The risky business of overlooking data privacy in global payroll

Ensuring employee data privacy as a fundamental right protects you from violations

Companies all around the world collect highly sensitive information about their workforce in order to process payroll. The personal data collected from employees is essential for timely, accurate and legal payroll processing. 

But for multinationals, the global context means that regulations around data collection and processing present many risks, which are often misunderstood or overlooked. 

Privacy risks are among the most concerning for you and your employees, because they are easily missed, and violations can be costly. For you and the organization you represent, data privacy is a legal obligation with violations that could lead to significant penalties and fines. Employers who violate the General Data Protection Regulation (GDPR) could face fines of up to 20 million euros or 4% of annual revenue, whichever is higher. 

For your employees under GDPR, data privacy is a fundamental right that serves to protect their identity from potential fraud or identity theft. There are many reasons why data privacy has become a pressing concern and risk, and the challenge for global companies is to identify and protect the payroll activities that are more susceptible to security risks. 

With so much complexity surrounding payroll-specific data privacy, more and more companies, regardless of where they are located, are assimilating to EU standards on  employee privacy freedoms and rights in order to standardize their data management processes and ensure global compliance. The GDPR is generally accepted as a stringent set of privacy regulations, so adhering to its laws can offer you a comprehensive data privacy framework that will ensure the security of your employees’ data. 

When payroll data becomes a privacy risk 

Identifying privacy risks starts by asking foundational questions around intent, including: 

  • Why employers collect data
  • What they use it for
  • How long they keep it
  • Whether there’s a legal basis for using the data

In order to discover hidden vulnerabilities in your current payroll systems, you are tasked with understanding these questions while also navigating local employment laws. 

By first identifying the activities in global payroll that are more susceptible to data privacy risks, you can address potential vulnerabilities in your data management systems. As the GDPR mandates increased data visibility and accountability, companies with an awareness of these more vulnerable activities will have an advantage while working toward a comprehensive and sustainable data protection framework. 

Categorizing data 

Payroll-specific data is generally categorized as personal information or any information relating to an identified or identifiable person. However, some employee information that is collected for payroll could also be regarded as sensitive data, including political opinions, racial or ethnic origin, religious or philosophical beliefs, or trade union membership.

These sensitive types of personal information have more strict regulations, and data processing is prohibited with few exceptions. Therefore, if you improperly categorize or process sensitive data, your company might face significant penalties for privacy violation. You should revise the types of personal data collected, and delete, encrypt or redact data based on its level of sensitivity. 

Collecting personal information 

Requesting data to process payroll payments is considered valid and with legal ground, but you can run the risk of collecting too much confidential information that is not legally necessary for payroll. Companies need “legitimate grounds” to collect and process personal information, meaning data must be clearly necessary for an employment contract or related to it. 

Any personal data collected, processed and stored beyond what is contractually necessary presents risks for privacy violation. You should review and revise the amount of personal data you collect and ensure that you are collecting the minimal amount necessary. 

Handling employee data requests 

Locating and accessing personal employee data quickly is especially important in order to comply with employee data requests. Data privacy rights for employees demand that payroll managers and processors are clear about where personal data is stored and how it can be accessed quickly, so that employees are able to exercise their fundamental data rights when needed. 

Employees have the right to request access to their data, the right to restrict processing of personal data, the right to correct and delete their personal data, and the right to data portability. However, not all employee rights apply within the context of processing payroll data, because of obligations inherently found in employment law, so you will have to navigate some legal complexity. 

For the more straightforward data rights, like requesting information or correcting inaccurate data, a payroll system that enables employees to access their data on demand can provide employees with a clear procedure to exercise their rights. As a rule, payroll data should be held securely in a central location, so that sensitive information is kept confidential but is still readily available to retain and report in order to comply with the local law.

Retaining data 

In a global operating environment, companies are tasked with navigating many different regional restrictions on how long they can store employee HR data. These local regulations create risks for companies that store payroll information longer than legally allowed without employee consent.  Legal data retention periods may also vary based on the type of personal data being collected, adding more legislative nuance for you to navigate. Reviewing and revising data retention policies can ensure that personal information is not held longer than the minimal amount necessary. 

