Handling and Protecting Sensitive Data With a Data Classification Policy

February 21, 2023
In this article:

Gaining value from your data resources starts with making sense of unorganized information. Without a way to classify your data, it can be hard to determine what qualifies as sensitive information or what falls under specific regulatory requirements. Organizations need a way to clarify what needs protection as part of their compliance, data protection, and risk management strategies.

A clear data classification policy helps companies make information more accessible, ensure data integrity, set up an efficient information security policy, and provide the right level of confidentiality. Not having one can be costly. According to IBM’s Cost of a Data Breach report, U.S. companies lost an average of $9.44 million in 2022 because of data breaches.

In this article, we'll discuss what you need to know about data classification policies and provide some best practices for establishing a solid one for your organization.

What is a data classification policy?

A data classification policy helps organizations safeguard sensitive information and handle it correctly. Companies can establish better information security against internal and external threats while mitigating risk. Creating data classification policies gives IT personnel, employees, and executives a clear understanding of workflows and schemas.

Data classification policies are most relevant to application and network security. They involve figuring out what information you hold, assigning it a data type, and placing it in the appropriate "bucket." For example, many organizations like to have a specific security policy for handling personally identifiable information (PII) like customers' credit card numbers or social security numbers.

You should use the criticality of information to guide the establishment of data classification policies. Simply put, personal data like social security numbers would require more stringent requirements than a company logo. Documenting the policies clarifies how to handle data based on different levels of security.

If you work with third-party vendors, it helps to have written policies that outline how they can access and store your data. Organizations also need a way to monitor how well third parties stick to these policies: Everyone who touches the information should be subject to the same data security controls.

Why have a data classification policy?

Technically, data classification policies are optional, but it'll be hard for a modern organization to thrive without one in an information-driven digital world. Let’s look at some of the reasons you should invest time and effort into establishing and enforcing a data classification policy.

Offer internal team guidance

Organization teams have a concrete data classification process to refer to when deciding how to handle company information. A data classification policy eliminates the gray areas surrounding what is classified versus what isn't — which is important since human error causes 82% of data breaches.

Users know how to access information, who should have access, and if they comply with applicable laws and regulations. The guidance makes it easier to keep workers from unauthorized disclosure of confidential information.

Build confidence with partners

Showing you have a plan for dealing with sensitive data is key to getting other companies to feel comfortable working with you. They feel more secure about entrusting you with their information if they see your organization take enforcement of your data classification policy seriously through strict security measures.

Encrypt sensitive data

Not every piece of restricted information requires encryption. Proper data classification levels can help companies save time and money by only encrypting relevant information. Organizations can establish company-wide protocols for identifying data that should fall under the encryption umbrella, including:

  • What requires encryption
  • How to store encrypted data in information systems
  • How to safely deal with encrypted data
  • If company protocols comply with existing standards

Types of data classification

Below, we'll break down some of the most common data classification types. As you read, keep in mind that companies may use designations like "classified," "sensitive," "controlled," or "critical."  


Public data is typically found in government institutions. This information is disclosed to the public based on laws and other established guidelines. Information that private organizations want to make available to everyone also falls under the public label: Press releases, job descriptions, and marketing materials can fall into this bucket.


Internal data is what organizations rely on for normal operations. Information like sales playbooks, organizational charts, memos, and other company documents are examples of data that businesses might not want to be made public.


Confidential data is information that your organization should keep from the public. Employee data, details on vendor contracts, and payroll information are examples of data businesses typically categorize as confidential.


Restricted data receives the highest level of data protection. Data classified at this level could cause serious harm to an organization if it got accessed by an unauthorized user. Credit card information, medical records and protected health information (PHI), and social security numbers fall into this group.

Keeping your data classification policy up to date

As your company grows, so will the pool of data you collect from customers, vendors, and the workforce. While making changes every week is probably excessive, you should update your data classification policy whenever you make critical internal changes — like expanding your information technology infrastructure or implementing new industry regulations — and at least annually. 

