Setting up a GDPR-compliant compensation structure

Setting up a GDPR-compliant compensation structure

The General Data Protection Regulation affects every aspect of HR, including your compensation policy. Salary data, bonus structures, and secondary employment benefits all contain personal data that must be processed carefully. For many HR professionals, GDPR compliance feels like a legal minefield, but with the right approach, it becomes a logical part of your compensation strategy.

The challenge isn’t just about complying with the law. A well-designed, GDPR-compliant compensation structure protects your organization against fines, but also creates trust among employees. And that trust is essential, especially now that transparency about compensation is becoming increasingly important.

Why compensation data requires special attention

Salary data is sensitive information that reveals a lot about someone. It provides insight into someone’s job level, performance, and even negotiation skills. In the wrong hands, this data can lead to discrimination, social tensions, or even identity fraud.

The GDPR recognizes this risk and therefore imposes strict requirements on the processing of personal data. For HR, this means you can’t simply collect, share, or store all compensation data. Every step in your compensation process must have a clear purpose and be proportionate.

What many organizations underestimate is the number of systems where compensation data ends up. From payroll administration to HR systems, from budget tools to reports for management. Each system is a potential risk if security isn’t in order.

The seven core principles applied to compensation

The GDPR has seven fundamental principles that form the basis for all data processing. For compensation structures, these principles are your compass when making decisions.

The first principle is lawfulness and transparency. You must have a valid legal basis to process salary data. For basic pay, that’s the employment contract; for tax obligations, it’s the law. But for some bonus schemes or additional allowances, consent may be required. Employees must always know what data you collect and why.

Purpose limitation means you may only use compensation data for the purpose for which you collected it. Using salary data for payslips is allowed, but sharing that same data with recruiters for benchmarking without further consideration is not. Each new purpose requires a new assessment.

Data minimization is crucial for compensation structures. Only collect the data that’s truly necessary. Do you really need someone’s date of birth for a bonus calculation, or is seniority sufficient? Does the entire management team need to see individual salaries, or is an anonymized overview enough?

Accuracy of data prevents costly mistakes. An incorrectly entered salary not only leads to legal problems but also damages employment relationships. Ensure control mechanisms and give employees the opportunity to check their data.

Storage limitation means you can’t keep compensation data forever. After the employment relationship ends, statutory retention periods apply, but after that you must delete data. Many organizations keep old payroll records far too long.

Integrity and confidentiality are about security. Who has access to which compensation data? Are systems properly secured? Is data encrypted? These are questions your IT department should be able to answer.

The final principle is accountability. You must be able to demonstrate that you comply with all requirements. Document your choices, procedures, and security measures.

The processing agreement with your payroll administrator

Many organizations outsource their payroll administration. At that point, your supplier becomes a processor in GDPR terms, and you are the controller. That sounds technical, but has practical consequences.

You must conclude a processing agreement with every external party that has access to compensation data. This agreement regulates precisely what the processor may and may not do with the data. It’s not sufficient to rely on general terms and conditions.

The processing agreement must at minimum state which data is processed, for what purpose, for how long, and what security measures apply. It must also be clear that the processor may not pursue its own purposes with your data. Sharing salary data with third parties for marketing is, for example, absolutely prohibited.

Many HR departments underestimate this point. They conclude a contract with a payroll administrator but forget to explicitly establish GDPR requirements. In the event of a data breach, it then becomes clear that responsibilities are unclear, with all the consequences that entails.

Also check whether your processor engages sub-processors. Does your payroll administrator use cloud services in countries outside the EU, for example? Then that must also be arranged, including the appropriate transfer instruments.

What you absolutely must not share

The GDPR has strict rules about sharing personal data. For compensation data, certain things are absolutely prohibited without explicit, informed consent.

You may not share individual salary data with colleagues who have no business need for it. A manager may know what their team members earn for performance reviews, but not what employees from other departments receive. The financial director may need access to total figures, but not to individual salaries by name.

Special categories of personal data such as health data may only be processed in very specific cases. Think of sick leave that affects bonuses, or disability insurance. Extra strict rules apply here and you usually must consult the data protection officer.

