SOC 2 for HR Tech: What Workforce Software Companies Need

At Agency, we work with HR technology companies that process some of the most sensitive data in the enterprise software landscape — Social Security numbers, salary and compensation information, benefits elections, performance reviews, disciplinary records, background check results, and in some cases, health information connected to benefits administration. Enterprise HR buyers — typically a combination of CHRO offices, IT security teams, and procurement — evaluate HR tech vendors with heightened scrutiny because a breach of employee data creates both regulatory exposure and direct harm to the workforce the organization is responsible for protecting. SOC 2 has become the baseline security attestation that enterprise HR buyers require, with most organizations expecting a Type II report before granting access to their employee population's data.

This guide covers SOC 2 compliance for HR technology companies including HRIS platforms, workforce management tools, payroll systems, people analytics software, applicant tracking systems, benefits administration platforms, and learning management systems. It addresses the unique sensitivity of employee data, Trust Service Criteria selection for HR tech, the regulatory intersection with employment and privacy laws, how enterprise HR procurement teams evaluate SOC 2 reports, and the controls that distinguish an HR tech SOC 2 program from a general SaaS program.

Why Employee Data Requires Elevated Protection

The Sensitivity Spectrum

Employee data encompasses a wide range of sensitivity levels, and most HR tech platforms handle data across the entire spectrum:

Data Category	Sensitivity	Examples	Breach Impact
Personally identifiable information (PII)	High	Social Security numbers, dates of birth, home addresses, government-issued ID numbers	Identity theft, regulatory penalties, class-action lawsuits
Compensation and financial data	High	Salary, bonus, equity compensation, bank account details (for direct deposit)	Financial fraud, workplace conflict from unauthorized disclosure
Benefits and health information	Very High	Health insurance elections, disability status, medical leave records, EAP utilization	Potential HIPAA implications, discrimination claims, personal harm
Performance data	Medium-High	Performance reviews, disciplinary actions, termination records, performance improvement plans	Employment litigation, reputational harm, workplace trust erosion
Recruiting data	Medium	Resumes, interview notes, offer letters, background check results, reference checks	Discrimination claims, privacy violations
Workforce analytics	Medium	Turnover predictions, engagement scores, productivity metrics, flight risk assessments	Employee trust erosion, legal challenges to algorithmic decisions
Basic employment data	Medium	Job title, department, start date, work location, manager	Organizational intelligence exposure

Why Enterprise HR Buyers Are Especially Cautious

HR buyers evaluate technology vendors differently than other enterprise functions because employee data breaches create cascading consequences:

• Employer liability: The organization has a fiduciary duty to protect employee information. A vendor breach creates employer liability regardless of where the breach occurred
• Regulatory multiplier: Employee data often triggers multiple regulatory frameworks simultaneously — state privacy laws, data breach notification laws, and potentially HIPAA (for benefits data)
• Workforce trust: Employees trust their employer to protect their personal information. A breach of that trust damages employer-employee relationships, retention, and employer brand
• Class-action exposure: Employee data breaches frequently result in class-action lawsuits from affected employees against both the employer and the vendor
• Global workforce complexity: Multinational companies must comply with employee data protection laws in every jurisdiction where they have employees — GDPR in Europe, PIPEDA in Canada, LGPD in Brazil, and others

Trust Service Criteria for HR Tech

Recommended Criteria

Criterion	Recommendation	HR Tech-Specific Rationale
Security (Common Criteria)	Required	Mandatory baseline; covers access controls, change management, and incident response for employee data
Confidentiality	Required	Employee compensation, performance reviews, and benefits data are inherently confidential; enterprise buyers expect this criterion
Privacy	Strongly recommended	HR tech platforms collect and process employee personal information subject to privacy regulations; the Privacy criterion demonstrates proactive data governance
Availability	Recommended	Payroll systems, time-tracking tools, and benefits platforms must be available during critical processing windows (payroll runs, open enrollment)
Processing Integrity	Situational	Required for payroll and compensation platforms where calculation accuracy directly affects employee paychecks and tax withholding

Why Confidentiality Is Non-Negotiable for HR Tech

Unlike many SaaS categories where Confidentiality is optional, we tell our HR tech clients to treat it as effectively mandatory:

