Privacy rulemaking has long trained its sights on consumers, with federal and state laws historically focused on protecting individuals in their personal capacity. According to Allison Spagnolo, CIPP, Chief Privacy Officer, Deputy General Counsel, Senior Managing Director at Guidepost Solutions, that center of gravity is now shifting toward the workplace, with payroll and HR teams encountering stricter rules on how employee information is collected, stored, analyzed, and transferred—especially across borders and through third‑party vendors.
While the U.S. Privacy Act of 1974 and related federal rules have long governed federal employee records, states are increasingly introducing comprehensive privacy frameworks that can extend to employee data. This trend signals a broader movement from consumer-centric protections toward obligations that directly impact payroll and HR operations.
“While we have traditionally seen privacy regulations impact the consumer side of data, over the next 18–24 months, I think we can expect to see significant movement in privacy legislation that directly impacts employee and payroll data,” says Spagnolo. Her warning lands as states advance novel obligations (e.g., New York’s Privacy Act (S3044) and New Jersey’s Data Privacy Law), and Washington imposes the first U.S. restrictions on outbound access to “bulk” sensitive data.
States push privacy into employment data
The clearest signal comes from Maryland’s Online Data Privacy Act (MODPA), effective October 1, 2025. Unlike most state laws, MODPA couples low coverage thresholds with stringent data‑minimization rules and an outright ban on selling sensitive data. It also expands “consumer health data” and requires data protection assessments when processing sensitive categories or using algorithms—expectations that, while consumer‑oriented, will inevitably shape employer practices where workforce and customer systems interlock. Several analyses emphasize MODPA’s strict “reasonably necessary…to provide a specific product or service requested by the consumer” standard and the “strictly necessary” bar for sensitive data—language that narrows what organizations can collect and keep.
Elsewhere, Oregon’s Consumer Privacy Act has been in force since July 1, 2024, adding to the patchwork of state regimes that payroll administrators must reconcile when HRIS platforms commingle employee and consumer data (e.g., time‑and‑attendance tied to customer‑facing apps). State guidance outlines who is in scope and how “sale” is defined, underscoring the need to inventory employee‑adjacent data brokers and adtech signals that may touch workplace devices.
And in New York, the NYC Council passed two bills (Int. 982-A and Int. 984-A) that would require private employers with 200 or more city employees to submit annual pay and demographic reports and would direct the City to conduct recurring pay equity studies—a transparency regime modeled on EEO‑1 Component 2. The measures, pending mayoral action as of early November 2025, would roll out over several years once an agency is designated and a standardized form is published. For payroll and HR, this means new governance around who sees compensation data, how it is validated, and transmitted.
“Employee privacy rights are gaining equal footing with consumer rights in new privacy laws,” Spagnolo says. “Consent, transparency, and clear communication are no longer optional; they are expected.
She further explains that “employers should work to implement just-in-time privacy notices, maintain records of processing, and provide straightforward ways for employees to exercise their rights, just as they do for their customers.” Spagnolo stresses that “embedding these practices into payroll and HR processes builds trust and minimizes legal risk as regulations evolve.”
Agencies such as the Federal Communications Commission (FCC) recommend conducting Privacy Impact Assessments (PIAs) when implementing or modifying payroll and HR systems to ensure compliance with the Privacy Act of 1974 and Section 208 of the E-Government Act, which require safeguards for personally identifiable information throughout a system’s lifecycle. Investing early in compliance readiness is far more efficient than attempting to retrofit controls after deployment.
Federal pressure: where your data—and admins—are located matters
Two federal currents will force changes to payroll data programs. First, the Department of Justice’s (DOJ’s) Bulk Data Transfer Rule, effective April 8, 2025 (with due‑diligence, audit, and recordkeeping requirements phased in during October 2025), restricts or outright prohibits access to bulk sets of sensitive U.S. data—such as precise geolocation, biometric and genomic data, personal health and financial data, and large collections of identifiers—by “countries of concern” or entities and people under their control.
The rule is notable because vendor, employment, and cloud agreements can be “covered transactions” even if no dataset leaves U.S. soil; granting offshore admins access may be enough to trigger restrictions. The DOJ published a Compliance Guide and FAQs in April 2025 to help organizations meet new outbound data transfer rules under Executive Order 14117. Legal analyses note that enforcement began during the summer, and businesses are expected to map ownership, hosting environments, and all sub-processor relationships for any system that could store or transmit “bulk” sensitive data—including payroll-adjacent information.
Second, the FTC continues to police location and sensitive data. Recent settlements against data brokers and analytics firms, including actions against Gravy Analytics/Venntel, Mobilewalla, and InMarket Media, require purpose limitation, supplier consent verification, and restrictions on sensitive location data, signaling that regulators view aggregated device trails as identifiable and inherently risky around workplaces, health facilities, and places of worship. For employers, this enforcement arc can affect mobile workforce apps, badge‑plus‑location analytics, and any vendor repurposing telemetry.
Spagnolo cautions that where employees and third parties are physically located matters, and that “organizations must treat vendor risk and oversight as a core compliance function, not an afterthought.” The DOJ rule’s access‑based trigger and the FTC’s view that location signals aren’t truly anonymized both support that stance.
