What Is a Compensating Control?

Bottom Line Up Front

If you’re reading this because your payment processor just asked about compensating controls in your PCI compliance questionnaire, here’s the good news: most small businesses don’t need compensating controls at all. These are basically workarounds for when you can’t meet a specific PCI requirement exactly as written — think of them as approved alternatives that achieve the same security goal through different means. For the vast majority of small merchants, you’ll either meet the requirements as-is or qualify for a simpler SAQ that doesn’t require them. Let’s demystify what compensating controls actually are and when you might need them.

What Are Compensating Controls (In Plain English)

A compensating control is an alternative security measure you implement when you can’t meet a PCI DSS requirement exactly as specified. Think of it like this: if the requirement says “install a deadbolt on your door” but your door frame won’t support a deadbolt, you might install a security bar instead — different method, same result.

The key word here is “compensating” — these controls must provide equivalent or stronger protection than the original requirement. You can’t just skip a requirement because it’s inconvenient; you need to demonstrate that your alternative approach achieves the same security objective.

Here’s what makes a valid compensating control:

• Meets the intent of the original requirement
• Provides a similar level of defense as the original requirement
• Goes above and beyond other PCI requirements (you can’t use one requirement to compensate for another)
• Addresses the specific risk the original requirement was designed to mitigate

Your acquirer or payment processor cares about compensating controls because they need assurance that your alternative approach truly protects cardholder data. The card brands (Visa, Mastercard, etc.) created PCI DSS through the PCI Security Standards Council, and they expect every requirement to be addressed — either directly or through an approved compensating control.

When Do You Actually Need Compensating Controls?

Here’s the reality that might surprise you: if you’re a small merchant reading this guide, you probably don’t need compensating controls. They’re typically used in these scenarios:

Technical or Business Constraints

Sometimes legitimate technical limitations prevent standard compliance. For example:

• Legacy systems that can’t support current encryption standards
• Point-of-sale systems where software updates would break critical functionality
• Infrastructure where network segmentation isn’t feasible due to business operations

Documented Business Constraints

Occasionally, meeting a requirement exactly as written would fundamentally break your business model:

• A hotel that needs to retain card data for recurring guest charges beyond standard retention periods
• Healthcare providers with integrated payment and patient management systems
• Membership organizations with complex billing cycles

Transitional Situations

Sometimes compensating controls bridge the gap during system migrations:

• While upgrading from older TLS versions to current standards
• During the transition from storing card data to tokenization
• When implementing new network architecture

The important distinction: Just because something is expensive or inconvenient doesn’t qualify for a compensating control. “We don’t want to buy a firewall” isn’t a valid reason — “Our embedded IoT payment devices physically cannot run firewall software” might be.

How Compensating Controls Work with Your SAQ

Your interaction with compensating controls depends entirely on which Self-Assessment Questionnaire (SAQ) you’re completing:

SAQ Type	Typical Merchant	Compensating Controls?
SAQ A	E-commerce with hosted checkout	Almost never needed
SAQ A-EP	E-commerce with payment fields	Rarely needed
SAQ B	Standalone terminals only	Very rarely needed
SAQ B-IP	Terminals with IP connection	Occasionally for network requirements
SAQ C	Payment application systems	Sometimes for legacy systems
SAQ C-VT	Phone/virtual terminal only	Rarely needed
SAQ D	Store card data or complex environments	Most commonly needed here

For SAQ A and B merchants (which covers most small businesses), compensating controls are extremely rare because:

• You’re not storing card data
• Your payment acceptance methods already minimize scope
• The requirements are already tailored to your simple environment

For SAQ D merchants, compensating controls appear more frequently because:

• You have more complex environments
• Legacy systems are more common
• The full PCI DSS applies with all its requirements

Examples of Valid Compensating Controls

To make this concrete, here are real-world examples of compensating controls that assessors have approved:

Example 1: Network Segmentation Alternative

Original Requirement: Isolate the cardholder data environment (CDE) from other networks

Challenge: A small medical practice with an integrated system that handles both payments and patient records

Compensating Control:

• Implement host-based firewalls on each system
• Deploy application-level encryption for all card data
• Add enhanced monitoring and alerting for any CDE access
• Perform daily security scans instead of quarterly

Example 2: Legacy Encryption Standards

Original Requirement: Use strong cryptography (current standards) for all stored card data

Challenge: Point-of-sale system that only supports older encryption methods and can’t be upgraded

Compensating Control:

• Implement physical security controls (locked room, security cameras)
• Add network-based intrusion detection
• Reduce data retention to absolute minimum
• Perform weekly vulnerability scans on these specific systems
• Plan documented migration path to compliant system

Example 3: Multi-Factor Authentication Workaround

Original Requirement: Implement multi-factor authentication for all remote access

Challenge: Critical legacy application that doesn’t support MFA

Compensating Control:

• Restrict access to specific whitelisted IP addresses
• Implement jump box with MFA that provides sole access path
• Add session recording and enhanced audit logging
• Require documented approval for each access session

The Compensating Control Worksheet

If you do need a compensating control, you’ll complete a Compensating Control Worksheet that documents:

1. Constraints: Why you can’t meet the original requirement
2. Objective: What risk the original requirement addresses
3. Identified Risk: What additional risk your situation creates
4. Definition of Control: Your alternative approach in detail
5. Validation: How you’ve tested and proven it works
6. Maintenance: How you’ll ensure it stays effective

This worksheet becomes part of your compliance documentation. For Level 1 merchants or any merchant working with a QSA, your assessor must review and approve each compensating control.