• Salary and compensation data is among the most confidential information in any organization
• Performance reviews and disciplinary records have direct employment consequences if disclosed
• Background check results and interview evaluations contain highly sensitive personal assessments
• Enterprise HR buyers specifically look for the Confidentiality criterion when evaluating HR tech vendors
• Unauthorized disclosure of employee data can trigger employment litigation and regulatory investigation

When Processing Integrity Matters

HR Tech Type	Processing Integrity Needed?	Why
Payroll platforms	Yes — required	Payroll calculations directly affect employee compensation, tax withholding, and benefits deductions; errors have immediate financial impact
Benefits administration	Yes — strongly recommended	Benefits enrollment and premium calculations affect employee coverage and payroll deductions
Time and attendance	Yes — recommended	Time calculations affect overtime pay, leave balances, and compliance with labor regulations
People analytics	Recommended	Analytics outputs inform workforce decisions (promotions, compensation adjustments, layoffs) where accuracy matters
Applicant tracking	No	Recruiting workflows do not involve financial calculations or data where processing accuracy is critical
Learning management	No	Training completion tracking does not require processing integrity assurance

HR Tech-Specific Controls

Employee Data Access Management

Access management for HR tech is more complex than general SaaS because of the layered sensitivity and multi-party access model:

Control Area	What to Implement
Role-based access by HR function	Access differentiated by role — HR administrator (full access to employee data), hiring manager (access to own team and candidates), employee (access to own records), benefits administrator (access to benefits data only)
Compensation data isolation	Compensation data (salary, bonus, equity) restricted to authorized HR and finance personnel; managers may see direct report compensation only with explicit authorization
Performance data boundaries	Performance reviews accessible only to the employee, their manager chain, and HR; peer feedback restricted to designated reviewers
Multi-tenant data isolation	Each customer's employee data is fully isolated; one customer cannot access another's workforce data
Cross-customer access prevention	Platform engineers and support staff access customer employee data only with authorization and logging
Self-service access controls	Employee self-service portals expose only the employee's own data; prevent horizontal privilege escalation between employees

Data Purpose Limitation and Minimization

Enterprise HR buyers are increasingly concerned about how HR tech vendors use the employee data they process:

Control	HR Tech-Specific Requirement
No secondary use	Employee data used only for the contracted HR service — no use for product analytics, ML model training, benchmarking, or advertising without explicit authorization
Data minimization	Collect only the employee data elements necessary for the contracted service; document which data elements are required and why
Aggregated data handling	If the platform produces workforce benchmarks or analytics using aggregated customer data, controls must ensure individual employee data cannot be re-identified
Third-party data sharing restrictions	Employee data not shared with third parties except subprocessors necessary for service delivery; all subprocessors documented

Data Retention and Deletion

Control	Implementation
Defined retention periods	Retention periods for each category of employee data (active employee records, terminated employee records, recruiting data, benefits data)
Contract-end data handling	Documented process for data return and deletion when a customer contract ends; deletion confirmed to the customer within a specified timeframe
Employee-initiated deletion	Support for individual employee data deletion requests (relevant for GDPR right to erasure and state privacy law compliance)
Automated retention enforcement	Technical controls that enforce retention periods automatically rather than relying on manual processes

Payroll and Compensation Data Integrity

For HR tech companies processing payroll, compensation, or benefits:

Control	Purpose
Calculation validation	Payroll calculations (gross pay, deductions, taxes, net pay) are validated for accuracy before processing
Dual authorization for payroll runs	Payroll submission and approval require separate individuals to prevent unauthorized payroll modifications
Payroll change audit trail	All changes to employee compensation records (salary adjustments, deduction changes, bank account modifications) are logged with who-what-when
Tax calculation accuracy	Tax withholding calculations comply with current federal, state, and local tax tables
Reconciliation procedures	Payroll outputs are reconciled against inputs to verify completeness and accuracy before disbursement

Incident Response for Employee Data

Employee data breaches require specific response procedures beyond general incident response:

