Mr Williams is still entitled to attend council meetings and represent his constituents.
He will only stop being a councillor if he gets a criminal conviction, the Standards Commission bars him from office, or he resigns.
In December last year the Paisley Daily Express revealed that Mr Williams was sacked from his social work job at Glasgow City Council amid claims of financial irregularities.
Mr Williams, who is Renfrewshire Council’s Paisley North West representative, was charged over the weekend.
A spokeswoman for Strathclyde Police said: “A 55-year-old man is subject of a report to the procurator fiscal in relation to an alleged fraud.”
It is believed Mr Williams, who lives in Barshaw, has been charged in relation to his job as a community support worker at Glasgow City Council.
A source at Renfrewshire Council told us: “This is nothing to do with Tommy’s work as a councillor, but is linked to his job in the city.”
Mr Williams was a prominent figure in the local Labour group and, at a national level, he worked alongside Wendy Alexander during her successful campaign to become Labour's first female Scottish leader.
He was among many people who called for Paisley University’s name not to be changed to the University of the West of Scotland.
And he asked Renfrewshire Council to have a rethink on closing the Apex Centre in Ferguslie Park along with Morton Nursery School in Linwood and the nursery class at St Fergus’ Primary.