Data Processing Agreement (DPA)

A Data Processing Agreement (DPA) is a legal contract between a data controller and a data processor. It governs how personal data is processed. This agreement is key for ensuring compliance with data protection laws like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), along with other global privacy laws. The DPA details the nature, purpose, and scope of data processing. It also clarifies the responsibilities of both parties and outlines the technical and organisational measures to protect personal data.In today’s global work environment, particularly within distributed companies and organizations that rely on external vendors for payroll, benefits, or cloud-based HR tools, a DPA is a critical safeguard that ensures sensitive personal data is processed lawfully and responsibly.

Understanding Controllers and Processors

To understand why DPAs matter, it’s essential to distinguish between the roles of data controllers and data processors. The controller determines the “why” and “how” of data processing. This is typically the employer or organization collecting employee data for payroll, HR, or compliance purposes. The processor, by contrast, is a third party, such as a payroll provider, HR software vendor, or cloud-based HRIS platform, that processes data on the controller’s behalf under explicit instructions.

The DPA ensures that processors do not use or store personal data beyond what the controller has authorized, and it mandates that adequate security practices be in place.

Why a DPA Matters for Legal and HR Leaders

For legal teams, a Data Processing Agreement (DPA) is crucial. It shows that the organization meets its data protection obligations. The DPA requires processors to maintain the same high standards as the controller. It also defines the responsibilities and liabilities of both parties, acting as a risk mitigation tool. This agreement serves as proof of due diligence during audits or legal checks.

Not including a DPA in service agreements or vendor contracts can have serious consequences. These include regulatory fines, damage to reputation, and even suspension of data processing by authorities.

HR leaders, especially those managing global mobility or international recruitment, share a similar duty. They handle large amounts of personal data, like names, addresses, social security numbers, health records, and tax identifiers. Much of this data is shared with external vendors, from Professional Employment Organization (PEO) platforms to healthcare providers. A DPA ensures that when data is shared, it stays protected and is used only for its intended purpose.

In HR workflows such as onboarding, offboarding, or enforcing remote work policies, having a DPA with relevant third parties helps ensure compliance throughout the employee lifecycle.

What a DPA Typically Covers

A well-structured DPA includes several essential elements:

It begins by clearly identifying both parties - the controller and processor - and the types of personal data being processed. This could include employee payroll data, health-related records for leave of absence, or contact data used for internal communications.

Next, it outlines the purpose of the processing whether it's for payroll execution, analytics, performance review reporting, or compliance with labor laws. The DPA will also specify how long the data will be retained, the obligations regarding deletion or return of data, and the security measures required to prevent unauthorized access or disclosure.

Importantly, the DPA details how data subject rights, such as the right to access, correct, or delete their personal data, will be upheld. It also includes protocols for data breach notifications, audit rights, and restrictions on subcontracting.

In jurisdictions where data may cross borders, the DPA should also address international data transfer mechanisms, such as Standard Contractual Clauses (SCCs) or Binding Corporate Rules (BCRs).

Steps for Legal and HR Leaders to Ensure Compliance

To embed data protection in an organisation's culture, legal and HR leaders should take a proactive stance on DPAs. First, understand your role: are you a controller, a processor, or both? Many companies fulfil both roles. For example, they may act as a controller for internal HR data and as a processor for client data on behalf of other businesses.

After clarifying roles, leaders should audit existing agreements, especially with external service providers. Check if these contain the right DPA language. If agreements are outdated or lack protection clauses, it’s important to renegotiate them or add a standalone DPA.

Next, legal teams should draft or update a DPA template to match the organization’s processing activities and relevant laws. HR teams, working with legal, must ensure vendor onboarding and employee data handling follow this agreement.

Technology is also crucial for compliance. Using HRIS systems that offer role-based access, secure data storage, and audit trails can help meet DPA obligations in daily operations.

DPAs and the Employee Lifecycle

Throughout the employee lifecycle, DPAs protect individuals’ rights by ensuring that any personal data shared with third parties is handled securely. When a new employee is hired, for instance, their banking and tax information may be processed by external payroll vendors. If a company provides health benefits, sensitive medical data might be transmitted to an insurer.

Without a DPA, such transfers may violate privacy laws. Even in termination procedures, DPAs ensure that personal data is not stored indefinitely or shared without consent. For freelancers or contract workers, the DPA ensures their personal and payment data is processed solely for the agreed purpose, and securely erased once no longer needed.

Conclusion

A Data Processing Agreement (DPA) is not just a compliance document; it is vital for data privacy, accountability, and transparency. As organizations rely more on external vendors for HR, payroll, IT, and employee experience, the DPA serves as a legal and ethical safeguard.

For legal leaders, it ensures alignment with changing data privacy laws. For HR professionals, it protects the integrity and confidentiality of employee data during all employment phases. By understanding, auditing, and enforcing DPAs, organizations can lower risk, boost trust, and stay compliant in a data-driven world.

For definitions of key HR and employment terms, visit the Rivermate Glossary.