GDPR and payroll: How to keep your business compliant

If you have (or plan to have) employees in the European Union (EU), then data privacy is not just a security concern — it’s also a compliance one. The EU’s General Data Protection Regulation (GDPR) has set stringent rules on data handling, storage, and security to protect individual privacy, and when managing payroll across these borders, you need to adhere to these laws.

This may sound like a daunting task, but it doesn’t have to be. In this article, we’ll explore GDPR’s impact on payroll, and show you how can meet every requirement with the right knowledge and support. So let’s begin.

What is GDPR?

GDPR is a comprehensive data privacy law enacted by the EU in May 2018. It governs how organizations collect, process, store, and protect personal data of individuals within the EU, with the primary goal of giving people greater control over their information.

It’s important to note that GDPR applies to any business — regardless of location — that processes EU residents' personal data. So if, for example, your business is based in the US but you have employees in Germany, then you must still adhere to GDPR for those employees’ data.

Non-compliance with GDPR can result in severe penalties, including fines of up to €20 million or 4% of your company's global annual revenue.

How does GDPR impact payroll?

Processing payroll means processing sensitive information such as employee names, bank details, and tax information, all of which fall under the purview of GDPR. 

As a result, you’ll need to manage your employees’ data in line with key GDPR principles, including:

• Data minimization: Only collecting data strictly necessary for payroll processing.

• Purpose limitation: Ensuring data is used solely for payroll-related activities.

• Storage limitation: Retaining payroll data only as long as legally required.

• Data security: Implementing measures like encryption and secure storage to protect against breaches.

How do you ensure that you are adhering with GDPR?

To adhere to these principles, and to ensure that you have a sustainable compliance framework in place, you will need to adopt the following best practices:

Conduct a data audit

Start by mapping all the personal data you have collected, processed, and stored as part of your  payroll operations. In particular, identify:

• What data is being collected (e.g., employee names, tax details, bank information etc.)

• Why that data is being collected and how it is being used

• Where the data is being stored and who has access to it.

Document these findings to establish a clear understanding of your data practices and identify areas requiring tighter control.

Get our free in-depth guide on protecting your team’s sensitive data

Limit your data collection and use

One of GDPR’s key principles is data minimization, which encourages businesses only to collect data that is strictly necessary.

As a result, avoid gathering excessive information for your payroll needs, and ensure the data is used solely for its intended purpose, such as salary processing or tax reporting.

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Secure your employees’ consent

Obtain clear and explicit consent from your employees to process their data, remembering that consent must be freely given, informed, and easily revocable. Most organizations submit a GDPR agreement during the employee’s initial onboarding.

Note, too, that employees can request their payroll data or ask for corrections, and your business must comply promptly.

Implement strong access controls

Restrict access to payroll data to only those employees or third parties who need it to perform their duties. At the same time, implement role-based permissions to ensure unauthorized individuals cannot view or modify sensitive information.

Encrypt and secure your data

Protect your payroll data during transmission and storage by implementing encryption and other security measures. Use secure servers and ensure your payroll provider (if you use one) also complies with GDPR standards.

“Remote has complete ownership over its end-to-end operations, as opposed to relying on third-party entities. This approach is particularly beneficial because it allows us to have complete control over the data and mitigates the risk of uncertain data handling practices.”

Marcelo Lebre, co-founder and CTO at Remote

Establish data retention policies

To comply with GDPR’s storage limitation principle, you will need to retain payroll data only for as long as it’s legally required (or necessary) for the payroll process. After this period, you must securely delete or anonymize the data.

Develop breach response protocols

Create a clear plan for responding to potential data breaches. GDPR mandates that breaches involving personal data must be reported to authorities within 72 hours, so having an established protocol ensures swift action.

Provide employee training

Where possible, train your payroll and HR staff on GDPR requirements, emphasizing best practices for handling employee data securely and responsibly. Regular training sessions keep your team updated on the latest compliance expectations.

How can Remote help?

Remote Payroll ensures data protection and privacy by safeguarding your employee information, and complying with all data protection and privacy regulations (including other data privacy laws in other regions).

“To demonstrate our commitment to information security — and to provide a secure platform for our customers — Remote has sought out the world’s best-known, internationally-recognized information security standards. These certifications provide a standardized and independent confirmation, so employers can be confident that rigorous security measures protect their employee information.”

Marcelo Lebre, co-founder and CTO at Remote

In addition, our detailed reporting and auditing features help your business demonstrate compliance to regulators.

To learn more about how we can help you mitigate risks, protect your employee data, and simplify your entire payroll operations while staying fully compliant, speak to us today.

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