New South Wales Labor MP Karyn Paluzzano has admitted to falsely signing employee pay forms at a corruption hearing in Sydney.

Ms Paluzzano has been on the stand on day three of the Independent Commission Against Corruption's (ICAC) inquiry.

The inquiry has heard she was involved in defrauding Parliament through falsifying staff pay forms and rorting a mail-out allowance.

She was asked during the hearing whether she signed false or misleading employee pay forms.

She replied: "That's correct."

Ms Paluzzano yesterday resigned as a parliamentary secretary after admitting there were irregularities in her electorate office.

Earlier today former staff member Tim Horan produced mobile phone records to show he was in Penrith on a day when he was paid to be at State Parliament.

Mr Horan also told the hearing that Ms Paluzzano sent a non-approved letter to constituents complaining about a proposed retirement village at Kingswood which she feared would adversely affect her nearby home.

Mr Horan says she did this by sending a letter about a 2009 Australia Day event to Parliament for approval and when it was given the letter involving the development was also put in the envelopes.

He says both he and Ms Paluzzano knew it was wrong.

Yesterday another former staff member, Jennifer Launt, admitted falsely filling out pay forms.

Ms Launt told the hearing she knew she was doing the wrong thing when she signed the forms, but she did not speak up because she felt intimidated by Ms Paluzzano.

Earlier the Opposition's Chris Hartcher said it was not enough that Ms Paluzzano had resigned from her parliamentary role.

He said Premier Kristina Keneally needed to take further action.

"The Premier should show decisive leadership and now remove Karyn Paluzzano from the Labor Party," he said.

The ALP's general secretary, Sam Dastyari, says he will not speculate on Ms Paluzzano's party membership status, saying he is awaiting ICAC's findings.

Ms Paluzzano returns to the witness box on Thursday.