How to Manage Employee Data Privacy Risks

To process payroll, companies must collect sensitive employee data, information that's critical for ensuring accuracy, compliance, and timeliness.

Ensuring employee data privacy is not only a best practice; it’s a legal requirement. Under regulations like the General Data Protection Regulation (GDPR), violations can result in fines of up to €20 million or 4% of annual revenue, whichever is higher. For employees, especially in the EU, data protection is a fundamental right that safeguards against identity theft and fraud.

As privacy risks grow, more companies worldwide are adopting global data standards like GDPR to unify data governance and minimize unnecessary exposure. But for global employers, navigating the complex web of data privacy laws can be risky, especially when regulations are misunderstood or overlooked.

In this blog, we provide guidance on managing employee data privacy risks and implementing best practices.

4 steps for managing employee data privacy risks

In order to navigate employee data privacy risks, you must understand how data is collected, categorized, stored, retained, and deleted throughout the payroll process.

We’ve outlined four key steps below:

1. Only collect necessary personal information

Requesting data for payroll processing is considered valid with legal ground, but you can run the risk of collecting too much confidential information. You need legitimate grounds to collect and process personal information, meaning data must be clearly necessary for or related to an employment agreement.

Any personal data collected, processed, and stored beyond what is contractually necessary presents risks for privacy violation. Ask yourself these key questions when evaluating whether the employee data you’re collecting is necessary:

• Why is this data being collected?
• What is this data being used for?
• Is there a legal basis for using the collected data?

2. Categorize employee data accurately

Employee data used for payroll often includes personally identifiable information (PII) such as names, national IDs, tax numbers, and bank details.

However, some records may also contain sensitive personal data, which is information that could lead to discrimination if improperly disclosed. Examples of sensitive personal data include:

• Racial or ethnic origin
• Political opinions
• Religious or philosophical beliefs
• Health information

Sensitive personal data has strict regulations, and data processing is prohibited with few exceptions. Therefore, if you inaccurately categorize or process sensitive personal data, your company might face significant penalties for privacy violation.

Review your data protection policy to make sure data is collected and categorized correctly. Based on its level of necessity and sensitivity, you should delete, encrypt, or redact the data.

3. Store and retain employee data compliantly

Global companies are tasked with navigating a variety of regional restrictions on how long they can store employee 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 to navigate. Reviewing and revising data retention policies in each country you operate in ensures that personal information is not held longer than the minimal amount necessary.

4. Ensure data is accessible to employees

An employee’s ability to locate and access their personal data you’ve collected is an important part of remaining compliant.

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 so that employees are able to exercise their fundamental data rights when needed.

Employees have the right to:

• Request access to their data
• Restrict processing of personal data
• Correct and delete their personal data
• Transfer personal data between online services or platforms

However, there are exceptions to these employee rights depending on the situation. For example, access to data may be restricted if an employee is involved in a payroll fraud or HR investigation. Companies are also required to retain data for a certain amount of time to maintain legal compliance, so in these cases, employee data may not be deleted upon request.

When it comes to ordinary requests, like requesting information or correcting inaccurate data, a payroll system that enables employees to access their data on demand makes it easy for employees to manage their data, leading to a better employee experience.

As a best practice, global payroll data should be held securely in a central location so that sensitive information is kept confidential but is still readily available in order to comply with local laws. Consolidating your payroll providers can help increase payroll visibility, data accuracy, and operational efficiency.

Protecting employee data from security leaks and breaches

Many data breaches stem from outdated processes or inadequate employee training. For instance, payroll data sent over unsecured channels like email can easily fall into the wrong hands.

Without strict guidelines for how to responsibly handle personal information, human error and carelessness are likely to result in a data 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.

By maintaining proper data hygiene, conducting regular privacy assessments, and training employees on privacy best practices, you can mitigate risks of security leaks and data breaches.

Maintain data hygiene

Whether you’re processing your payroll in-house, through vendors, or both, understanding data flows is critical for upholding data privacy. Employers and processors are responsible for maintaining up-to-date records of all processing activities, including how and when global payroll data is collected, stored, used, and shared.

For global companies, translating data across different languages and currencies can make recordkeeping even more daunting. With a centralized payroll management system, you can uphold data privacy through unified processes and a comprehensive view of data flows.

According to a 2024 Forrester study, 46% of payroll leaders experienced improvements in employee data management after consolidating global payroll into one solution.

Conduct regular privacy assessments

Conducting regular privacy impact assessments and annual policy reviews helps maintain company-wide accountability. Under GDPR, companies that process sensitive data must hire or nominate a Data Protection Officer (DPO) regardless of company size.

The DPO is responsible for conducting an annual internal payroll audit, review existing privacy policies and procedures, and plan for any necessary changes.

Train employees on privacy best practices

Upholding data privacy also requires you to perform ongoing employee training. Global data security is only effective when the people responsible for protecting information know about GDPR compliance and other country-specific privacy regulations.

By training, testing, and retraining employees who regularly access sensitive information, you can better maintain healthy data lifecycle management.

Guard your employee data with enterprise-grade security

No matter your payroll model or location, you must be ready to explain why data is collected, how it's used, how long it's retained, and the legal basis for processing it.

Deel Payroll streamlines payroll processes and ensures data accuracy through a unified platform backed by enterprise-grade security. With instant compliance answers through Deel AI and our in-house team of 2,000+ experts in payroll, HR, and legal, you can operate on a global scale while protecting employee data privacy.

Book a demo with our expert team to learn more.