HR Due Diligence Checklist (M&A)

Start about nine weeks before the target signing date. The first task names the target, the signing date and the four people, and asks where the target employs people and how the deal is structured. Every due date counts back from the signing date, in working days.

• Set up the HR due diligence — the target, the deal, the target signing date (which every due date counts from), where the target employs people and how the deal is structured, whether it employs people in other countries, and the four people; later tasks are assigned from these fields
• Agree the scope of the people workstream with the deal lead — the target’s entities and countries, what the deal plan needs from the workforce, the level at which a finding counts as material, what the management, legal and financial workstreams cover instead, and the date the findings are needed
• Agree how employee data is shared and protected — anonymised or pseudonymised data first and named data only where it is needed, who on the buyer’s side may see it, and the buyer’s promise to use it only to evaluate the deal, keep it confidential and return or destroy it
• Send the HR data request list — the employee census fields wanted, contract templates, pay, bonus, equity and benefit plans, pension documents, the contractor list, claims, policies and union agreements, with a date for the replies
• Agree access to the target’s HR team and plan the interviews — who the buyer may speak to (the HR director, payroll, reward, employee relations), when, what each conversation covers, and what stays confidential while the deal is not public

Know who works for the target before you judge their terms: one census that matches payroll and the accounts, the organisation and the roles the deal depends on, and how the workforce has changed.

• Check the employee census against payroll — headcount by entity, country, location and contract type, matched to the latest payroll and to the finance team’s figures, with the gaps and the leavers and joiners since the census date listed
• Map the organisation and the roles the deal depends on — organisation charts and reporting lines, the roles the deal plan needs to keep, single points of failure, and open vacancies in those roles
• Review turnover, absence and hiring trends — leavers and joiners over the last two or three years by team, sickness absence, open vacancies and how long they take to fill
• Reconcile the people costs with the financial due diligence — total pay, bonuses, employer taxes and contributions, benefits and pension costs against the accounts and the finance workstream’s figures

What each person is entitled to, what the deal itself triggers, and whether the target has paid people correctly. Employment counsel reads the contracts; the reward reviewer reads the plans.

• Review the standard contracts and who is on each — template contracts and handbooks by country and entity, written statements of terms, fixed-term, part-time, zero-hours or at-will terms, and staff on terms that differ from the template
• Review senior and key contracts for notice, severance and change of control — notice periods, garden leave, severance and termination payments, change-of-control or deal bonus clauses, and anything the sale lets a person claim or triggers
• Review the restrictive covenants — non-compete, non-solicitation, non-dealing and confidentiality terms for key and client-facing staff: who has them, how long they last, and counsel’s view of whether they would hold where the person works
• Check pay and payroll compliance — pay structures and bands, minimum wage, overtime and holiday pay, payroll tax filings, pay gap reports the target publishes, and any back pay owed
• Review bonus, commission and incentive plans — plan rules, amounts earned but not yet paid, what a sale triggers, and who decides the awards for the year in which the deal completes
• Review equity, option and long-term incentive plans — who holds what, vesting and leaver terms, what the deal triggers (vesting, cash-out or rollover), the cost at the deal price, and the tax treatment for employees, with the tax advisers

Benefits and pensions can carry costs that last for decades. A defined benefit pension adds an actuarial view and a task on how the deal deals with it; the UK and US tasks follow where the target employs people.

• List every benefit and what it costs — health, life and disability cover, cars and allowances, leave above the legal minimum, and any promise not in writing, with the annual cost and the provider
• Review the pension and retirement plans — each scheme or plan, whether it is defined contribution or defined benefit, who sponsors it, contribution rates and any arrears, and the documents behind it
• Check UK automatic enrolment and pension duties — that eligible staff are enrolled and contributions are paid on time, the declaration of compliance and any re-declaration made to the Pensions Regulator, and any warning or penalty notice
• Review the US benefit plans and their Form 5500 filings — the ERISA retirement and health plans, plan documents and participant information, the Form 5500 filings, and any multiemployer plan the target pays into under a union contract
• Get an actuarial view of the defined benefit liability — the latest valuation and funding position, the deficit on the measures that matter to the deal, the contributions agreed, and what the deal does to the strength of the employer behind the scheme
• Agree how the deal deals with the defined benefit scheme — a price adjustment or indemnity, the trustees’ view of the deal and any support they ask for, and, in the UK, whether the deal could be one the Pensions Regulator calls a type A event

People who are not on the payroll can still be the buyer’s liability, and people who are on it must be allowed to work. The UK and US tasks follow where the target employs people.

