We are witnessing a great deal of M&A activity once again. While tough times produce many wonderful buying opportunities, all come with inherent risks. There are numerous risks you want to audit for from a human resource perspective including:

1. How do the cultures of the two organizations different? Peter Drucker claimed that 2 out of 3 M&A’s fail due to cultural reasons. As Dr. Deming taught us, you have to drive the fear out of the situation. Fear that the acquired executives and employees will not respect your ways of doing business and fear on the part of the newcomers that you won’t be considerate of their insights. Great leaders take these fears head-on so that the M&A doesn’t get destroyed by unnecessary dramas.
2. You want to look at the best HR practices from each organization. Does one company hire employees better than the other? How do they manage performance or motivate employees? What standards do they set for promotions? How do they manage compliance concerns? What sorts of training programs do they operate? Who has the “best practices”?
3. The M&A process implies there will be a culling of the herd. How will you identify who is left off the bus in a way that doesn’t let go of the wrong employee and prevents you from getting sued in the process? Have your criteria for the inevitable layoffs and terminations been reviewed by employment counsel?
4. Compensation and benefits is another very important consideration during the M&A process. Inevitably, executives and employees will be paid differently for doing the same or similar work. This will be an excellent time to revisit your compensation and benefit plans and strategies in general. Are you paying competitive salaries and wages? You have to look to the marketplace for that answer. What would you have to hire one of these employees for today? Are you using competitive benefits? As mentioned in previous posts, a dollar spent on benefits versus a dollar spent on compensation has a greater perceived value to employees. Consider this fact at a time when many companies are looking to shed benefits. Lastly, what can you learn from each other’s incentive programs? What boosts sales or productivity?

HR should be instrumental in making sure the “soft stuff” is addressed during the M&A process. HR That Works Members have access to an entire M&A audit that they should consider using during such a process.

Here’s what figures to be ten of the top audit questions facing employers in the New Year. You will note no new surprises. Fact is, 20% of employment practice risk categories cause the majority of claims.

1.  Are you properly using credit and background checks in the hiring process? 

The EEOC as well as state legislatures have severely constricted your ability to acquire and use criminal and credit records. We think it’s very important to get as much information as possible during the hiring process—just make sure you do it right. Whether you work with our strategic partner, Global HR Research or another company, make sure they stay on top of the laws in your state.

2.  Have you properly managed your I-9 compliance process?

HR That Works Members were treated to an excellent webinar on the I-9 form. It generated a lengthy question and answer session afterward which was converted into a FAQ. That FAQ is available on HR That Works. You can see a detailed I-9 audit checklist by clicking here.

3.  My employees are properly classified as exempt.

Wage and hour claims continue to cause employer headaches. We see no reason for this tide to be stemmed in 2012. The bottom line is this: If you’re not 100% certain an employee is classified as exempt, you’d be better off labeling them as non-exempt. If you’re an HR That Works Member and realize you may have a problem, see the Special Report in the Wage and Hour Training Module entitled Now That I’ve Got a Problem, What Should I Do About It?  See www.dol.gov/whd/flsa. California employers should check out www.dir.ca.gov/dlse/dlse.html.

4.  Are your independent contractors really independent contractors?

 The NLRB, IRS, and state taxation authorities are coming down hard on the 1099 misclassification problem. Make sure your 1099 contractors really are not employees. Also make sure any leased or temp employees are properly treated by their employers too. HR That Works Members should consider the Independent Contractor Training Module which also includes an audit, checklist, and sample agreement. See the IRS’s guide to differentiating between an employee and an independent contractor.

5.  We are staying on top of National Labor Relation Board requirements.

The private workplace thought they had nothing to worry about when it came to the NLRB. Now they know that’s not the case. Not only has the Board made it much easier to organize your business, but they’ve also stepped in to the social media landscape. I suggest you subscribe to the NLRB’s notification service by clicking here. HR That Works Members should watch the various webinars produced on managing NLRA concerns. Remember, all employers are now required to put the new NLRA poster up in their workplace by April 30th. Click here to double check as that date has already been postponed twice due to some serious employer complaints about it! 

6.  We have our compliance policies and procedures up to date.

Despite the vast amount of new legislation, the most common claims in the workplace continue to consist of sexual harassment, race discrimination, and wrongful termination. Do you have your employee handbook, training, and other compliance measures up to snuff? Take advantage of the Compliance Quiz, Sexual Harassment and Discrimination Training Modules.  

7.  Do you have a robust employment practices liability policy? 

Less than half of companies with less than 1,000 employees have what is known as employment practices liability insurance. This is a big mistake! Given the fact that the average employment practices verdict hovers around $250,000, a company would be remiss not to purchase inexpensive employment practices liability insurance and thereby cap their risk exposure anywhere from $5,000-$25,000. Click here to see a checklist that will help you when you purchase employment practices liability insurance.

8.  Have you done what you need to do to protect yourself from cyber liability?

 This is a rapidly growing risk exposure. What many companies don’t realize is that more than half of the exposure comes from within its four walls. Employees rip off more confidential and valuable information than any third parties do. In fact, internal employee data theft is alleged to cost employers in the billions! (As Austin Powers would say, “With a B.”) The best advice is to work with third party experts to make sure you have both risk management protocols in place as well as sufficient cyber liability insurance. Is HR working with IT and riskmanagement to get a handle on this exposure?

9.  I have properly managed personnel files.

Remember, privacy has become an overwhelming concern, as has the need to defend yourself should you get hit with an employee claim. Well-maintained personnel files keep you out of trouble. You should make sure to separate out medical information, financial information, immigration and claims information from day-to-day personnel management files. Make sure that your personnel files are kept under lock and key with need-to-know-only access, that they contain all the documents that they should, and that they are stored for a sufficient period of time (anywhere from one to seven years depending on the document). If you have or are moving to electronic storage, make sure to identify your scanning protocols, storage, permissions, signature rights, etc.

10. Do you have you leave management act together?

There are additional concerns including social media risks, leave management, disability accommodation, whistleblowing claims, ERISA claims, and much more. Pretty much guarantees an eventful New Year!