Acquiring a business can create opportunities to expand operations, enter new markets and strengthen an organisation's capabilities. However, alongside its assets, customers and financial performance sits another important consideration: its workforce.
Existing employment arrangements, accrued entitlements, workplace practices and management structures can all influence the value and complexity of an acquisition.
Understanding these obligations before completing a transaction can help buyers make informed decisions and prepare for a successful transition.
Looking beyond the financial statements
Financial and legal due diligence are established parts of business acquisitions. Buyers typically examine financial performance, assets, liabilities, contracts and commercial obligations before committing to a transaction.
The workforce deserves the same level of consideration.
Employees are central to business continuity, customer relationships and operational performance. However, employment arrangements can also carry financial obligations and compliance risks that may not be immediately apparent from financial reporting alone.
A business may have well-established operations and experienced employees, yet still have outdated employment contracts, inconsistent remuneration arrangements or workplace practices that have developed informally over time.
These matters don't necessarily diminish the underlying value of a business. They do, however, influence the responsibilities a buyer may assume and the work required following an acquisition.
An independent HR due diligence review provides an opportunity to understand these arrangements before decisions become more difficult or costly to address.
Employment liabilities aren't always obvious
One of the most important areas of HR due diligence is understanding the organisation's existing employment obligations.
A review should consider whether employees are engaged under appropriate contracts, correctly classified and receiving the remuneration and entitlements required by applicable legislation, awards and enterprise agreements.
Particular attention may be needed where a business operates across multiple locations, employs workers under different industrial instruments or has introduced alternative working arrangements over time.
Potential areas of exposure include:
Award coverage and classifications: Whether employees are correctly classified and paid under applicable industrial instruments.
Remuneration arrangements: Whether salaries, annualised wages, allowances, overtime and penalty rates meet relevant obligations.
Accrued employee entitlements: The accuracy of annual leave, long service leave and other employment-related liabilities.
Superannuation and payroll compliance: Whether required contributions and employee payments have been made correctly.
Employment contracts: Whether contractual terms reflect current obligations and actual working arrangements.
Workplace disputes and claims: Any existing or potential employee relations matters that could affect the transaction.
These issues can be particularly relevant where employment practices have evolved over many years without a comprehensive review.
Identifying potential liabilities before settlement gives buyers an opportunity to understand their significance and seek appropriate legal, financial or commercial protections.
The workforce you acquire may carry obligations that aren't immediately visible in the financial statements.
What happens to employee entitlements when a business changes hands?
Employment obligations can become particularly complex when employees move from one employer to another as part of an acquisition.
The outcome depends on several factors, including the transaction structure, the relationship between the parties, the applicable industrial relations system and whether the employees continue working for the new employer.
A share acquisition, where the employing company remains the same legal entity, is different from an asset or business acquisition involving a change of employer.
Where a transfer of business occurs under the Fair Work Act, a new employer must recognise previous service for many employment entitlements. Different rules may apply to annual leave, redundancy, notice and certain other entitlements.
Enterprise agreements and other industrial instruments may also continue to cover transferring employees in particular circumstances.
Long service leave requires careful attention, especially in Western Australia, where relevant state legislation can affect the recognition of prior service and the obligations assumed by the new employer.
For buyers, these are matters to establish before finalising the transaction.
An accurate understanding of employee service histories, accrued entitlements and applicable employment arrangements can inform purchase negotiations, employee transition planning and future workforce costs.
Understanding the workforce you're acquiring
HR due diligence should extend beyond employment compliance.
A business's workforce can represent one of its most valuable assets, particularly where operations rely on experienced managers, specialist technical expertise or long-standing customer relationships.
Understanding how that workforce is structured and managed provides valuable insight into the organisation's capability.
Relevant considerations may include:
Whether key management and specialist positions are adequately supported.
The organisation's reliance on particular individuals.
Employee turnover and recruitment challenges.
The effectiveness of existing management and reporting structures.
Workforce succession and capability gaps.
The organisation's ability to support future growth.
For example, a business may rely heavily on a small number of senior employees who hold critical operational knowledge or maintain important customer relationships.
Their continued engagement following an acquisition may be essential to maintaining business performance.
Identifying these dependencies early allows buyers to consider retention arrangements, succession planning and the leadership requirements of the combined organisation.
Workplace culture and management practices matter
Not every workforce issue can be identified through contracts and payroll records.
How an organisation manages its people can be equally important.
A review of workplace policies, employee relations practices and management responsibilities may reveal inconsistencies between documented procedures and day-to-day operations.
For example, performance management may depend heavily on individual managers, workplace complaints may be handled informally, or established practices may differ across locations.
These arrangements can become more significant when an acquired business is integrated into an organisation with different management structures, systems and employment expectations.
The objective of HR due diligence is not to judge an organisation solely against the acquiring business's existing practices.
It is to understand how the workforce currently operates, identify material risks and determine where alignment or improvement may be beneficial.
Successful acquisitions depend on understanding both the employment obligations and the people behind the business.
Preparing for the transition
Completing an acquisition is one milestone. Integrating the workforce is another.
Changes in ownership can create uncertainty for employees, particularly around employment conditions, reporting relationships, job security and future organisational arrangements.
Even where no immediate changes are planned, communication and leadership continuity can influence employee confidence during the transition.
An effective workforce integration plan should consider how employment obligations will be managed, which systems and policies require alignment, how management responsibilities will be allocated and what employees need to understand about the transition.
Depending on the transaction, consultation requirements under applicable awards, enterprise agreements or employment arrangements may also need to be addressed.
Early planning can help preserve operational continuity, maintain valuable capability and provide a clearer foundation for future organisational decisions.
Due diligence should inform the decision, not simply confirm compliance
The value of HR due diligence lies in providing decision-makers with a clearer understanding of the business they intend to acquire.
While identifying compliance risks is important, the process can also reveal opportunities to strengthen organisational capability, improve employment systems and support future growth.
For buyers, this information may influence transaction negotiations, integration costs, workforce planning and decisions about management structures.
Usefull links:
https://www.wa.gov.au/organisation/private-sector-labour-relations/when-business-changes-ownership
https://www.fairwork.gov.au/employment-conditions/when-businesses-change-owners/employee-entitlements-on-a-transfer-of-business
https://www.fairwork.gov.au/employment-conditions/when-businesses-change-owners
Not every issue identified will require immediate action. A useful review should distinguish material risks from routine improvements and establish clear priorities for addressing them.
Ultimately, acquiring a business is not only about understanding what it owns or earns. It is also about understanding the people, obligations and organisational capability that support its performance.
HOW PEOPLESTART CAN HELP
PeopleStart provides independent HR due diligence reviews for businesses considering acquisitions, mergers and organisational transitions.
Our reviews examine employment arrangements, industrial relations compliance, workforce liabilities, HR systems and management practices to identify risks and provide practical recommendations.
We can also assist with workforce integration planning, organisational reviews and ongoing HR advisory support following an acquisition.