HR Due Diligence and Audit

A company’s HR function must be aligned with its overall business strategy for seamless integration and long-term success. Key considerations include:

• Assess alignment between HR functions and business strategy – Determine whether HR initiatives support corporate goals, such as growth, innovation, or market expansion.
• Identify inefficiencies in HR processes – Evaluate hiring, performance management, and HR administrative tasks to identify redundancies or areas for automation.
• Evaluate HR’s role in supporting scalability and expansion – Assess whether HR has the systems, policies, and workforce planning capabilities to support business growth.
• Review organizational agility – Understand how well the company can adapt to market changes, technological advancements, or regulatory shifts.

HR policies and programs shape employee experience, productivity, and retention. A thorough evaluation should include:

• Hiring practices, recruitment strategies, and onboarding – Review how the company attracts, hires, and integrates new talent and whether processes are efficient and competitive.
• Performance management systems – Assess the effectiveness of performance reviews, goal-setting, and employee feedback mechanisms.
• Employee development initiatives – Examine training programs, upskilling opportunities, and career progression pathways.
• Succession planning – Identify whether key leadership and high-potential employees have clear career development plans.
• Employee engagement and retention strategies – Analyze surveys, turnover rates, and initiatives that enhance job satisfaction and reduce attrition.
• Workplace culture and organizational values – Understand how company culture impacts performance, collaboration, and employee loyalty.

Competitive benefits packages play a significant role in attracting and retaining talent while ensuring cost-effectiveness. This assessment should include:

• Health and retirement plans – Analyze plan structures, employer contributions, and employee participation rates to gauge competitiveness.
• Industry benchmarking – Compare benefit offerings with competitors to ensure alignment with industry norms.
• Compliance with employee benefits regulations – Identify any legal risks related to benefits administration, tax implications, or ERISA violations.
• Leave policies, wellness programs, and perks – Evaluate vacation policies, parental leave, employee assistance programs, and non-traditional benefits like flexible work arrangements.

A company’s compensation structure must be competitive, equitable, and aligned with business goals. Key areas to examine include:

• Salary structures and incentive programs – Assess whether pay scales are market-competitive and aligned with performance metrics.
• Compensation equity – Review pay practices to ensure fairness across job levels, departments, and demographics, identifying any pay disparities.
• Payroll processing and tax compliance – Identify inefficiencies, errors, or regulatory risks in payroll operations.
• Bonus structures, stock options, and executive compensation – Examine long-term incentive plans, equity-based compensation, and CEO/executive pay agreements for sustainability.

A well-structured employee handbook and clear policies reduce legal risk and provide guidance for employees. HR due diligence should involve:

• Comprehensive review of employee handbooks – Ensure policies are up to date, legally compliant, and aligned with best practices.
• Identification of outdated or missing policies – Address gaps in key policy areas such as remote work, cybersecurity, and whistleblower protections.
• Compliance with labor laws – Verify that policies align with federal, state, and international labor regulations to mitigate risk.
• Clarity on harassment, discrimination, and workplace conduct – Evaluate how well policies define expectations, procedures, and enforcement mechanisms.

A strategic workforce analysis helps PE firms understand the talent landscape of the target company. This includes:

• Headcount assessment and job roles – Determine workforce size, distribution, and any misalignment between roles and business needs.
• Turnover, attrition, and hiring trends – Identify patterns in employee departures and hiring needs that could indicate underlying workforce issues.
• Productivity and efficiency – Evaluate whether the workforce operates at optimal efficiency and productivity levels.
• Organizational structure evaluation – Assess reporting lines, departmental structures, and whether the company is positioned for future growth.

Through HR due diligence, 29Bison can uncover critical risks, such as:

• Regulatory non-compliance – Potential liabilities in employment contracts, wage laws, and benefits administration.
• Leadership gaps – Weak or insufficient executive leadership, creating succession risks.
• Workforce inefficiencies – High labor costs, redundant positions, and skill gaps that hinder performance.
• Cultural misalignment – Potential clashes between the target company’s culture and the acquiring firm’s values.
• Compensation and benefits liabilities – Unsustainable pay structures, benefits costs, or outdated compensation models.

At the same time, HR due diligence reveals strategic opportunities to enhance value, including:

• Talent optimization – Aligning workforce skills and capabilities with business objectives.
• Cost savings – Identifying areas for streamlining HR functions, reducing redundancy, and optimizing labor costs.
• Employee engagement improvements – Implementing targeted initiatives to increase morale, productivity, and loyalty.
• Workforce scalability – Strengthening HR systems to support future growth, M&A activity, and market expansion.