Requirement	Detail
Employer notification	Notify affected customer organizations within contractual timeframes (typically twenty-four to seventy-two hours) so they can assess the impact on their workforce
Regulatory notification support	Support customers in meeting their own breach notification obligations under state data breach notification laws (timelines vary by state — some require notification within thirty days)
Data type classification	During incident investigation, classify the specific types of employee data affected (SSNs, financial data, health information) because notification requirements vary by data type
Credit monitoring coordination	If SSNs or financial data are compromised, coordinate with customers on providing credit monitoring to affected employees
Employment litigation preparedness	Document incident details, root cause, and remediation thoroughly — employee data breaches frequently result in litigation

Regulatory Intersection

Employment and Privacy Laws

HR tech companies operate at the intersection of multiple regulatory frameworks depending on where their customers' employees are located:

Regulation	Applicability	Impact on SOC 2 Program
State data breach notification laws (all 50 US states)	Mandatory when employee PII is compromised	Incident response controls must support multi-state notification requirements
CCPA / CPRA (California)	Applies to employee data of California residents (as of 2023)	Privacy controls must support data access, deletion, and opt-out requests for California employees
GDPR (EU/EEA)	Applies when processing data of employees located in the EU	Data protection controls, data transfer mechanisms (Standard Contractual Clauses), DPO designation
PIPEDA (Canada)	Applies when processing data of Canadian employees	Consent management, data access and correction rights
State biometric privacy laws (Illinois BIPA, Texas, Washington)	Applies when collecting biometric data (fingerprints, facial recognition for time tracking)	Consent controls and data handling specific to biometric information
SOX compliance requirements	Applies when customers are publicly traded (payroll affects financial reporting)	Payroll controls must support customer SOX compliance; may require SOC 1 report alongside SOC 2

SOC 1 vs SOC 2 for HR Tech

Some HR tech companies need both SOC 1 and SOC 2 reports:

Service Type	SOC 1 Needed?	SOC 2 Needed?	Why
Payroll processing	Yes	Yes	Payroll affects customer financial statements (SOC 1) and involves sensitive employee data (SOC 2)
HRIS (no payroll)	No	Yes	HRIS does not directly affect financial reporting but handles sensitive employee data
Benefits administration	Situational	Yes	Benefits costs affect financial statements in some cases; employee data always requires SOC 2
Applicant tracking	No	Yes	Recruiting does not affect financial statements; candidate PII requires SOC 2
People analytics	No	Yes	Analytics does not affect financial reporting; employee data requires SOC 2

How Enterprise HR Procurement Evaluates SOC 2 Reports

What HR Buyers Look For

Evaluation Focus	What They Look For
Employee data access controls	Role-based access differentiated by HR function; compensation data isolation; manager access boundaries
Data confidentiality	Confidentiality criterion included; encryption at rest and in transit; controls preventing unauthorized disclosure
Data deletion capability	Confirmed ability to delete employee data when contracts end or upon request
Subprocessor transparency	Clear documentation of all subprocessors that handle employee data
Availability for critical processes	Uptime commitments for payroll processing windows and benefits enrollment periods
SOC 1 for payroll	If the platform processes payroll, buyers may require SOC 1 in addition to SOC 2

Common Report Gaps That Concern HR Buyers

Gap	Why It Concerns Buyers
No Confidentiality criterion	Suggests the vendor has not specifically addressed the confidential nature of employee data
Generic access controls without HR-specific role differentiation	Indicates the SOC 2 program was not designed for the sensitivity of HR data
No data deletion or retention controls documented	Raises concerns about data handling at contract end
Evidence of access to customer data by vendor employees without logging	Creates concern about insider access to employee records
No mention of employee data in the system description	Suggests the system description was written generically rather than reflecting the HR tech use case

Building an HR Tech SOC 2 Program

Implementation Priority Order

Priority	Control Area	Why First
1	Employee data access management with role differentiation	The highest-scrutiny area for HR tech buyers and auditors
2	Encryption for all employee data at rest and in transit	Baseline protection for SSNs, compensation, and benefits data
3	Multi-tenant data isolation	Enterprise customers must be confident their employee data is segregated
4	Data purpose limitation controls	Enterprise buyers increasingly require evidence that employee data is not used for secondary purposes
5	Monitoring and logging of employee data access	Required for incident investigation and demonstrating access accountability
6	Data retention and contract-end deletion	Top enterprise HR buyer concern
7	Payroll / compensation data integrity (if applicable)	Financial accuracy for payroll platforms
8	Incident response with employer notification	Customers need confidence in rapid breach notification

