What you need to know about employee data privacy, security, and compliance

Nowadays, gathering and managing employee data digitally is virtually unavoidable—companies need to collect information on their workers to handle payroll and other basic business operations. That said, each type of personal information they collect needs to be processed and stored in a secure and legally compliant manner.

To keep your workers’ personal information safe and sound, you first need to understand which employee data needs protecting. You also have to be aware of the laws and regulations that you must follow, as well as the security measures at your disposal to protect that data. Failing at employee data protection could put your company at financial and reputational risk. We cover all that (and more) in this guide. Let’s jump right in! 

What employee data is subject to privacy laws?

Employers are obliged to protect a variety of employee HR data, generally referred to in the US as personally identifying information (PII). These types of data commonly include:

• Basic details like name and surname, address, and phone number
• Employment information like the employee’s work application documents, earnings, benefits, and performance reports
• Financial data like the worker’s Social Security Number (SSN) or bank account
• Demographics, including gender, sexual orientation, race, and age
• Medical history, such as the individual’s diagnoses, medications (past and present), disability status, and psychological and physical evaluations
• Any criminal records, like past convictions, court rulings, and sentencing
• Biometrical data, including fingerprints, iris scans, and images and videos used for facial recognition

Employee privacy laws apply not only to your company’s current staff but also to past and prospective employees and job applicants.

Bear in mind that what falls under employee privacy laws will likely vary from country to country or even within countries—for example, US states can have different legislation. Before recruiting and bringing new employees on board, it’s essential to always check local regulations to guarantee privacy compliance.

This is simple with HR software like Rippling, which is built to protect your employees’ sensitive information so you can safely process and manage your staff members’ details through the entire hiring lifecycle.

What are the potential consequences of a data breach?

Data protection laws require employers to demonstrate their dedication to protecting their workers’ personal information. That being said, there are times when a data breach happens accidentally—and the repercussions can be severe. These include:

• Penalties and fines: Employees can claim compensation if they believe their company didn’t take all the steps they could have to protect their data. Depending on the employer’s location, they might also need to settle a fine with local authorities. For example, organizations in the European Union can receive a fine of up to €20 million or 4% of their yearly turnover. 

• Financial loss: Another painful consequence of a data breach is financial loss. On average, publicly traded companies that fall victim to a data breach incident experience a stock price decline of 7.5%. What’s even more worrying is that it can take an average of 46 days to bring the stock price back to pre-breach levels—that is, if it recovers at all. 
• Reputational damage: Data breaches rarely go unnoticed, and they’re usually followed by negative publicity. This can lead to serious reputational damage. Some businesses are never able to recover fully. Others spend a lot of time (and money) trying to explain the situation to the public via social media and other channels in an attempt to restore their good name.

It’s critical for employers to realize just how prolific data breaches have become in recent years. One of the more publicized incidents of 2023 happened to video game publisher Activision. The company admitted that a hacker accessed their employees’ salary information, phone numbers, and emails by tricking an HR team member through an SMS phishing attack. The company only acknowledged the incident after an external security research group revealed it on Twitter.
It’s also worth mentioning that, in order to be penalized, a company doesn’t have to fall victim to a data breach. Some privacy laws enforce fines simply for putting employee data at risk—for instance, by storing it without employees’ consent. This was infamously the case for retail giant H&M, which was fined €35.3 million for gathering ‘excessive’ information on staff and their families.

Employee data privacy laws 

While data privacy laws in the US and the EU both protect personally identifying information, they bear several differences. Here are the most important privacy regulations that can impact your employees in both regions. 

US data privacy laws 

While you have the right to request, collect, and keep your employees’ data, you’re also responsible for securing their personally identifiable and sensitive information. Here are the most common US privacy laws to be aware of. 

• Health Insurance Portability and Accountability Act (HIPAA): Healthcare providers are forbidden from disclosing employees’ medical records and other personal information. This calls for establishing administrative, physical, and technical mechanisms to stop unauthorized parties from accessing, using, and sharing the information. 
• The Privacy Act of 1974: This act regulates individuals’ data collection and use by federal agencies. It prevents them from sharing personal information unless they have written consent from the individual or the Census Bureau requires access for statistical purposes. 
• Electronic Communications Privacy Act (ECPA): ECPA prohibits employers from accessing their employees’ electronic communications without their approval. The only exception is when communication is intercepted for a justified business purpose.
• The Fair Credit Reporting Act (FCRA): FCRA outlines the steps you must abide by if you wish to run a credit or background check on a prospective or existing worker. Employers must receive written consent from the employee to process data and delete any information after the check is finalized.
• California Consumer Privacy Act (CCPA): Introduced in 2018, CCPA grants consumers more control over the collection and use of their personal information by businesses. In November 2020, an amendment to the CCPA was made called the California Privacy Rights Act of 2020 (CPRA). It targets for-profit companies in California that gather, share, or sell data from Californian customers. If you’re an employer subject to this act, you must provide consumers with a notice explaining your privacy practices before collecting personal information from them.

