Payroll data security: the risks all SMEs need to consider

It’s the one date that no employee misses: payday. When it comes to paying your staff, ensuring it happens on time is only one of your responsibilities.

Payroll data security is one of their most important responsibilities for any business. A monthly or weekly task for your HR or finance teams, paying your employees may feel routine, but it involves handling a goldmine of personal information — names, addresses, National Insurance numbers, bank details, salaries and expense claims.

For many small and medium-sized enterprises (SMEs), this process is still managed manually. Spreadsheets are filled in, emails are sent with attachments, and files are copied to USB drives or cloud folders. While this approach is familiar and cost-effective, it also carries hidden dangers.

If employee data falls into the wrong hands, the impact can be serious — not just for staff, but for the entire business.

Did you know? Four in ten UK businesses reported a cyberattack in the past 12 months, with phishing and data leaks the most common. (Cyber Security Breaches Survey 2025)

Let’s explore the risks of relying on manual payroll and expense processing, the consequences of a data breach, and the steps you can take to protect your people and your business.

Why employee data is a target

When most business leaders think about data protection, they think of customer records or credit card details. But to a cybercriminal, employee data is every bit as valuable — and often less well-protected.

Payroll files contain everything a fraudster needs to commit identity theft, apply for credit in someone else’s name, or launch convincing phishing scams. Even expense receipts can expose sensitive details, such as travel patterns or corporate card information.

Attackers also know that SMEs are more likely to use spreadsheets and email than the secure, automated systems that larger organisations have in place. This makes payroll data a prime target. Criminals don’t always go after the biggest companies – they go after the easiest ones.

The risks of manual payroll and expense processing

Spreadsheets: familiar but risky

Spreadsheets are the lifeblood of many SME finance teams – but they are also one of the riskiest tools for handling personal data. Once a file is saved to a desktop or emailed as an attachment, it’s hard to track where it goes or who has access to it. Unlike specialist software, spreadsheets don’t provide built-in encryption, user access controls or audit trails.

Email: speedy but exposed

It’s quick and easy to attach a payroll file to an email. But ordinary email was never designed for sensitive information. Without encryption, messages can be intercepted. A mistyped email address can send employee salaries and bank details to the wrong inbox — and once it’s out, you can’t get it back.

File transfers and shared drives: prone to missteps

USB sticks, shared drives and cloud storage links are common ways to share payroll files around, but they also create risks. USB drives can be lost or stolen. Shared folders may be accessible to more people than intended. Cloud links can be forwarded or left open without password protection.

Human error: the biggest threat

Of course, even if you have solid systems and processes, people make mistakes. Accidentally saving a payroll file in the wrong folder, leaving a laptop unlocked, or forgetting to delete old copies – these all create vulnerabilities. With manual processes, there are more opportunities for these kinds of errors to slip through.

The consequences of a payroll data security breach

Legal and compliance headaches

Under the UK GDPR, businesses are legally required to protect personal data – and that includes employee records. If payroll data is exposed, businesses must report the breach to the Information Commissioner’s Office (ICO) and, in some cases, notify affected employees. Fines for non-compliance can be significant, and the reputational damage even worse.

Financial costs

The financial impact goes beyond regulatory penalties. Businesses may face legal fees, compensation for affected employees, increased insurance premiums and the cost of strengthening systems after a breach.

Reputational damage

Employees expect their employer to protect their personal data. A payroll breach can undermine morale, damage retention, and make recruitment more difficult. Word spreads quickly — especially if staff take to social media.

Operational disruption

A payroll system outage or data breach doesn’t just affect compliance and reputation. It can directly disrupt your ability to pay staff on time. Delayed salaries cause stress, reduce productivity, and erode employee trust in leadership.

Payroll data protection penalties: three real-life examples

The thing with risk is: you don’t feel it until the risk becomes reality. Unfortunately, the reality is becoming increasingly common. Here are some examples of businesses that felt the impact of payroll breaches.

• In October 2022, a phishing email led to a cyber intrusion at Interserve Group Ltd that resulted in the exposure of sensitive personal data for up to 113,000 current and former employees, including bank details, salary information and protected demographic attributes. The construction and facilities management firm was fined £4.4 million by the ICO.
• In April 2023, outsourcing and professional services company Capita revealed that it had fallen victim to a cyberattack orchestrated by a ransomware group. During the incident, hackers accessed sensitive personal data belonging to both staff and clients, including payroll and HR records.
• In June 2023, a cyberattack exploiting a vulnerability in the MOVEit file-transfer software compromised Zellis, a UK payroll and HR services provider. This incident exposed payroll data of employees from several major organisations, including British Airways, BBC, Boots and DHL.

Practical payroll data protection steps for SMEs

When it comes to protecting your people’s data, you don’t need enterprise-level security. A few practical measures can make a big difference.

• Encrypt sensitive files and use strong passwords.
• Stop sending payroll over email — consider a secure file transfer tool or employee portal instead.
• Keep systems up to date with the latest security patches.
• Limit access so only those who truly need payroll data can see it.
• Provide staff training on safe handling of personal data and how to spot phishing attempts.
• Back up payroll data securely, so it can be restored quickly if lost or attacked.

Long-term solutions for payroll data security

Best practices and education are the foundations for greater security. But any ambitious SME should be thinking about the scalability of its solutions. In the long run, it’s worth looking more deeply at your systems and defences.

• Invest in dedicated payroll or accounting software. These platforms include built-in security features such as encryption, access controls and audit logs, reducing reliance on spreadsheets.
• Consider managed cybersecurity services. Outsourcing monitoring, protection and disaster response gives SMEs access to enterprise-level expertise without increasing headcount.
• Build a security-first culture. Make data protection part of everyday business practice. Encourage your staff to treat employee data with the same care as financial information or customer records.

Your next steps for payroll data protection

Employee data is one of the most valuable assets your business holds, and one of the most attractive to criminals. Spreadsheets, emails and manual processes might be the simplest and most familiar ways to manage payroll, but it exposes you to risks that could cost far more than secure technologies.

Protecting payroll and expenses isn’t just about compliance; it’s about safeguarding your people and your business. By taking steps today and planning for the future, you can dramatically reduce your exposure to cyber threats.

At Thinc, we can help you find the robust business systems and finance solutions that suit your needs. We can also help you quickly understand your cyber security strengths and weaknesses, and fully manage your security.

If you’d like to understand how your payroll processes measure up, or explore secure, practical solutions designed for SMEs, our team is here to help. Talk to us today to take the first step in protecting your employee data.

Want to learn about other data responsibilities for SMEs? Read our guides to handling patient data and personal information.