Partial CUI Compliance
1 NIST 800-171 gaps detected. Not FedRAMP authorized. SOC 1/SOC 2 certified. Growing HCM provider used by some mid-size GovCon companies.
Paylocity
by Paylocity
FedRAMP Status
Not FedRAMP Authorized
Impact Level
N/A
Category
HR & Payroll
Overview
Paylocity is a growing payroll and human capital management platform. SOC 1 and SOC 2 certified but not FedRAMP authorized. Used by some mid-size defense contractors for payroll, benefits, and talent management.
CUI Risk Assessment
Not FedRAMP authorized. SOC 1/SOC 2 certified. Growing HCM provider used by some mid-size GovCon companies.
Using Paylocity in a Defense Contractor Environment
Paylocity handles multiple CUI categories in defense contractor environments, primarily FOUO personnel records, salary data containing security clearance indicators, and contractor employee information tied to classified programs. As a cloud-based HRIS, it typically sits outside the CMMC Level 2 authorization boundary, creating a compliance gap when CUI flows through payroll processes. Defense contractors using Paylocity must implement compensating controls including data classification procedures to prevent CUI ingestion, separate processing workflows for cleared personnel data, and enhanced monitoring of data exports. DCMA assessors consistently flag Paylocity during CMMC readiness reviews, particularly questioning how contractors prevent spillage of program-specific employee data and clearance status information. The tool's SOC 2 Type II certification provides some assurance but lacks the continuous monitoring and supply chain risk management required for CUI systems. Recent DIBCAC compliance reviews have specifically cited contractors using non-FedRAMP HR systems for inadequate boundary definitions and CUI handling procedures. The primary concern centers on Paylocity's inability to provide the encryption, access controls, and audit logging granularity required by NIST 800-171, particularly around media sanitization when employee records contain program affiliations or clearance data.
Deployment & Architecture
Deployment Model: Cloud SaaS (vendor-hosted)
Paylocity lacks FedRAMP authorization. Using this tool for CUI processing violates DFARS 252.204-7012 requirements. Defense contractors must evaluate FedRAMP-authorized alternatives or implement and document compensating controls in their POA&M.
Migration Guidance
Defense contractors must migrate away from Paylocity within 6-9 months to achieve CMMC Level 2 compliance. Phase 1 (Months 1-2): Conduct data inventory to identify all CUI within Paylocity, including employee records with program associations, salary data tied to classified contracts, and benefits information containing security clearance indicators. Phase 2 (Months 3-4): Deploy FedRAMP-authorized alternative such as Workday (FedRAMP High) or Oracle HCM Cloud Government (FedRAMP Moderate), ensuring proper SCIF-compatible access controls. Phase 3 (Months 5-6): Execute controlled data migration using encrypted transfer methods, implementing CUI marking during the transition and ensuring no spillage of classified program associations. Phase 4 (Months 7-8): Update System Security Plan to remove Paylocity from authorization boundary, revise data flow diagrams, and create POA&M entries for any residual data concerns. User training requires 40 hours for HR staff on CUI handling procedures and 8 hours for all employees on new system access. Migration costs range from $75,000-$150,000 for mid-size contractors, including licensing, professional services, and compliance documentation updates. Alternative products include ClearanceJobs GovHR for cleared workforce management or GovTech Solutions Federal HRIS for smaller contractors.
Migration Checklist
- 1ISSO must remove Paylocity from the authorization boundary diagram within the System Security Plan and document the exclusion rationale per NIST 800-171 control SC-7.
- 2Contracts officer should review all active DoD contracts to identify DFARS 252.204-7012 clauses and assess CUI handling requirements that prohibit Paylocity usage.
- 3ISSO must create POA&M entries documenting the plan to migrate away from Paylocity within 180 days to address NIST 800-171 control violations.
- 4Sysadmin should implement data loss prevention controls to prevent CUI spillage into Paylocity during the transition period per AC-4 requirements.
- 5Legal counsel must review Paylocity's data processing addendum to ensure proper data destruction procedures align with NIST 800-171 MP-6 media sanitization requirements.
- 6ISSO should establish separate processing workflows for cleared personnel data that bypass Paylocity entirely per SC-7 boundary protection controls.
- 7HR administrator must implement manual CUI marking procedures for any employee data that temporarily interfaces with Paylocity during migration per MP-3 requirements.
- 8ISSO must update the authorization boundary network diagram to show Paylocity as an external, non-CUI system with appropriate boundary protections documented.
- 9Sysadmin should configure enhanced logging for any remaining Paylocity interfaces to support NIST 800-171 AU-2 auditable events during transition period.
- 10Contracts officer should notify DCMA of the planned migration timeline and request guidance on interim compensating controls per DFARS 252.204-7021 requirements.
Compliance Cross-References
Paylocity's non-FedRAMP status creates direct violations in NIST 800-171 control families including SC (System and Communications Protection) due to inadequate encryption and boundary controls, AC (Access Control) from insufficient multi-factor authentication and role-based access management, and AU (Audit and Accountability) due to limited audit log retention and monitoring capabilities. The tool triggers DFARS 252.204-7012 compliance issues as CUI inadvertently flows through payroll processes containing program associations and clearance indicators. CMMC Level 2 assessment domains affected include Access Control (AC.L2), System and Information Integrity (SI.L2), and Risk Assessment (RA.L2), where assessors will identify gaps in CUI flow documentation and boundary protection. Control 3.13.8 (Media Sanitization) violations occur because Paylocity cannot guarantee NIST 800-88 compliant data destruction of CUI-containing employee records. This creates a compliance chain reaction: inadequate media sanitization leads to AU-11 (Audit Record Retention) findings, which cascade to AC-2 (Account Management) violations when audit trails for CUI access cannot be maintained per FedRAMP continuous monitoring requirements.
NIST 800-171 Violations
Using Paylocity for CUI without FedRAMP authorization may violate these NIST 800-171 controls:
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Frequently Asked Questions
Is Paylocity FedRAMP authorized?
No. Paylocity is SOC 1/SOC 2 certified but not FedRAMP authorized. If payroll data does not include CUI, document a risk acceptance.
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