Contracting with a decentralized payroll system 

Many multinationals have established decentralized payroll systems by outsourcing all or some processing functions to regional providers. Payroll vendors who are thoroughly vetted can offer local expertise and greater data controls, but decentralized reporting often makes it difficult to monitor payroll data processes with a comprehensive global view. 

There are many privacy risks for global companies who haven’t updated their vendor contracts to reflect new GDPR data requirements. Outside North America, 50% of payroll outsourcing contracts have been in place for more than four years, so it’s possible some of these older contracts don’t address new requirements.

Drafting a template or checklist of provisions can ensure accuracy and consistency across all your payroll service agreements. To ensure ongoing compliance, create a process to flag new vendor contracts that will involve processing personal data. 

Security leaks and data breaches 

Improper employee training and outdated procedures for handling payroll data and data security are common causes of network security leaks and breaches. For example, an employee can unknowingly transfer sensitive payroll data through an insecure method, like email, and that data could be leaked to someone with unauthorized access. 

In fact, according to the International Association of Privacy Professionals, 84% of all data breaches result from inadvertent actions, such as accidental emails, misdirected faxes, or unintentional posting or mailing of statements. Without strict guidelines for how to responsibly handle personal information, human error and carelessness are likely to result in a privacy risk. 

You should establish a data breach policy and make sure employees are properly trained and prepared to comply with this data breach notification rule if you suspect a  data privacy risk or breach. Under GDPR, if personal data is accidentally or unlawfully disclosed, companies are obliged to report the data breach to their national data protection authorities within 72 hours after discovering the breach. 

The privacy risks related to human error and network security can be mitigated with ongoing employee training, including regular updates on data protection policies and procedures. To ensure network security, you can set up an information protection program, outlining proper procedures and control guidelines for employees who handle sensitive data. 

Here is an example of some information security guidelines: 

What it takes to uphold employee data privacy 

Whether you are processing your payroll in house, through contractors and outside vendors, or both, understanding data flows is critical for upholding a data privacy policy. The onus is on employers and processors to keep up-to-date records of all processing activities, and to identify and document how and how often payroll data is collected, held, used and shared. 

Translating data across many different languages and currencies, however, can make record-keeping activities even more daunting. A centralized payroll management system, with standardized data reporting and validation, can help you uphold data privacy through unified processes and a comprehensive view of data flows. 

Upholding data privacy also requires you to perform ongoing employee training, because global data security is only effective when the people responsible for safeguarding information are knowledgeable about GDPR compliance. By training, testing and retraining employees with access to sensitive information, you can work more efficiently toward sustaining a data protection control framework. 

Conducting regular privacy impact assessments and annual policy reviews can help to maintain company-wide accountability. Under GDPR, companies must hire or nominate a Data Protection Officer regardless of company size, so these individuals can conduct an annual internal audit of payroll processes and systems, review existing privacy policies and procedures, and plan for any necessary changes. 

The challenge for multinationals 

Maintaining data protection that balances both security and availability is a challenge. Data visibility is often the greatest hurdle to reaching a comprehensive and effective data protection framework—especially when global payroll is managed via a decentralized system. A centralized global payroll model can help make data more visible, secure and accessible by unifying processes and managing information through a single vendor. 

Regardless of which payroll model you use while working toward a sustainable data protection framework, you need to be prepared to address why data is collected, what it is used for, how long it is kept, and whether there is a legal basis to do so—no matter where in the world your company operates. These solutions work together to uphold a protection plan with “data privacy by design and default,” but their effectiveness hinges on your ability to enforce them. Therefore, ongoing training on how to properly handle personal data, especially when collecting and using employee information, is paramount to sustaining a data protection control framework. 

To maintain data security, companies need to reevaluate their legal obligations, especially when planning change management initiatives, like expanding payroll into new countries. As global regulations around data collection and processing continue to increase, keeping an eye on the privacy of all data as it flows through the payroll process protects companies from falling out of compliance with GDPR and other privacy regulations—and protects employees as well. 

Companies who leverage the GDPR’s data privacy regulations are able to identify the payroll activities that put employee data at risk, as well as learn what steps to take to build a comprehensive protection framework and ensure compliance on a global scale.

 

For more information about how Global Managed Payroll can save you time on compliance and protect you from unnecessary penalties, contact us now. 

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