• List the contractors, agency workers and consultants — who they are, what they do, how long they have worked for the target, how they are paid and through whom (their own company, an agency or an umbrella company)
• Test the worker status of long-serving or full-time contractors — how each one works in practice against the employment and tax status tests, the exposure if any of them is really an employee, and the fix
• Check UK right to work records and any sponsor licence — a sample of right to work checks and follow-up checks, including contractors brought in since 1 October 2026, the number of sponsored workers, and what the deal means for the target’s sponsor licence
• Check the Form I-9 records — a sample of the target’s Forms I-9 and reverifications, and, if employees move to a new employer, whether the buyer will keep the target’s forms or complete new ones

What could cost money or stop a plan: claims, complaints and investigations, the unions and agreements in place, the consultation and notice the buyer’s plans would need, and how well HR runs.

• Review employment claims, lawsuits and settlements — claims in a tribunal, agency or court, threatened claims and settlements in recent years, with the amount at stake, insurance cover and counsel’s view of each
• Review grievances, investigations and whistleblowing reports — grievances, harassment and discrimination complaints, whistleblowing reports and internal investigations, with the outcome and any pattern by team or manager
• Review unions, collective agreements and works councils — recognised unions, collective agreements and what they cover, works councils or employee forums, disputes and any bargaining due in the next year
• Map the consultation and notice the buyer’s plans would need — what the integration plan may change (roles, sites, terms, reporting lines), and the information, consultation and notice each change needs before it happens
• Plan the TUPE steps with the seller — who would transfer, when the employee liability information is due, the measures the buyer plans, the information and consultation each side owes, and the indemnities
• Check WARN Act notice for any closing or layoff the plan needs — whether a plant closing or mass layoff is planned at or after completion, which employer must give the 60 days’ notice, and any state notice law
• Check the Employment Rights Act 2025 changes that affect the plan — the changes already in force on the day and the ones due before the integration plan’s changes, and what each means for the plan’s timing and cost
• Review HR policies, records and compliance — the handbook and the policies each country requires, how HR records and employee data are kept, mandatory training, licences or vetting for regulated roles, and any inspection or finding by a regulator
• Get local employment counsel’s review for each other country — the same questions for each other country where the target employs people: contracts, pay, benefits, claims, unions and works councils, what the deal triggers and what the plan would need

The people the deal depends on, how likely they are to stay, what it would take to keep them, and how the two workforces compare. The leadership team itself is assessed in management due diligence.

• Rate the flight risk of each key person — the people the deal plan needs beyond the leadership team (specialists, client owners, people who hold know-how), how likely each is to leave, and what the deal changes for them
• Assess culture and how the two workforces compare — engagement survey results, turnover and exit interview themes, how decisions are made, ways of working, and where they differ from the buyer’s
• Draft the retention proposals — who would get a retention arrangement, its form and amount, when it pays out and on what conditions, the total cost, and whether the buyer or the seller pays
• Estimate the cost of aligning terms after the deal — the differences in pay, benefits, hours and leave between the two workforces, what aligning them would cost, and what the law lets the buyer change and how

Turn the review into decisions: a rated findings log, a cost for each material finding, the points for the price and the purchase agreement, the report, and the deal lead’s sign-off. Nothing after the sign-off can be completed until it is done.

• Complete the findings log — each finding with its area, risk rating and proposed treatment (price, indemnity, warranty, condition, or an action for integration)
• Put a cost on each material finding — the likely and worst-case cost of each high or medium finding, how it was worked out, and which costs the financial due diligence already includes
• Agree the price, warranty and indemnity points with counsel and the deal lead — the HR warranties to ask for, specific indemnities for known matters, conditions before signing or completion, retention agreements to sign with the deal, and any change to the price
• Write the HR due diligence report — the scope, each material finding with its rating and cost, the deal points, the open items, the date of the information reviewed, and the recommendation
• Deal lead records the HR due diligence sign-off — the deal lead reads the report and records proceed, proceed with conditions, or do not proceed on these terms before signing; nothing after this task can be completed until it is done
• Agree how each HR condition will be met — each condition the sign-off named, how it is met (a clause in the purchase agreement, a fix before completion, a retention agreement signed), who checks it, and by when
• Record the decision and close the HR workstream — the reasons, who was told, all the employee data from the review returned or destroyed as the confidentiality terms say, and the tasks that no longer apply marked not applicable

Check the HR terms in the final agreement, give the announcement plan its people facts, hand the actions to the integration team, and close the review data.

• Check the HR terms in the final purchase agreement — the warranties, indemnities, conditions and price points agreed, against the draft for signing, and the retention agreements ready to sign
• Give the announcement plan the people facts it needs — who must be told, informed or consulted and in what order, what managers may say on the day, and the questions staff are likely to ask
• Hand the integration actions to the integration lead — the findings that need action after completion, the retention, consultation, TUPE or Form I-9 steps, the alignment of terms, and the open items, run from there in the integration plan
• Close the employee data from the review — keep only what the integration plan needs under the confidentiality terms, return or destroy the rest, and record who did it and when