payroll across different areas, currencies, and laws is complex. This makes it easier for fraud to go unnoticed.

International organisations are particularly exposed because their payroll data is often dispersed across different systems and local offices. When processes rely heavily on manual entries or third-party providers with weak controls, it becomes easier for mistakes and manipulation to occur. Unlike domestic payroll, cross-border operations demand a high degree of coordination to ensure consistency, transparency, and legal compliance.

The risks in global payroll management

Payroll management is one of the most sensitive aspects of any business operation. Inaccurate or delayed payments can impact employee trust. Meanwhile, compliance failures can lead to penalties and investigations from local authorities.

The main risks in cross-border payroll arise from human error, data breaches, and incomplete knowledge of local regulations. Human error can occur when payroll teams rely on spreadsheets or disconnected systems, leading to miscalculations and missed deductions. Data security risks emerge when organisations share sensitive payroll information across multiple systems without adequate encryption.

Compliance risks are particularly significant in a global context. Each country has its own tax codes, employment laws, and reporting requirements. Missing deadlines or misinterpreting legislation can result in heavy fines and reputational harm.

Fraud risk increases further when oversight is limited, especially if a single individual or department has too much control over payroll processes. To mitigate these challenges, businesses must focus on creating transparent, well-audited, and compliant payroll systems.

Steps to safeguard payroll operations against fraud, errors, and compliance risks

Centralised platforms

The first step in safeguarding payroll operations is to centralise and digitise payroll data. A unified, cloud-based payroll system enables real-time visibility across all regions, reduces manual intervention, and ensures that access to sensitive data is properly restricted.

Automated systems can also flag inconsistencies or anomalies, allowing for quicker detection of suspicious activities.

Internal controls

Strong internal controls are equally important. Companies should separate payroll responsibilities, so that no individual has complete control over the process from start to finish.

Payment authorisations should require multiple levels of approval to prevent unauthorised transactions. Regular reconciliation between payroll records and actual payments can quickly identify discrepancies before they escalate into larger issues.

Regular audits

Conducting regular payroll audits is another essential practice. Internal audits help identify process weaknesses and confirm that the correct procedures are being followed. External audits by independent experts provide an additional layer of assurance, particularly in markets with unfamiliar regulations.

The use of data analytics and artificial intelligence (AI) can further enhance fraud detection by spotting unusual trends or payment patterns that may not be visible through manual review.

Ensuring compliance

Maintaining global compliance is central to fraud prevention. Staying updated on local tax and employment laws ensures that all deductions, benefits, and reporting requirements are correctly managed. However, this can be challenging for companies operating in multiple regions.

Using an Employer of Record (EOR)

Partnering with international Employer of Record (EOR) services can significantly simplify this process. An EOR takes responsibility for local compliance, employee contracts, and payroll management.

It ensures that payments are accurate and fully aligned with legal standards. By outsourcing these functions to trusted specialists, businesses can focus on growth while reducing the risk of fraud and regulatory breaches.

Verification

Verification is another critical aspect of fraud prevention. The company should thoroughly vet all employees, contractors, and vendors before adding them to payroll. Identity verification tools and background checks help confirm that every payment goes to a legitimate recipient.

Similarly, any third-party payroll providers should be carefully assessed for compliance credentials, data protection practices, and transparency in their operations.

Finally, fraud prevention is a cultural issue as much as it is a technical one. Organisations should invest in regular training for payroll teams to raise awareness about the signs of fraud and the importance of secure data handling. Creating an environment where employees can safely report suspicious activity encourages vigilance and accountability throughout the business.

The role of international employer of record services

An international employer of record service acts as a trusted intermediary that manages payroll, compliance, and employment obligations in foreign markets. For organisations that hire staff in different areas, an EOR offers the legal support needed.

The EOR makes sure that every employee receives correct payment in line with local laws. This eliminates the need for the company to set up legal entities in each country while maintaining full adherence to employment regulations.

EOR services help prevent payroll fraud by introducing structured oversight and robust compliance processes. Payments are managed through secure, transparent systems that reduce the potential for manipulation.

Because EOR providers specialise in navigating complex legal frameworks, they are well equipped to manage cross-border tax obligations, benefits, and reporting. In essence, they offer a safeguard that combines technology, expertise, and legal accountability to ensure the integrity of international payroll operations.

Technology and the future of payroll fraud detection

Modern payroll systems increasingly rely on automation, machine learning, and predictive analytics to detect fraud. These tools can analyse large volumes of data across multiple countries. This helps to identify anomalies such as duplicate payments or irregular time reporting.

Secure payment gateways and encrypted data storage further protect sensitive information from unauthorised access. Integration between payroll software and global compliance management platforms ensures that all actions are traceable and compliant.

As regulatory expectations continue to evolve, technology will play an even greater role in ensuring payroll transparency. Businesses that adopt advanced digital systems and work closely with trusted EOR partners will be best-placed to manage risk, maintain compliance, and safeguard their global workforce.

Cross-border payroll fraud prevention requires a proactive and integrated approach. Organisations must combine technology, strong internal controls, regular audits, and expert support to protect against financial losses and compliance breaches.

By prioritising global compliance and partnering with international Employer of Record services, companies can create secure, transparent, and resilient payroll operations that support sustainable international growth.

How Mauve can help

Mauve Group supports organisations in managing their global workforce securely and compliantly. With three decades of experience in international expansion and payroll management, Mauve Group provides trusted Employer of Record services that remove the complexity of cross-border employment.

Mauve's expert teams ensure that every salary, tax payment, and benefit is handled in accordance with local laws, reducing the risk of fraud and compliance breaches. By combining advanced payroll technology with regional expertise, Mauve Group helps businesses build confidence in their global operations, maintain transparency, and safeguard against the challenges of international payroll management.

FAQS

1. What is cross-border payroll fraud?

Cross-border payroll fraud involves deceptive practices such as creating false employees or manipulating payment data within international payroll systems. It often occurs when oversight is limited or when processes are managed across multiple jurisdictions without proper controls.

2. How can international employer of record services help prevent payroll fraud?

An EOR provides compliant payroll management and legal employment services in foreign countries. By managing payments, contracts, and reporting within local laws, EORs reduce the risk of errors, fraud, and non-compliance.

3. What are the most effective ways to secure cross-border payroll operations?

Effective prevention includes using automated payroll systems, conducting regular audits, verifying employees and vendors, maintaining strict access controls, and ensuring compliance with all local employment regulations.