Sharing with external parties is only permitted with a clear legal basis. Do you want to use salary data for a benchmark study? Then you must first anonymize it, so that individual employees can no longer be identified. True anonymization is more difficult than you think, because the combination of job title, age, and seniority may already be sufficient to identify someone.

Publication of compensation data on internal systems also requires care. An Excel file with all salaries on a shared drive is a classic that regularly goes wrong. Strictly limit access to those who really need it.

Transparency to employees: what should they know?

The GDPR gives employees the right to know how you handle their data. For compensation data, this means you must communicate clearly about your compensation processes.

Employees must know what data you collect for compensation purposes. Explain why you need certain information. If you use performance indicators for bonus calculations, it must be clear what data is used for this and how long it’s retained.

They must also know who has access to their salary data. Can only HR and finance view it, or also their direct manager? Is data shared with the group or with external advisors? Transparency about this prevents distrust.

The right of access means employees can request what compensation data you have about them. They may also request correction if data is incorrect. Ensure you have processes to handle such requests within one month.

Upon dismissal or retirement, employees have the right to data portability. They can request a copy of their salary history in a structured, commonly used format. This can be valuable for their pension accrual or in disputes.

Security of compensation data in practice

Technical and organizational measures are the backbone of GDPR compliance. For compensation structures, this means you must think about who, what, when, and how.

Access control is essential. Not everyone within HR needs all compensation data. A recruitment specialist doesn’t need access to individual salaries of current employees. An HR advisor who recruits doesn’t need to know management bonus structures. Work with roles and rights in your systems.

Encryption of sensitive files protects against data breaches. If a laptop with salary data is stolen, encryption prevents the data from being readable. This also applies to emails with compensation information, which you preferably send via secure channels.

Logging and monitoring help you detect unauthorized access. Who viewed or modified which salary data when? You can intervene quickly with suspicious patterns. This also prevents internal abuse.

Regular audits of your compensation processes demonstrate that you take the matter seriously. Check at least annually whether access rights are still correct, whether processing agreements are current, and whether security measures are effective.

Training employees who work with compensation data is at least as important as technical measures. They must understand why GDPR compliance is important and how to act in practice. A well-intentioned but insecure email can already cause a data breach.

From compliance to strategic advantage

GDPR compliance for compensation structures is more than checking off a list. It forces you to think fundamentally about how you handle compensation data, and that delivers surprising benefits.

Organizations that have made their compensation processes GDPR-proof often notice they also work more efficiently. Data minimization means less unnecessary administration. Clear access rights prevent confusion about who is responsible for what. Good documentation makes onboarding new HR employees easier.

Transparency to employees about compensation processes increases trust in the organization. Employees who understand how their salary is determined and how their data is protected feel taken seriously. This contributes to psychological safety and retention.

For data-driven HR decisions, a solid foundation is essential. If you have your compensation data well-structured and secured, you can also analyze it better. Which compensation elements work best? Where are inequalities that you need to address? Deepler helps organizations make better HR decisions based on reliable data.

Your first steps toward a compliant structure

Start with a thorough inventory of all compensation data you collect and process. Which systems contain salary data? Who has access? What is the legal basis for each processing activity? This exercise alone often yields surprises.

Then determine where the biggest risks lie. Old systems with weak security? Unclear agreements with processors? Employees who don’t know how to handle data safely? Prioritize based on impact and likelihood.

Document your processing activities in a register. For compensation processes, this means you describe what data you collect, why, how long you retain it, and how you secure it. This register is not only legally required, it also helps you maintain control.

Work together with your data protection officer, IT department, and possibly external advisors. Compensation structures touch on legal, technical, and HR issues. Only with expertise from different angles will you get a robust solution.

Start with quick wins that immediately reduce risks. Encrypt sensitive files, limit access rights, conclude missing processing agreements. These measures take relatively little time but deliver a lot.

A GDPR-compliant compensation structure is not a one-time project but a continuous process. New systems, changing legislation, and growth of your organization require regular updates. Build evaluation moments into your annual calendar.

The investment in GDPR compliance pays off doubly. You protect your organization against fines and reputational damage, while simultaneously building a reliable foundation for modern, data-driven HR. That makes the difference between compliance as a burden and compliance as a foundation for better people and organizational development.