Everything You Need to Know About HR Due Diligence


Acquisitions has many aspects, but one of the most important is human resources due diligence. When one firm acquires another, it also takes on the human capital behind that firm. A relationship is established between two HR teams as they evaluate human resources policies, procedures, and talent in the team itself as well as the company.

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Due diligence is all about the HR team acquainting itself with new leadership, gaining the trust of new employees, and being empathetic to those affected by the acquisition. It isn’t something most people deal with on a monthly or even yearly basis, however. So, here’s everything you need to know.

Reviewing Materials

The information systems team of the HR department needs to conduct an employee census off the bat. This census contains names, positions, salaries, and the date of hire for every employee affected by the acquisition.

It also contains confidential information related to employee relations, including any issues currently in litigation. This allows the acquiring company to fully understand the employee body they are taking on as well as any potential liability from litigation.

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At the same time, it reveals any agreements the acquired company held with their employees from union efforts to pay raises. The acquiring company can then determine if their agreements and incentives are better, or find a unique path to encourage productivity by combining company efforts.  

Policies and More

It’s highly unlikely that two companies share the same policies, procedures, and training methods. HR’s job is to ensure both companies offer the mandatory employee benefits and make the transition of these new policies as simple as possible.

In some cases, policies and procedures can be combined to create new ones. In others, the acquiring company’s policies must be implemented to new employees hired on by the acquisition. Either way, it is important to integrate new training or orientation to make these changes simpler for employees.

The Audit

The next phase of due diligence is to review all of the employment files from both HR departments, checking for consistency and completeness. Records ranging from emergency contact information to work eligibility documentation and commendations should be reviewed.

This phase requires an in-depth look at detailed timesheets to view attendance, as well as other pertinent employment-related information. Moving forward, the acquiring company needs to understand the working relationship employees held with the former company.

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The audit should ensure that all employee files are in order and meet requirements set forth by the acquiring company to avoid any legal issues like discrimination. HR must ensure that the acquired company’s personal files for employees meet record-keeping laws, as well.

Communication

Finally, both HR departments should discuss successes and challenges held by the acquired company. The new team needs to learn everything they can from the existing HR team in order to make the acquisition a success.

After this phase, all findings from every due diligence step must be reported back to executive leadership. Continuing to work with company leaders throughout the due diligence process is vital, ensuring the acquisition goes as smooth as possible.

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