When Disaster Strikes, Payroll Must Be Ready: Member Recounts How a Wildfire Proved Payroll Wasn’t Ready
Imagine the unthinkable: You start your normal Monday morning routine, preparing to run payroll, when your phone rings—not with a standard call, but with an emergency alert. An evacuation warning has been issued due to a wildfire.
While we were focused on closing timesheets, Santa Ana winds picked up embers and pushed them through the valley, creating imminent danger to the company’s office. In 2018, the destructive Woolsey fire started in the Santa Susana Mountains and burned all the way to the Malibu coastline.
This was before the pandemic and before remote work was common. Everyone in the office exchanged quick glances, grabbed their belongings, and evacuated. We immediately faced a dilemma—only two payroll team members had laptops they could take home to process payroll for 30,000 employees.
The next few days were among the most stressful of my career. I ran multiple company payrolls largely on my own while watching reports of new flareups across the valley.
That moment was my first true wakeup call. I learned how quickly even the most well-scripted payroll processes can be derailed and the risk involved when disasters occur.
What Is a Payroll Disaster?
A payroll disaster is any unplanned interruption that prevents employees from being paid accurately and on time. Causes range from cyberattacks and system failures to natural disasters or human errors.
Four years ago, Ernst & Young (EY) reported that a single payroll error costs businesses an average of $291 to fix. Adjusted for inflation using Consumer Price Index data, that figure is closer to $323 per error today.
All employers experience payroll errors. The difference between an error and a disaster comes down to scope and impact: the number of employees affected, legal exposure, regulatory involvement, and complexity of correction.
When Errors Become Disasters
Most payroll disasters are not random; they often stem either from weak processes, outdated systems, or insufficient oversight. Research shows it can take as few as two payroll errors for an employee to begin looking for a new job.
When companies experience recurring errors or frequent compliance issues, it is a clear signal that processes require deeper review. Companies observing constant compliance issues or frequent, recurring payroll errors should take a deep dive into processes and oversight and build ongoing audit cycles.
The following are the biggest risks for employers:
- Paying people incorrectly or late
- Missing shifts, incorrect overtime calculations
- Tax and compliance mistakes
- Security failures
Reducing payroll disaster risk starts with performing regular audits of payroll support systems. Best practice includes annual reviews of system configurations, payroll data accuracy, procedures, and disaster recovery plans.
Systemic Reviews
Test your payroll system to confirm that it is performing calculations properly for all jurisdictions. For example, ensuring that proper overtime, meal, and rest break tracking is completed each time a major software update is released in the company’s environment reduces risk.
Whether the payroll processing system is in-house or vendor-provided, it is vital to take responsibility for evaluating calculation accuracy. These validations are typically completed during payroll system implementation, but systems require ongoing maintenance and updates to remain compliant with changes from regulatory agencies.
Frequent Data Reviews
Even if payroll systems are functioning properly, the data within those systems can cause issues. Confirm that all employees are properly classified as exempt or nonexempt, and that you do not have employees coded as independent contractors. Checking that pay rates meet federal, state, and local minimum wage requirements is also important.
Do not sleep on multi-jurisdictional tax issues. Employees working in multiple jurisdictions or living outside of the working state create headaches for tax withholding requirements.
These complex tax setups are prone to errors and create financial risk to employers in the form of fines and penalties. Whether payroll and HR sit with one person or an entire team, company size does not reduce the risk of payroll disasters driven by bad data.
Payroll compliance goes beyond tax withholdings. Employers must properly handle garnishments and child support orders, as errors can transfer liability to the company. Clear procedures for non-tax deductions are key to reducing exposure.
Companies offering benefits must ensure payroll deductions are properly configured for tax purposes. Only eligible deductions should be treated as pre-tax, with an understanding of local jurisdiction differences. Some benefits, such as 401(k) plans, also carry reporting requirements, making pre-payroll validation essential.
Building a strong compliance framework includes partnering with legal and compliance advisors, monitoring regulatory changes, and maintaining calendars for deadlines.
Check Filings, Deposits
Employers remain legally responsible for payroll tax filings even when a third-party administrator is used. Employers cannot rely on external vendors with no oversight.
This applies not just to tax filings, but to all payroll-related filings. For example, organizations offering 401(k) plans must ensure Form 5500 is filed timely; DOL penalties can reach $2,739 per day, as of 2025.
