3 Reasons To Stop Sending Payroll Data To Brokers

How can employers protect worker's data and limit legal liabilities?

It is crucial that all companies protect their workers’ private data. But by relying on data brokers for employment and income verification, your company may be subjecting them – and your company – to significant risks and liabilities. Credit agencies and other brokers market their verification services as secure ways to swiftly confirm payroll data. Yet these same brokers have notable histories of exposing and mishandling sensitive information. 

Looking back, it is easy to see how brokers came to dominate the market for verifying employment data. For decades, when lenders had to verify one of your employee’s salary histories for loans, mortgages, insurance, or a new job, the lenders could either contact your company’s HR department or work with brokers that collect and sell financial data. To save their HR teams from answering calls and emails, companies proactively sent their payroll data to brokers.

Unfortunately, brokers like Equifax and Experian are responsible for some of the largest data breaches in history and have been subject to huge fines and class-action lawsuits. Regulators have also been openly critical of their operations. Earlier this year, the Director of the Consumer Financial Protection Bureau (CFPB) stated that these brokers have “little incentive to treat consumers fairly.”

Chances are your company sends payroll data to one of the major brokers or their smaller competitors. Equifax alone, through its subsidiary The Work Number, collects payroll data on more than half of the U.S. workforce. 

Fortunately, employers no longer must choose between sending payroll data to brokers or burdening HR teams with endless phone calls. Some platforms even empower workers to store their data in secure vaults, review that data for accuracy, and share it with specific lenders and employers. These platforms even ensure the data is authentic and tamper-free. 

With these technologies, companies can eliminate brokers as middlemen and take a critical step to protect worker data, limit legal liability, and strengthen bonds with employees.

1. Improve Data Privacy and Security

Errors and data breaches are all too common for brokers that gather information from countless sources. In 2011, for instance, Equifax, Experian, and TransUnion agreed to a $45 million settlement after they were charged with sharing flawed data.  And in the case of employment data, workers usually do not learn of these errors until after they have been rejected for a mortgage or a job. 

For those workers who do find data errors, it can also be difficult to correct them. According to the CFPB, the three major brokers gave helpful responses to less than 2% of customer complaints in 2021.

Beyond data errors, brokers also have difficulty keeping data secure. In 2015, a breach at Experian exposed 15 million Social Security numbers, among other data. And following the 2017 breach at Equifax, when hackers seized personal data on 150 million people, Equifax reached a $575 million settlement with the Federal Trade Commission (FTC). In its findings, the FTC cited “the company’s failure to take reasonable steps to secure its network.” 

HR leaders are beginning to ask themselves if, for the sake of their company’s security and their employees’ privacy, it is time to find a better method to verify employment data.

2. Reduce Corporate Liability

Employers also face incredible liability when they use employment data that has not been verified by the workers themselves. In 2019, Starbucks settled lawsuits that alleged the company denied employment to 8,000 potential workers based on flawed data in their background checks. And this is just one example out of thousands. According to analysis published by the Mortgage Bankers Association, the number of lawsuits linked to the Fair Credit Reporting Act has nearly quadrupled over the past decade, reaching roughly 5,000 suits in 2019.

3. Strengthen Ties Between Employers and Employees

Most workers do not know their companies send or sell their data to brokers. So, it makes sense they would have serious concerns when they learn their employers hand their salary data to brokers that regulators assert have “little incentive to treat consumers fairly.” 

This February, Google employees went to the Washington Post when they learned Google sends their payroll data to Equifax. That same month, Apple made national headlines when it was revealed the company labelled former employees as “associates” in their records, regardless of their title. Since the employees were not involved in verifying these records, some were shocked to find incorrect data that had ruined their attempts to secure new jobs.

The relationship between employer and employee should be one of trust and respect. However, the current employment and income verification system does not serve those goals. To giant data brokers, workers are not their partners or even their consumers. They are brokers’ product – a commodity to be packaged and sold over and over again.

Ultimately, sending payroll data to brokers is a risk to employee privacy, a liability for employers, and a threat to corporate culture and cohesion. And there are better ways to manage payroll data. So, before your company has to worry about data breaches, legal risks, and public scandals, you have a chance to re-think your verification system. And remember, workers cannot fire data brokers or force their bosses to withhold their data. Only employers can green light a better approach – and show the type of leadership that leads workers to trust their HR teams with their data and their futures in the first place.

Steve Baker is the Chairman of the Board of the Privacy Rights Institute. He served as senior leader at the Federal Trade Commission (FTC) for more than 27 years, most recently as the Midwest Region Director. He is a recipient of the FTC Chairman’s Award – the agency’s highest honor. Visit Privacy Rights Institute Connect Steven Baker