AI inside payroll: governance becomes a control
With more payroll platforms using machine learning for anomaly detection, tax classification, and scheduling, governance must keep pace with functionality. “Organizations need guardrails to prevent bias, data leakage, and unauthorized access,” Spagnolo says.
She recommends anchoring policy to the National Institute of Standards and Technology (NIST) AI Risk Management Framework—govern, map, measure, manage—and, where appropriate, aligning to ISO/IEC 42001, the world’s first AI management system standard (published December 2023). These frameworks provide a spine for access control, dataset lineage, bias testing, audit trails, human‑in‑the‑loop reviews, and incident processes—controls that translate cleanly to payroll and time‑tracking contexts.
Spagnolo notes that “strong governance ensures AI augments payroll operations without exposing the organization to unnecessary risk.”
In 2024, NIST also released a Generative AI Profile to help organizations tailor controls to genAI use cases, reinforcing the need for impact assessments and documentation. For payroll leaders, adopting these benchmarks makes it easier to evidence diligence to regulators and boards and to harmonize controls across HR, IT, and internal audit.
Internal audits: building resilience across jurisdictions
Payroll is uniquely sensitive because it intersects personal, financial, and sometimes health information. Spagnolo recommends regular, risk‑based internal audits that test least‑privilege access, encryption at rest and in transit, and policy‑driven retention aligned to federal, state, and international obligations (e.g., GDPR for EU‑based staff).
Documented data‑flow maps, records of processing, and transfer tools (e.g., EU Standard Contractual Clauses) should be checked against actual system behavior; deviations should feed remediation plans with owners and deadlines. These steps align with established GDPR practice and are increasingly expected by U.S. state laws and federal regulators.
“Clear remediation plans tied to audit results ensure organizations maintain compliance and build resilience against emerging threats,” Spagnolo says.
The vendor risk lesson: MOVEit and the supply chain
The MOVEit exploitation in 2023 is a prime example of payroll supply-chain risk, where attackers used a zero‑day SQL injection to exfiltrate data from thousands of organizations relying on the file‑transfer tool, including payroll and HR files. Litigation consolidated in a federal multidistrict litigation (MDL) alleges negligence and contractual failures, and settlements are moving forward for several victims. Analyses estimate more than 2,500 organizations and 60 to 67 million or more individuals were affected—illustrating how a single vendor dependency can cascade through HR ecosystems.
Spagnolo urges pairing contractual safeguards with continuous oversight. Contracts should include breach notification timelines (in hours), cooperation duties (forensics support, log access), audit rights, sub‑processor approvals and flow‑downs, localization or transfer clauses, and indemnities with liability carve‑outs for security failures—then backstop the paper with ongoing assessments, access reviews, and data minimization to limit what vendors ever hold. Practical guides to DPAs and security clauses echo these must‑have provisions and emphasize passing obligations through the chain.
Consent and transparency: operationalizing employee rights
Even where a statute’s “consumer” scope excludes employees, the direction of travel is toward parity of rights and stronger transparency. Employers should implement just‑in‑time HR privacy notices, maintain records of processing, and stand up employee request workflows (access, correction, deletion) for covered jurisdictions. GDPR remains the reference model for EU workers, but U.S. transparency and purpose‑limitation norms are tightening as well—especially where health or location inferences could arise from time‑tracking and scheduling tools.
NYC’s advancing pay‑data reporting framework adds urgency to clean up data quality, role‑based access, and retention around compensation and demographic data. The likely cadence—agency designation, form development, first reports, then public equity studies—means employers need at least a multi‑quarter runway to prepare.
If a payroll breach hits: the first 72 hours
When payroll data is compromised, the first 72 hours matter. Spagnolo’s playbook: activate the incident response plan, contain the breach, engage counsel, and notify regulators and affected individuals as required. Where financial data is implicated, note that FTC breach‑notification rules under the GLBA Safeguards Rule took effect in May 2024 for certain financial institutions, adding a federal layer on top of state laws. Offering identity‑protection services and communicating transparently can reduce regulatory and reputational fallout.
“A payroll data breach can often trigger overlapping regulations, which can complicate a response,” she says. “And breaching payroll data can erode employee trust quickly, harm morale, and trigger lawsuits or labor disputes—and that’s before any regulators get involved.” Spagnolo recommends “transparent communication and immediate mitigation steps” to “significantly reduce both regulatory and reputational damage.”
What to do now: a practical checklist
- Map payroll/HR data flows and vendors; tag sensitive fields and cross‑border access paths (assess DOJ applicability).
- Stand up AI governance for payroll analytics using NIST AI RMF and, where appropriate, ISO/IEC 42001.
- Refresh DPAs/MSAs: breach timelines, audit rights, sub‑processor controls, transfer/localization clauses, indemnities.
- Run a payroll security audit: access, encryption, retention, vendor logging/IR drills—then track remediation to closure.
- Operationalize transparency: just‑in‑time notices and employee rights workflows where applicable.
- Monitor legislative calendars in Maryland, Oregon, and NYC to time builds for data‑reporting and minimization rules.
The bottom line: From MODPA’s strict minimization to the DOJ’s access‑based transfer restrictions and the FTC’s location cases, the regulatory arc is bending toward tighter control of employee data and the systems that touch it. Spagnolo’s guidance—map flows, govern AI, harden contracts, and embed transparency—offers a pragmatic path to stay ahead of 2026 without rebuilding your payroll stack under pressure.
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