These challenges often have major impacts to Merger & Acquisition success rates. Adding to the challenge, most M&A deals land on HR and Payroll (and HRIT) without much warning and often without additional help in that effort.
This often results in a failure to realize ROI on expected administrative cost savings of IT and HR overhead specifically. It also can mean a bumpy and disengaged transition for the incoming or outgoing workforce. HR & Payroll are often tasked with figuring out the roadmap, project plan and deliverables required for operations to be integrated quickly. A major component of these efforts normally includes but is not limited to:
- Fit-gap of incoming population HR and Payroll process requirements to ensure minimal impact to employees.
- Assess the scope of historical data retention and migration.
- Plan data migration strategy.
- Plan (shared) services handover strategy.
- Plan change management and communications to leadership and employees.
- Manage integration of workforce(s)
- Manage integration of HR (& IT operations)
Some of these efforts may change slightly depending on whether your transaction is a stock swap or purchase and whether the Federal Employer Identification Number(s), FEINs, will be retained as-is or if employees need to be completely assimilated into existing company structures. However, the scope of the steps required is often very similar and the roadmap almost always looks the same at a high level.
Fit-Gap inbound or outbound population requirements
Through requirements gathering questionnaires and a workshop format, the acquiring company should review HR and Payroll process and service requirements, landscape overview and services transition topics. If the acquisition is a very large one relative to existing population or the transaction is a merger rather than an acquisition (see merger versus acquisition) then it also often makes sense to perform the same due diligence on the current population to do a more complete fit-gap to ensure optimization of both workforces under the new structures.
This process covers questions about current operations and goes into details about HR, Payroll, Time and Benefits:
“How is your organizational structure set up? Please explain how you represent administrative functions and functions that cover multiple business lines (such as Finance or IT). “
“What methods do you use for time data entry?”
“How many bank accounts can employee have (or other forms of external transfers)?”
The outputs of these workshops and questionnaires are critical to:
- Identify the inbound (or outbound) operational systems/vendor agreement landscape.
- Assess change impact required for any changes to process, configuration and development on the existing acquirer’s system(s) and operations.
- Quantify effort and resource planning needs for transition which often spans all functional silos of the business(es): HR, IT, Finance, Legal, etc on both sides of the transaction.
- Identify potential savings opportunities in administration and operations cost.
- Begin to prepare employee change management communication plan
We cover detailed “hot topics” in further detail below which are often points of discussion for HR and Payroll leadership.
Manage integration of HR & IT Operations
Decide what systems to keep and what to terminate contracts for.
When will each system be decommissioned?
Where will historical data reside?
What are the costs required and expenses saved as a result?
Historical Data retention
The scope of data conversion is often a difficult conversation to navigate with HR and Payroll departments being acquired due to complexities of retention legislation in the U.S. and globally. See the blog post HR & Payroll Data Retention and Archiving Compliance for detailed information on what categories of information are typically required for various legislation specific to U.S. based employees.
Often an acquiring company also inherits the historical data and document responsibility to better serve employee inquiries although this is also open for discussion in a Service Level Agreement (SLA), or Transition Services Agreement”. This includes but is not limited to the data in the Compliance matrix linked above plus some or all of the following document types:
- Hire forms (taxes, banking, application, citizenship, etc.)
- Recruiting Interview notes/feedback
- Disciplinary forms
- Performance documents
- Benefits enrollment & coverage information
- Time clock logs
- Payroll paystubs
- Annual tax forms (W2s, W4s, W5s, etc.)
- Enrollment Confirmation Statements
Acquiring forms are likely to need corporate level reports & documents such as:
- Employee Handbooks
- Benefit plan guides and coverage information
- Stock plan information and employee enrollments
- Tax filings (941, 940, etc.)
- Employment and consulting agreements
For some industries there are specific areas of focus warranted:
- Pharmaceuticals: education, training records, and position reporting and approval relationships
- Financial Services: cybersecurity controls (NY State), compliance training records, new EU and US based rules on trading personnel and reporting/ approval hierarchies.
- Manufacturing/ Industrial: OSHA and Worker’s Compensation records, Medical Leave, Hazardous materials handling records
- Retail: Time and Payroll data for FLSA/DOL requirements as well as Worker’s Compensation and, in some cases, OSHA related data and documents
The above requirements pose a threat to cost savings in that companies often do not sunset inherited infrastructures and operations which require ongoing IT and HR operational support even though they only hold historical lookup information. However they don,’t have to be a risk or a long term cost.
The People Analytics role in effective integrations
What are our old and new workforce demographics? Monitor key performance indicators (KPIs) pre and post deal:
- Geographic concentrations
- Demographic composition
- Key Performance Indicators: Performance ratings, Tenure, Turnover rates, Compensation & Labor cost
- Job titles and job function density concentrations
How do we optimize the workforces across both old and new structure?
Quantify and ensure risks are minimized, costs are minimized and quality maintained as much as possible during the end-to-end transition.
- Assessing Culture
- Engagement metrics/surveys
- Performance ratings history
- Identification and compensation assessments of key personnel, officers,
- Employee liability insurance
- Worker’s compensation insurance
- Health insurance costs/participation
- What layoffs and resultant severance costs will be likely in connection with the acquisition?
- treatment of personnel as independent contractors vs. employees
- State unemployment tax “dumping” audits and penalties
- Data Privacy Compliance for states and national regulations ( NY DFS, CA CCPA, EU GDPR, etc.)