General Data Protection Regulation (GDPR)

GDPR is arguably the world’s most stringent and impactful data privacy law. While it was enacted in the European Union, it applies to any organization or website that processes EU residents' and citizens’ data or sells goods or services to them. GDPR levies severe fines for violating data security and privacy, i.e., 4% of annual revenue or €20 million, whichever is higher. Data subjects can also make claims for compensation if their rights were violated under the law.

The regulation only applies to “personal data,” defined as information on those “who can be directly or indirectly identified.”These include:

• Names 
• Emails
• Ethnicity
• Political preferences
• Religion
• Gender
• Biometric information
• Website cookies
• Location data

Pseudonymous data might also be seen as “personal data” if it’s relatively easy to decipher one’s identity.

How to ensure employee data security

Is there anything you can do as an employer to protect your employees’ data while staying compliant with local and federal regulations? Yes, there is! Here are some best practices that you can implement. 

Choose software with advanced security features 

While there are plenty of service providers to choose from, make sure to pick HR software that follows strict security standards. If in doubt, ask yourself the following questions:

• Is the software SOC compliant?
• Does it have ISO certification?
• Does it provide safe infrastructure? 
• Can you control who gets access? 

Rippling complies with the most rigorous global data privacy and security frameworks, including SOC and ISO. It keeps your employees’ data safe at all times by offering strict access controls, data encryption, and server monitoring–from onboarding to offboarding. 

Create a data security policy and train employees 

Data breaches happen not only through hacker attacks; sometimes, they result from human mistakes or lack of policy. It’s important to create an internal playbook that specifies how everyone at your company is expected to handle employee data.

Make sure it covers:

• How you handle data as an employer. Be open about why you collect each type of employee data, how you use it, where you store it, and how long you retain it. Refer your staff to any relevant privacy laws that affect their data as employees at your organization. This will help them learn about their rights and the measures you’re required to take to keep their information secure.
• How your employees need to handle PII and protect sensitive information. Your policy should be customized to your organization’s unique privacy needs. But this list can help get you started with some ideas of what to outline:
  • What your password policies are and how often they must be altered
  • What types of systems can be granted access to company data
  • How to transfer files or information, internally and externally
  • How to recognize data security threats, like an identity theft attempt
  • How, when, and who at the company can request access to sensitive data
  • What types of third-party tools can be used for work
  • How to safely retain and delete your employees’ personal data

To help your staff put this into practice, train them on your data privacy policies—well-trained staff are less likely to be tricked by cybersecurity criminals and reveal confidential company data. It can be helpful to create training materials and break them down into modules. Remember to update these materials regularly, as employee privacy laws are subject to change.

Whether training is mandatory depends on many factors, like where your organization and employees are located and what data privacy laws cover your employees (for example, HIPAA requires a covered organization to train all employees on how to handle private health information within a reasonable period of time after hiring). But even if training isn’t legally mandated, offering it to employees is still best practice.

Conduct security audits regularly

You should regularly check if your organization’s information system is secure by conducting a security audit at least once a year or more often, if possible. Your information system must be in compliance with both internal and external criteria. The former includes your company’s security policies and controls, while the latter revolves around government regulations like GDPR, Privacy Act, etc. 

A security audit should list any vulnerabilities and weaknesses, as well as recommend necessary actions you can take to make your system more secure. Remember that there is no universal way to run security audits; you can use different criteria and standards. Here are some common steps that you can take: 

• Choose your audit criteria: These will depend on your organization’s size and compliance standards. You need to agree on internal and external criteria and develop a list of security controls that require testing based on these. 
• Review activity and event logs to ensure only employees with the right permissions are accessing certain data: Take a closer look at network activity and event logs. Doing this will help you guarantee that only employees with the right permissions have access to sensitive information. You’ll also be able to verify if they follow security protocols. 
• Identify potential weaknesses and conduct penetration tests: The security audit should point out some of the most pressing security vulnerabilities. After knowing what they are, you’ll be able to conduct penetration tests, i.e., a simulated attack on your security system to check how effective it is. 

Have a plan of action in case of a security breach

Despite your best efforts to protect data, sometimes a breach is unavoidable. Prepare an action plan ahead of time so you’re ready if it ever takes place. 

Start off by deciding who should be part of the response team and how they should be alerted. Know who is responsible for what and when.

The plan must also cover how you’re going to inform your employees and the wider public. Create templates for any internal and external announcements, such as those issued to internal team channels or the press.

It’s also a good idea to create a checklist of information the response team needs to gather to relay to employees, other stakeholders, and, eventually, the public. It can include the following:

• What caused the incident?
• Who is responsible?
• Who was affected, and to what extent?
• How will we mitigate the issue?

A modern HR system that prioritizes data security 

Employee data is sensitive. That’s why Rippling combines enterprise-grade security features with regular audits so you can ensure your organization and employees are always protected. With Rippling, you can gather, store, and process your employees’ personal information without worry—Rippling is both SOC-compliant and ISO-certified, guaranteeing the highest level of protection. 

Rippling also offers:

• Strict access controls 
• Server security and monitoring
• Formal security policies
• Incident response plans
• Ongoing security training
• Data encryption using TLS 
• Data redundancy and resiliency

Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.