Is your payroll provider keeping client data safe?

How to choose a secure payroll partner: a guide for accountants and bookkeepers

Key takeaways

When choosing a payroll provider, there is much to consider. Software, client service, whether it’s an integration-friendly platform, the scalability, not to mention the price and your budget. However, there’s something equally (if not more) important than all these features…the security of the platform.

For accountants and bookkeepers, evaluating security is key. The five areas that matter most in a secure platform are: Canadian data residency, encryption standards, application security practices, network monitoring, and multi-factor authentication. Read on to learn more about what each of these aspects mean, what to ask your payroll provider, and how Payworks can help.

In this article

1. Does your payroll provider store data in Canada?
2. How should your partner encrypt your clients’ data?
3. What does good application security look like in payroll software?
4. How should a payroll company protect its own network?
5. Does your payroll provider support multi-factor authentication and SSO?
   

As an accountant or bookkeeper, you’re entrusted with some of your clients’ most critical and personal data – a responsibility we know you don’t take lightly! But with cybersecurity threats (and the best practices to protect against them) evolving so rapidly, it can be hard to know what to look for in a partner beyond a promise that they’ll safeguard your clients’ data.

If you’re ready to dig a little deeper, here are five key security features that’ll help you evaluate how well you can rely on your partners to keep your and your clients’ information safe and secure.

1. Does your payroll provider store data in Canada?

Here’s the truth: your payroll provider should store data in Canadian data centres. Under Canadian federal and provincial privacy legislation, personal data transferred across borders must meet strict protection requirements. Choosing a provider with Canadian data residency helps your business stay compliant and reduces cross-border liability exposure.

As part of their work with you, your partner will inevitably end up transferring data that contains personal and client information to a data centre for storage or processing. While the physical location of that data center may not seem relevant to your consideration process at first glance, it’s actually an important consideration from a privacy and liability perspective.

An organization risks not only losing client trust, but also being fined with hefty penalties if they fail to ensure that personal information is appropriately safeguarded in accordance with applicable Canadian law when transferring data across Canadian borders. Accordingly, teaming up with a partner that stores client databases in Canadian data centres may assist you in complying with Canadian privacy legislation.

2. How should your partner encrypt your clients' data?

Without question, a payroll provider should encrypt all client data both at rest and in transit, using the highest industry-standard encryption protocols. Ideally, each client’s database should be uniquely encrypted so a breach of one doesn’t compromise others.

Encrypting data is one of the best ways to keep it from being accessed by unauthorized users. It essentially renders your clients’ information useless to anyone who tries to access it without the highly-protected encryption key that “unlocks” (or decrypts) the data.

3. What does good application security look like in payroll software?

Louder for those in the back: Application security shouldn’t be an afterthought! Good application security means it is built into the software from day one, not bolted on after launch.

Look for providers who test their applications rigorously (using both automated tools and human testers) throughout development and continue running security tests after the software is live. That way, by the time it makes it to the end user (that’s you!), you can feel confident that it’s passed tests administered under all sorts of conditions – no stone unturned.

But like we said earlier, the landscape of cybersecurity changes lightning-quick… so it’s equally important that application security is frequently tested and protected even after a solution’s already been launched. Look for a partner who does both!

4. How should a payroll company protect its own network?

A trustworthy payroll provider actively monitors, tests, and updates its network security – and can explain how they do it. Similar to application security, your partner should also be judicious when it comes to the monitoring, testing and protection of their own network. They should have a knowledgeable team of security experts and partners of their own who assist with assessing the state of their network security and applying upgrades wherever needed. Don’t be afraid to ask questions about how they handle this internally.

Bonus: Have they completed a SOC 2 Type 2 Audit?

When a partner tells you security is a priority, it's reasonable to want more insight than their word alone can provide. The good news is that a credible, objective way to get that reassurance exists. Ask whether your partner has completed a System and Organization Controls Type 2 audit – AKA, the SOC 2 Type 2 Audit. Unlike a point-in-time certification, a SOC 2 Type 2 report reflects how a vendor's security controls have been performing consistently over an extended period, typically six to twelve months as assessed by an independent third party.

For accountants and bookkeepers entrusted with sensitive client data in multiple accounts, that kind of ongoing, verified accountability is a meaningful signal that your partner takes their responsibilities as seriously as you take yours.

5. Does your payroll provider support multi-factor authentication and SSO?

This is an important one - yes, we can hear your groans of impatience from here… and yes, we know that multi-factor authentication (MFA) adds a step. But it’s worth it; since MFA requires users to verify their identity through more than a password alone, it’s one of the most effective ways to prevent unauthorized access to your clients’ payroll data, and any reputable provider should offer it.

In fact, it’s the number one tip that Michael Baldon, Information Security Analyst here at Payworks, offers to our readers - “Use multi-factor authentication everywhere you can. Like – everywhere. Always take the option. And even then, make sure to think before you click!”

We promise it’s worth the additional few seconds that it’ll take to log in! And if you’re not quite convinced yet, look at what Get Cyber Safe (the Government of Canada’s national cybersecurity campaign) has to say about it!

For firms with stricter authentication requirements, it's worth asking whether your partner also supports Single Sign-On (SSO). SSO allows you to extend your own organization's identity and access policies directly into your payroll platform, so that rather than adopting a separate set of login requirements, your existing security standards apply.

Frequently asked questions

What is data residency and why does it matter for Canadian payroll?

Data residency refers to the physical location where your data is stored and processed. For Canadian businesses, this matters because federal and provincial privacy laws – including PIPEDA – require that personal information be appropriately protected. Storing client databases with a provider whose servers are based in Canada helps ensure compliance and reduces cross-border legal exposure.

What is multi-factor authentication, and should my payroll provider require it?

Multi-factor authentication (MFA) is a login process that requires users to verify their identity using two or more methods – typically a password plus a code sent to their phone or email. Canadian Centre for Cyber Security and Get Cyber Safe both identify MFA as one of the most effective defenses against unauthorized access, so yes - your payroll provider should offer it!

How do I know if a payroll provider takes cybersecurity seriously?

Our number one recommendation: ask for documentation. A security-conscious provider will have a published Security and Governance overview, a named security team, and clear answers about data encryption, MFA availability, application testing practices, and where your data is physically stored.

Curious to see how Payworks measures up? Download our Security & Governance details today: https://www.payworks.ca/landing-pages/campaigns/security---governance-brochure.