As companies collect and share more personal data than ever before, the risks tied to mishandling that information have surged. Fines, lawsuits, and lost business are real consequences that are happening every week that you’re not respecting data subjects rights. Yet many organizations still overlook an important legal safeguard in their toolkit: The Data Processing Agreement, or DPA.
Whether you’re a SaaS startup, an e-commerce site, a healthcare provider, or an enterprise outsourcing IT services if your business shares or processes personal data you need a DPA. Not just any DPA, but one tailored to your data flows, your regulatory exposure, and your operational reality.
What Is a DPA?
A Data Processing Agreement (DPA) is a legally required contract between two parties: a data controller, who determines why and how personal data is processed, and a data processor, who processes that data on the controller’s behalf.
The DPA outlines the roles, responsibilities, obligations, and limitations surrounding the handling of personal data. It acts as a legal shield and a compliance playbook, ensuring that the processor operates within well-defined boundaries. A properly executed DPA is binding and enforceable, offering both preventative and remedial protection for the parties involved.
In practice, DPAs are required across a wide range of industries. Any time data is moved off-site, hosted in the cloud, shared with analytics providers, or managed by third-party software tools, a DPA comes into play.
Why Are Data Processing Agreements Important?
Legal Compliance
In jurisdictions with comprehensive data protection laws, like the EU (GDPR), UK (UK GDPR), and California (CPRA), DPAs are not optional. They are legal instruments that operationalize key aspects of these laws, particularly around processor obligations, breach notification, and enforcement rights. Non-compliance can result in substantial administrative fines and lawsuits.
Risk Mitigation
From a risk perspective, DPAs can serve as proof that your organization has taken reasonable measures to ensure data protection. They allocate liability, define breach response protocols, and clarify roles. In the event of a data breach or regulatory inquiry, a strong DPA can reduce your exposure significantly.
Trust and Transparency
Stakeholders from consumers to corporate clients—increasingly demand transparency around how their data is handled. A DPA signals maturity, responsibility, and operational discipline. Many enterprise procurement teams require a signed DPA before onboarding any vendor.
When Is a DPA Required?
DPAs are required any time personal data is processed by an external party on behalf of the data controller. This includes a broad set of relationships:
- Cloud hosting (e.g., AWS, Google Cloud)
- SaaS platforms (e.g., CRM, email marketing tools)
- Business process outsourcing (e.g., payroll, customer support)
- Analytics and behavioral tracking vendors
Even intra-group data transfers between corporate affiliates may require a DPA if the entities are in different jurisdictions or legal structures. The litmus test is whether the processing is being done on behalf of the controller.
What Should a DPA Include?
A robust DPA should go well beyond a basic legal template. It must include:
Description of Processing
- The nature, scope, and purpose of the processing
- Types of personal data involved (e.g., names, IP addresses, health records)
- Categories of data subjects (e.g., employees, customers, users)
- Duration of processing and retention limits
Roles and Instructions
- Identification of controller and processor roles
- Statement that processor will act only on documented instructions from the controller
Security Obligations
- Specific technical and organizational measures (TOMs)
- Data encryption, access control, pseudonymization, and secure deletion policies
Subprocessor Management
- List of approved subprocessors
- Mechanism for notification and objection
- Flow-down contractual requirements
Assistance with Data Subject Rights
- Processor’s role in handling access, correction, deletion, and portability requests. If you are a user of Captain Compliance’s Data Subject Request Portal you will save so much time with DPAs and Data Governance requirements.
Incident Management and Breach Notification
- Timeframe for notifying controller of a breach (e.g., within 24-72 hours)
- Cooperation in forensic investigation and remediation
Data Return or Deletion
- Procedures for returning or securely deleting data at the end of the engagement
Audit and Compliance
- Controller’s right to audit
- Certifications or independent reports (e.g., ISO 27001, SOC 2)
DPA vs. Standard Contractual Clauses (SCCs)
A DPA governs the relationship between a controller and a processor. SCCs, on the other hand, govern international transfers of personal data from the EU to jurisdictions without adequate data protection laws.
After the Schrems II ruling, SCCs are essential for transatlantic data transfers, but they do not replace the DPA. If you’re transferring data outside of the EU or UK, both a DPA and SCCs may be required, along with a Transfer Impact Assessment (TIA).
How to Create a DPA for a SaaS Company
SaaS providers typically act as processors. To ensure compliance:
- Offer a standardized DPA available on your website
- Integrate the DPA into your customer terms of service
- Maintain an up-to-date subprocessor list and TOM documentation
- Provide customers with audit rights and incident response protocols
For larger clients, be prepared to negotiate custom DPAs or sign their version, provided it aligns with your security and operational constraints.
Do You Need a DPA for Employee Data?
Generally, you don’t need a DPA with your own employees. But if you use a third-party vendor to process employee data (e.g., payroll providers, HRIS systems), then yes, you must sign a DPA with that vendor.
Is a DPA Required Under the CPRA or CCPA?
Yes. While California laws don’t use the term “DPA,” they require contracts with service providers that restrict how data is used and shared. These contracts must:
- Limit processing to specific business purposes
- Prohibit the sale or sharing of personal information
- Mandate deletion of data on request
- Require processors to cooperate with consumer privacy requests
Other states (Virginia, Colorado, Connecticut, Utah, Texas) have similar contractual requirements.
How Often Should You Review Your Data Processing Agreements?
DPAs should be reviewed at least annually, or whenever:
- New types of personal data are added
- New subprocessors are introduced
- Regulatory changes occur
- Data transfer mechanisms are updated
Periodic review ensures that your agreements reflect your actual operations and legal obligations.
Tools, Templates, and Automation Platforms
Managing dozens of DPAs manually is inefficient and error-prone. Consider using our privacy and compliance tools. Captain Compliance provides hosted DPA generation and policy automation. We also have an adaptive privacy notice that can generate a privacy policy notice based on your data handling practices while also updating the notice as new requirements come out.
Automation tools that our privacy superhero team provide can standardize templates, track subprocessor approvals, and log version histories to help during audits.
A DPA Checklist:
- DPAs are mandatory when processing personal data on behalf of another party
- They must be detailed, customized, and operationalized
- A strong DPA is as much a privacy control as it is a legal safeguard
- Regulators, clients, and auditors increasingly demand clear evidence of processor accountability
- Building a scalable DPA workflow today helps future-proof your privacy compliance tomorrow
Whether you’re scaling fast, revising vendor contracts, or responding to client audits, investing in solid data processing agreements is an excellent step to take for data governance.
