Payroll Fraud & Ghost Workers: How to Spot the Red Flags Before It’s Too Late

In recruitment, trust is everything, between agencies, workers, clients, and financiers. But when that trust is exploited, the consequences can be financially devastating. One of the most damaging threats recruitment agencies face is payroll fraud – particularly the use of ghost workers.

These schemes are often sophisticated, but the warning signs are there if you know what to look for.

What is Payroll Fraud?

Payroll fraud happens when someone manipulates payroll systems for personal gain. One of the most common forms is submitting inflated or falsified timesheets.

This type of fraud is dangerous because it can lead to:

• Overcharging end clients (creating disputes and unpaid invoices)
• Overpaying agencies based on false margins
• Paying workers who never existed (ghost workers)
• Losing funds that may never be recovered

Once fraudulent payments are made, clawing back the money is difficult, if not impossible.

What Are Ghost Workers?

Ghost workers are fictitious candidates listed on payroll or timesheets who never actually performed any work. Fraudsters can create ghost workers in several ways:

• Completely fake candidates added to payroll to generate false billings.
• Real candidates who have already left an assignment but are still “kept on the books” to inflate invoices.

In both cases, invoices are submitted for non-existent work, and financiers end up paying wages and margins that don’t correspond to reality.

Read more about ghost workers here: Ghost Workers Blog.

Real-World Example: Company “X”

Recently, a suspicious approach by Company “X” highlighted multiple red flags.

Red Flag 1: Payroll Processing Under One Roof

They wanted the recruitment agency to pay their own workers.

• Why it’s risky: This is the biggest warning sign for payroll fraud. The agency would need to pay workers upfront, before being reimbursed. If those workers are ghosts, the funds are gone forever.

Red Flag 2: Unusually High Contractor Rates

We were told about monthly pay, 6-day weeks, and inclusion of senior roles like “Head of Sales” and “Head of Recruitment” as contractors, not permanent staff.

• Why it’s risky: These details point strongly to ghost workers. In this case, the monthly bill would be around £64k. On 30-day terms, the potential loss before spotting the fraud could reach £128k.

Red Flag 3: Suspicious Company Details

Company “X”:

• No company registration number
• Phone number doesn’t work
• Domain less than a year old
• Minimal LinkedIn presence and engagement

Company “Y”:

• Claimed to be their UK entity but no visible connection in group structure
• Recently formed shell company with no meaningful trading history
• Credit check shows £215k creditworthiness – potentially to make them look legitimate

When deals look too good to be true – high service charges, rapid expansion promises, long-term partnerships – they often are.

Why Agencies Need to Be Vigilant

Fraud of this nature doesn’t just damage finances, it can also cause serious compliance breaches, harm your reputation, and erode trust with clients and candidates.

To protect your agency:

• Verify all contractors and their working arrangements.
• Check company credentials thoroughly before onboarding new clients.
• Watch for unusual payment structures or requests to handle payroll for unknown workers.
• Be cautious with high-value contracts that arrive out of the blue with minimal information.

At QUBA Solutions, our funding and compliance teams are trained to identify these red flags early, protecting both agencies and financiers from costly mistakes.

Final Word
Payroll fraud and ghost workers are not new, but as fraudsters become more sophisticated, so must our vigilance. If a deal feels rushed, unusually profitable, or oddly structured, stop and dig deeper.

It’s far better to walk away from a potentially lucrative contract than to be left out of pocket, out of compliance, and out of trust.