Establishing an audit schedule for filings and deposits reduces disaster risk. Common errors to audit include reviewing reciprocal agreements, tracking residency changes, reporting income to the state where it was earned, validating local taxes, and establishing tax nexuses to support remote employees.
Assess Data Breaches, Security Incidents
The Identity Theft Resource Center reported a 5% increase in companies impacted by data breaches in 2025 compared to the prior year. Regular internal audits and strong access controls reduce exposure.
Payroll departments understand the importance of data privacy. The following questions provide a strong starting point for leaders to assess potential exposure to data breaches or security incidents:
- Have we completed a risk assessment of our payroll software to identify vulnerabilities?
- Are internal access controls within our payroll systems sufficient and regularly reviewed?
- Do we audit who has access to payroll data and how that access is used?
- How is payroll data protected at rest, in transit, and during processing?
- What controls are in place to prevent internal misuse or unauthorized changes?
Every company should maintain and annually test backup payroll capabilities and a documented disaster recovery plan. Payroll disasters are inevitable; being unprepared is not.
Disaster Recovery Plan
When a payroll disaster occurs, employers must be prepared with a clear and documented response process.
The priority is containment. This includes determining the scope of the issue, assessing whether it involves a data breach or systemic failure, and immediately stopping any incorrect payments.
Once the situation is understood, timely and transparent communication should begin with senior leadership and affected employees. Depending on the nature of the incident, communications may also need to extend to external stakeholders, vendors, or regulatory agencies.
The next phase focuses on correction and mitigation. This may involve coordination with regulatory agencies, completion of corrective payroll adjustments, and submission of amended filings. Documenting every action taken throughout the correction process is critical to reducing further exposure and demonstrating good faith compliance.
Following resolution, organizations should conduct a post-incident review. A thorough root cause analysis can uncover process weaknesses, system gaps, or training needs that contributed to the incident.
Addressing these findings through updated controls and targeted training strengthens long-term payroll resilience.
People Are the Most Important Payroll Control
One of the most effective controls against payroll disasters is well-trained payroll and HR teams. Systems, policies, and procedures are only as reliable as the people responsible for executing them.
As regulatory landscapes evolve, workforces become more distributed, and payroll processes grow increasingly complex, ongoing professional development is no longer optional—it is essential. Companies should formally evaluate whether payroll and HR professionals are equipped to identify risks, respond to disruptions, and navigate high-pressure situations like payroll disasters.
This includes ensuring team members understand compliance requirements across multiple jurisdictions, data security obligations, system functionality, and escalation protocols when issues arise. Creating a structured training strategy should include regular compliance education, systemspecific training, and scenario-based preparedness exercises.
Cross-training team members can reduce single-point-of- failure risk and ensure continuity when key employees are unavailable. Companies should assess whether payroll and HR teams are included in broader business continuity and incident response planning.
When payroll professionals understand their role in disaster recovery efforts and are trained to act decisively, companies are better positioned to contain issues quickly, communicate effectively, and restore operations with minimal impact to employees. Encouraging and supporting professional certifications and continuing education strengthens technical expertise while reinforcing accountability and confidence within the payroll function.
Companies that prioritize professional development create resilient teams able to withstand disruption, protect sensitive data, and maintain trust.
Conclusion
As we evacuated the office with little more than what we could carry that morning during the Woolsey fire, one thing was painfully clear: payroll does not stop for disasters. Emergencies rarely announce themselves in a way that aligns with payroll calendars or processing timelines.
Whether the disruption comes from a wildfire, a pandemic, a system outage, or a data breach, the outcome is the same if payroll teams are unprepared and the employees feel it immediately. That experience reshaped how I view payroll risk and resilience.
The companies that weather payroll disasters most effectively are not the ones that react quickly in the moment, but the ones that planned well in advance. By strengthening processes, validating systems and data, investing in training, and regularly stress-testing continuity plans, payroll leaders can ensure that when the unthinkable happens, payroll remains one constant employees can still rely on. Be sure to download the free “Payroll Disaster Readiness Checklist.”
Autumn Clemmens, CPP, is Senior Payroll Manager at Harbor Freight Tools. She is the Co-Chair of PayrollOrg’s Retail Best Practices Subcommittee of the Strategic Payroll Leadership Task Force (SPLTF) and a volunteer on PayrollOrg’s Ask an Expert Committee, Board of Contributing Writers, Certification Item Development Task Force (CIDTF), and SPLTF Best Practices Subcommittee.
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