Complementary Certifications

Certification	Purpose	Relationship to SOC 2
SOC 1	Financial reporting controls for payroll platforms	Required alongside SOC 2 when processing payroll
ISO 27001	Information security management system certification	Complementary framework with significant control overlap; valued by international customers
GDPR Data Processing Agreement	Contractual commitment for EU employee data handling	Required for customers with EU employees; complements SOC 2 Privacy criterion
Privacy Shield / SCCs	Legal mechanism for EU-US data transfer	Required for processing EU employee data; demonstrated through SOC 2 Privacy controls

Key Takeaways

• HR tech companies handle exceptionally sensitive data — SSNs, salary information, performance reviews, benefits elections, and background check results — requiring elevated security controls
• We recommend including Security, Confidentiality, and Privacy criteria at minimum; Confidentiality is effectively non-negotiable for HR tech given the nature of employee data
• Add Processing Integrity for payroll, benefits administration, and compensation platforms where calculation accuracy directly affects employee financial outcomes
• Access management must differentiate by HR function — HR administrators, managers, employees, and benefits staff each need different data access boundaries
• Compensation data isolation is a critical control — salary and bonus information must be restricted to authorized personnel with explicit need
• Enterprise HR buyers evaluate SOC 2 reports with specific attention to employee data handling, confidentiality, data deletion capability, and subprocessor transparency
• Payroll platforms likely need both SOC 1 (financial reporting controls) and SOC 2 (security and data protection controls)
• HR tech operates at the intersection of data breach notification laws, state privacy laws, GDPR (for global workforces), and potentially biometric privacy laws
• Data purpose limitation — ensuring employee data is used only for the contracted HR service — is an increasingly important enterprise buyer concern
• Employee data breaches carry cascading consequences including employer liability, class-action lawsuits, regulatory penalties, and workforce trust damage

Frequently Asked Questions

Do HR tech companies need SOC 1 or SOC 2?

What we tell HR tech clients is: most need SOC 2, and payroll companies need both. Payroll processing companies typically need both SOC 1 and SOC 2 because payroll calculations directly affect customer financial statements (SOC 1 scope) and involve sensitive employee data (SOC 2 scope). HRIS platforms, applicant tracking systems, people analytics tools, and learning management systems generally need SOC 2 only. If your customers' external auditors request a report on financial reporting controls, you need SOC 1. If security and procurement teams request a report, you need SOC 2.

Should HR tech companies include the Privacy criterion?

Based on what we see across our HR tech client base, strongly recommended. HR tech platforms collect and process employee personal information that is subject to privacy regulations — CCPA/CPRA for California employees, GDPR for EU employees, and various state privacy laws. The Privacy criterion covers the personal information lifecycle (notice, consent, collection, use, disclosure, access, disposal) that aligns with these regulatory requirements. Enterprise HR buyers increasingly look for the Privacy criterion in HR tech vendor SOC 2 reports.

How does GDPR affect our SOC 2 program for customers with EU employees?

The advice we give here is to plan for GDPR from the beginning if you serve global companies. If your customers have employees in the EU, your platform processes EU employee personal data and must comply with GDPR. Your SOC 2 program should include Privacy and Confidentiality criteria and document controls for lawful basis for processing, data subject rights (access, rectification, erasure, portability), data transfer mechanisms (Standard Contractual Clauses for EU-US transfers), and data protection impact assessments for high-risk processing. A GDPR-aligned SOC 2 program provides evidence that supports your customers' own GDPR compliance obligations for employee data.

What do HR buyers care about most in our SOC 2 report?

In our experience working with enterprise HR procurement teams, the priorities are: (1) employee data access controls with role-based restrictions — especially compensation data isolation, (2) data confidentiality assurance — encryption and access controls for sensitive employee information, (3) data deletion capability when contracts end, (4) subprocessor transparency — who else handles their employee data, and (5) breach notification procedures specific to employee data. A SOC 2 report that addresses general security without specifically referencing employee data handling may be viewed as insufficient by sophisticated HR buyers.