HR due diligence answers two separate questions that a single checklist usually mixes: what liabilities come with the people, and whether the people the plan depends on will still be there. The first prices the deal and the second decides whether the plan works, and they need different work. This page separates them and names the finding that appears most often in a mid-market transaction.
Classification, which is the common finding
Contractors who function as employees, and exempt classifications that would not survive examination. It is common in companies that grew quickly, it accrues quietly, and it prices rather than blocks: the parties reserve for it and move on. Finding it early is much cheaper than finding it late.
The rest of the liability list
Accrued leave, bonus and commission arrangements including anything undocumented, pension and benefit obligations, open disputes and any historic pattern of them. Undocumented commission promises are the version of this that surprises people, because they exist in emails rather than in the payroll.
Key people, which is a plan question
Who the business depends on, whether they have agreements, and what happens on a change of control. In an owner-managed business the owner frequently is the sales function, and no reserve fixes that: it needs a handover period built into the deal rather than a discount.
Culture and terms, which decide whether integration works
How pay, holiday and working arrangements compare with the buyer's, because harmonising them is expensive in both directions and is the thing integration teams most often postpone. It is worth knowing the gap before signing rather than discovering it in the first month.
Questions people ask about hr due diligence checklist
What is the most common HR finding?
Worker classification: contractors functioning as employees, or exempt classifications that would not survive examination. It prices rather than blocks.
What is not fixed by a reserve?
Key person dependence. In an owner-managed business the owner is often the sales function, and that needs a handover period rather than a discount.
Why look at terms and culture?
Because harmonising pay and working arrangements is expensive in both directions, and the gap is cheaper to know before signing.