Published on
May 29, 2023

Data Processing Agreement for GDPR Compliance in SaaS Operations

Discover how Data Processing Agreements (DPAs) can help SaaS companies ensure GDPR compliance, achieve business continuity and even expand into new markets. With critical terms to consider while drafting a DPA, learn how it can build customer trust and differentiate you from your non-compliant competitors.

For instance, imagine a SaaS firm that processes customer data for HR purposes. Without a Data Processing Agreement, the firm may risk hefty fines and reputational damage for non-compliance with GDPR. But with a well-drafted DPA, it can demonstrate compliance and win customer trust. Let Docfield help you draft and build templates for your DPAs.

What is Data Processing Agreement (DPA)?

To understand DPA more easily, think of Data Processing Agreement as a contract between a homeowner and a contractor hired to remodel your kitchen. The contract outlines the specific tasks the contractor will perform, the timeframe for completion, and the cost. It also includes provisions for ensuring the safety of your (homeowner’s) property and belongings during the renovation and specifies who is responsible for any damage.

Similarly, DPA outlines a SaaS company’s and its customer’s data privacy and protection responsibilities and identifies the measures to ensure compliance and mitigate risks.

A Data Processing Agreement (DPA) is a legally binding contract between a data controller and a data processor that outlines the terms of processing personal data. The agreement specifies how the data processor collects, uses, stores, and protects the data. It also outlines the rights and obligations of both parties and ensures compliance with data protection laws like GDPR.

Data Controller vs. Data Processor: A website collects personal data from EU customers for product purchases and shipping. The website operator is the controller, while the warehouse or any 3rd party that processes data is the data processor. Both are subject to GDPR, with shared requirements and distinct responsibilities.

SaaS companies, cloud service providers, and data analytics firms use DPAs to responsibly handle Personally Identifiable Information (PII). Third-party processors must maintain an enforceable DPA to ensure the security and confidentiality of PII, which is crucial in managing an organization’s processes.

What are the types of Data Processing Agreements?

There are two types of Data Processing Agreements (DPAs). Software-as-a-service (SaaS) companies, cloud service providers, and data analytics firms commonly use both types of DPAs when processing personal data for their customers or clients.

  1. Controller-to-Processor DPA: A contract between the data controller and the data processor that outlines the terms and conditions for processing personal data.
  1. Processor-to-Subprocessor DPA: A contract between a data processor (usually the SaaS firm) and a third-party subcontractor that outlines the terms and conditions for handling personal data. The primary data controller is still responsible for compliance with GDPR and must include provisions in the main DPA to cover the use of subcontractors.

Why do you need a Data Processing Agreement?

There are three reasons why a SaaS company would need DPA.

Compliance with General Data
Protection Regulation (GDPR)Risk ManagementBusiness ContinuityTable 1: Three Reasons you need DPA

  1. Software and ICT firms must comply with data protection regulations to handle sensitive personally identifiable information (PII). Firms require a DPA to specify how personal data will be processed and protected per GDPR.
  2. DPAs aid software/ICT firms in risk management by outlining the obligations and responsibilities of the data controller and processor, ensuring compliant data processing and minimizing associated risks with outsourcing data processing activities to third-party providers.
  3. DPAs ensure business continuity by specifying terms and conditions for personal data processing, including purpose, duration, scope, and measures to ensure data security and confidentiality. It provides uninterrupted data processing and safeguards the firm reputation and financial stability.

What’s the relevance of the Data Processing Agreement after GDPR?

GDPR stands for General Data Protection Regulation, a European law introduced in 2018 to increase the control that EU citizens have over their personal information held by companies. A Data Processing Agreement (DPA) ensures GDPR compliance and establishes clear data handling practices guidelines.

GDPR applies to both B2B and B2C relationships in the SaaS industry, meaning that data processors and controllers must update their policies on handling data. SaaS vendors are typically controllers and processors, with consumers serving as controllers and providing instructions on what to do with the data.

The regulation is particularly significant for SaaS companies due to the large amounts of data they regularly hold and their reliance on the Internet to deliver software services. Under GDPR standards, businesses must clarify what data they collect, why it is processed, and where they will eventually transfer it. Hence, the Data Processing Agreement is a legal instrument that contains this vital information.

Read more: Five Unique Features of Contract Management Software for Large Companies

What are the critical terms of a Data Processing Agreement?

DPA standards vary from company to company. However, there are a few prominent areas included in all agreements.

  • Processors are only allowed to process data instructed by the controller.
  • All the accessed information must remain confidential.
  • SaaS companies shall adopt relevant security measures for data protection. Article 32 of GDPR further elaborates on data security standards.
  • The DPA must comprise all the sub-processors, and the controller must approve this list.
  • Processors should assist the controller regarding requests put forward by individuals whose data is processed.
  • Both the processors and the controllers should maintain security standards.
  • Controllers can request the data deletion unless the law requires them to hold it longer.

How can SaaS companies use a DPA for compliance and business growth?

As a SaaS provider, you most likely have created a DPA. However, do your clients often get back to you with queries? That could be because your DPA does not cater to all their needs, and you need to ensure that it covers all the rules in the GDPR.

SaaS companies can use a DPA to ensure compliance with GDPR and build customer trust by showcasing their commitment to data protection. A data processing agreement also sensitizses a company’s internal stakeholders about the fair use of customer data.

SaaS and ICT companies can build trust with their customers and differentiate themselves from non-compliant competitors by offering a secure data processing environment and transparent data handling practices.

Additionally, as more countries implement similar data protection regulations, being GDPR compliant can make it easier for SaaS companies to expand into new markets.

Docfield enables you to draft and build templates for your data processing agreements.