Who Approves Compensating Controls?

The approval process depends on your merchant level and assessment type:

• SAQ (Self-Assessment): You document the control, but your acquirer makes the final decision on acceptance
• QSA Assessment: Your QSA reviews and validates the control as part of their assessment
• Internal Audit: Your ISA (Internal Security Assessor) validates it, but acquirer still has final say

Critical point: Your payment processor or acquiring bank always has the final word on accepting compensating controls. Even if you think your control is perfect, they can reject it if they’re not convinced it provides equivalent security.

Common Compensating Control Mistakes

After reviewing hundreds of compensating control worksheets, here are the mistakes that get them rejected:

“It’s Too Expensive” Isn’t Valid

Cost alone never justifies a compensating control. The requirement exists for security, not convenience.

Using Other PCI Requirements

You can’t say “We do Requirement 2 really well, so we don’t need Requirement 1.” Each requirement stands alone.

Insufficient Documentation

“We have additional monitoring” isn’t enough. You need specifics: what monitoring, how often, who reviews it, what triggers alerts.

Not Actually Compensating

Your control must address the same risk. Physical locks don’t compensate for missing encryption.

Temporary Becoming Permanent

“We’ll fix this next year” isn’t a compensating control — it’s non-compliance with a promise.

Do You Really Need That Compensating Control?

Before diving into compensating control documentation, consider these alternatives:

1. Reduce Your Scope: Can you stop handling card data in that system entirely?
2. Change Your SAQ Type: Would a different payment method put you in a simpler SAQ?
3. Update Your Systems: Is the upgrade cost really higher than maintaining compensating controls annually?
4. Use a Service Provider: Can someone else handle this requirement for you?

Often, what seems like a compensating control situation is really an opportunity to simplify your payment environment.

FAQ

Q: My payment processor is asking about compensating controls. What do I do?

A: First, determine if you actually need one. Review the specific requirement you can’t meet and document why. Most small merchants find they can either meet the requirement as written or qualify for a simpler SAQ that doesn’t include that requirement. If you truly need a compensating control, complete the worksheet with detailed documentation of your alternative approach.

Q: Can I use compensating controls to avoid buying new equipment?

A: Not if the only reason is cost. Compensating controls are for legitimate technical or documented business constraints, not budget preferences. However, if your current equipment truly cannot support a requirement due to technical limitations, that might qualify.

Q: How long does a compensating control last?

A: Compensating controls must be reviewed and revalidated with every assessment (annually for most merchants). They’re not permanent solutions. Each year, you’ll need to document that the constraint still exists and the control still provides adequate protection.

Q: What if my acquirer rejects my compensating control?

A: You have three options: implement the original requirement as written, propose a different compensating control that might be acceptable, or work with a QSA to better document how your control meets the security objective. Your acquirer’s decision is final, so working with them early in the process saves time.

Q: Do compensating controls cost more than regular compliance?

A: Usually, yes. They require additional documentation, often need more frequent testing, and may involve hiring a QSA even if you’d normally self-assess. This is why fixing the underlying issue is often more cost-effective long-term.

Q: Can I copy someone else’s compensating control?

A: While you can learn from examples, each compensating control must be specific to your environment and constraints. What works for another merchant might not address your specific situation or risk profile.

Conclusion

Compensating controls sound intimidating, but they’re simply alternative ways to achieve PCI DSS security objectives when you can’t meet a requirement exactly as written. The key insight? Most merchants never need them. If you’re using modern payment systems and following standard practices, you’ll meet requirements as written.

If you do face a situation requiring a compensating control, remember it must truly compensate — providing equal or better security through different means. Document thoroughly, test regularly, and be prepared to justify why your approach achieves the security goal.

PCICompliance.com helps you navigate these decisions with confidence. Our compliance platform includes compensating control worksheet templates, guidance on when they’re truly needed, and connections to experienced QSAs who can validate your approach. Our free SAQ Wizard helps you identify your correct questionnaire type — and often reveals you qualify for a simpler SAQ that avoids the need for compensating controls entirely. Start with the wizard to see your real requirements, or reach out to our compliance team for guidance on your specific situation.