HR Due Diligence Template
The HR Due Diligence Checklist provides a framework of initial due diligence requests. These are tailored specifically to the human resources function of an organization.
Suitable for all transactions that involve acquiring personnel
Initial requests help prompt basic information for a general overview of the target company
Playbooks may be customized to accommodate your team’s or deal’s unique needs
What Tasks does the HR Due Diligence Checklist Include
Mergers and acquisitions are often cited as causing significant drops in employee morale. Diving into a company’s general human resources structure offers a holistic view of the target company and its employees. The knowledge gleaned from General HR Due Diligence can lead to more success in integrating cultures. Information needed here includes employee demographics, HR metrics, financial information, and the structures for HR processes such as performance management, payroll, and recruiting.
ITEMS IN GENERAL HR DUE DILIGENCE INCLUDE:
List of all the executive employees of the company and employees of the company whose total annual compensation is above $300,000.
Basic employee demographics: title, position, salary, age, location, tenure, gender, skills, etc.
HR metrics: headcount, average tenure, turnover, time to fill, etc. -Schedule of any employees suspended (reason, salary implications, and other repercussions)
Performance review schedules and structure.
Review the recruiting and onboarding process, including copies of interview guides or templates and new-hire orientation practices.
Review and evaluate HRIS system/employee database.
Copies of payroll documents for all employees.
Detailed summary of HR and employee-related expenses.
Send out surveys to or interview employees regarding culture and employee engagement.
Human Resources Agreements
An audit of the company’s HR agreements can help you safeguard you against being grandfathered into contracts that you didn’t sign and may otherwise find unsatisfactory. This also includes contracts that haven’t been signed by employees but you wish they were. Collect documents here that pertain to tax information, labor contracts, employment contracts, and preemptive rights.
ITEMS IN HUMAN RESOURCES AGREEMENTS DUE DILIGENCE INCLUDE:
Copies of all tax allocation, sharing, or preparation that involve the company.
Copies of contract waivers or collection of any federal, state, local or other taxes.
Copies of all contracts relating to repurchase, redemption, exchanges, conversion or similar transaction.
Copies of all employee contracts and/or employment-at-will doctrine.
Copies of all Confidentiality Statements/Agreements.
Copies of all contracts pertaining to preemptive rights.
All labor contracts, union agreements, and collective bargaining agreements.
Copies of all non-compete contracts.
In today’s work environment, potential job candidates and employees evaluate a company’s total compensation package rather than just their hourly wage. Solid benefits packages are often positively correlated with employee retention. You will want to dive deeply into the target company’s compensation system to appraise its competitiveness, legal compliance, and to ensure people are being rewarded fairly. Documents and information you will need include summaries of benefits coverages (SBCs), pay information, and the pay structure.
ITEMS IN BENEFITS DUE DILIGENCE INCLUDE:
Copies of all employee health insurance plans and policies, including summary of benefit coverages (SBCs) for medical, dental, group life, disability, and accident.
Verify compliance with ERISA.
Collect information on company’s COBRA.
Investigate any other types of nonmonetary compensation (i.e. flexible scheduling, gym memberships, free or discounted food, etc.).
Summary and copies of monetary compensation plan, including base salary, overtime structure, bonuses, commission, and raise schedule.
Summary of bonus or profit-oriented incentive programs and those who have received bonuses, detailing the bonus amount and reason why it was received.
Copies of severance plans and packages.
Detailed summary of all pension plans and/or other retirement plan options.
Human Resources Policies
HR policies govern a company’s employees and discipline structure. An audit of the policies will present a better idea of the company, their processes, and how rigidly they regard certain matters. Information needed includes all current company policies, employee handbooks, and training manuals.
ITEMS IN GENERAL HR DUE DILIGENCE INCLUDE:
Copies of Absenteeism and Tardiness Policies.
Copies of Discipline Policy.
Copies of the company’s Code of Ethics and/or Code of Conduct.
Copies of Grievance and Damage Control Policy.
Copies of Safety Policy and practices.
Copies of Media Relations Policy.
Copies of Personal Leave, Maternity Leave, Sick Leave, and Bereavement Policies.
Copies of Third-Party Confidential Information Policy.
Compliance is a large and integral piece of HR. You need to verify that the target company isn’t cutting any corners. Conducting this type of due diligence will help protect you against potentially thousands of dollars of fines or other legal issues down the line. Prior to beginning, be sure to research the legal regulations that govern your target company. Information/documents needed here includes litigation, Unemployment/Worker’s Compensation claims, and employee files.
ITEMS IN COMPLIANCE DUE DILIGENCE INCLUDE:
Summary of litigation or judgments settled within the last 5 years in which the company was involved directly or indirectly.
Summary of all pending or threatened litigation, inquiries or investigation, including copies of a petition or complaint.
Details of all consent decrees, judgments, injunction, other decrees, orders, and/or arbitration findings to which the company is subjected or bound.
List of all employees including those covered by any disability legislature in the company.
History of all sexual harassments accusations, charges, and convictions from the past five years.
Verify compliance with equal employment opportunity and anti-discrimination legislature.
History of Unemployment and Worker’s Compensation claims.
Verify compliance with Fair Labor Standards Act, i.e. minimum wage, child labor, etc. (if U.S. based).
Ensure employee personnel files and Form I-9s (if it is United States-based company) are in compliance with legal standards.
Can I change requests in this checklist or add new ones?
Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.
Does this questionnaire provide all the necessary due diligence information?
This HR due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.
Easily Collect Data Using this HR Due Diligence Template in DealRoom
This HR due diligence template can be easily downloaded and utilized as just the Excel sheet. However, it is most effective when paired with DealRoom’s dynamic due diligence software
. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers analytics, security features, and customized help to streamline the process. We are confident that with DealRoom you can close deals up to 40% faster.
HOW TO USE THE TEMPLATE WITH DEALROOM:
Download the due diligence template from DealRoom’s website
Open a room within DealRoom
Go to the Requests tab and select “import”
Import the downloaded template
The Requests tab is automatically populated with the requests from the due diligence template. Users can begin assigning, adding to, and completing due diligence requests.