These changes should get communicated to the organization. Team members should be aware of data classification policy updates that could affect how they work with systems or handle information. Make sure that you can track when changes were made to ensure that your organization always aligns with how you handled data classification during the period.

What information should a data classification policy include?

Below is an overview of essential components you should ensure are part of your data classification policy.


The purpose of your data classification policy describes why it’s being enacted and how the new guidelines will benefit your organization.


You should document the different data types to classify under your new policy. This section should also contain details about who the procedures apply to, like a vendor or employee. It helps to include specifics on how the data classification policy applies to any form of data.

Roles and responsibilities

Name which people in your organization will assume responsibility for various tasks required to support your data classification policy.

Data classification procedure

Detail the steps within every data classification procedure. You should include information like which individuals are responsible for completing each phase, how to review information for its level of protection, and how to troubleshoot.

Data classification guidelines

Use this section to define each type of information asset the company holds and how it impacts its security objectives. The labels defined here should be used as the standard throughout your organization.

Impact level determination

Explain why your organization is classifying a piece of information as low, moderate, or high-level regarding how the data impacts your organization regarding integrity, confidentiality, and availability.

Appendix & glossary

Add definitions for the terms used throughout your data classification policy. Users should be able to refer here to understand your procedures better.

Revision history

Track any changes to the data classification policy, including who made the update, why it was made, and the date it was captured.

Best practices for establishing a data classification policy

Once you understand the impacts of a robust data classification policy, you’re better positioned to find solutions and establish practices around enforcing it throughout your organization. Here’s what you can do to make that easier.

Establish clear criteria

Try to match your basic classifications to criteria already understood by your organization. Perform a regulatory review to ensure you stay in alignment with privacy requirements.

Use automation technology to simplify classification

Remember that statistic we cited earlier about most data breaches being the result of human error? Automation can reduce the amount of manual work required of your employees — which greatly reduces the risk of errors. When you work with vendors, you need to know what data they have access to and how they’ll store it. This is where vendor risk reviews become critical.

HyperComply uses automation and artificial intelligence to simplify vendor security reviews. This makes it easy to see security review workflow stages at a glance, and assess risk and take action if needed. 

Learn more about how HyperComply can streamline your data classification efforts with automation technology.

Align policy with the company’s purpose and ideology

Keep your company’s stated purpose and ideals in mind as you work through your data classification policy details. That keeps you from losing sight of what you wish to accomplish and what goals you want to achieve.

Keep the policy simple

Try not to make things more complicated than necessary. Think about if a new classification label is needed. If it doesn’t provide more clarity and only leads to confusion, it’s best to leave the category out.

Review your policy regularly

As your organization evolves, keep going over your data classification policy details. Any significant changes within your company need to reflect in the details.

Benefits of an effective data classification policy

Every organization has something to gain from proper data classification.

  • Businesses clearly understand the information they hold and how they should use it. That’s especially helpful in healthcare organizations governed by Health Insurance Portability and Accountability Act (HIPAA) guidelines.
  • You have an efficient system for classifying and protecting data to keep it out of the wrong hands. Companies working within the payment card industry can benefit from that.
  • You put your company in a better position to comply with regulatory standards and best industry practices. That’s important for organizations that must follow PCI DSS protocols.
  • It makes it easier for your information security office to determine what measures are needed to protect sensitive data. They also know where to find it and the threats the information faces in its current location.

Manage your data securely with HyperComply

A data classification policy gives your organization clear guidelines on what information it holds, how to protect data, and who should have access. Understanding your data is key to ensuring that you comply with industry regulations. It also becomes easier to mitigate risk by establishing standards for who has permission to access information and how to store it.

HyperComply helps organizations gain a better understanding of the information they hold. Find out more about how the platform can help you construct your desired data classification process by requesting a demo.