HR leaders need to consider many issues, including benefits, compliance, payroll and culture, as they work through the mergers and acquisitions (M&A) process.

There's a lot for HR to consider regarding mergers and acquisitions, particularly around managing benefits administration and streamlining payroll processes while ensuring that compliance requirements are met.

Sushma Tripathi, ADP Vice President of Strategic Advisory Services, provided some insight into handling the HR challenges in mergers and acquisitions. Tripathi notes that it is important to "analyze everything that is being offered – both traditional and voluntary benefits" from the beginning of the M&A process to obtain a full understanding of what the acquired company is actually offering and ensure sound M&A decision making.

To help facilitate a smooth transition during M&A, here are some best practices to keep in mind.

Conduct a benefits analysis

As you consider benefits plans during M&A proceedings, be sure to examine what your business offers and what the other business offers. Tripathi suggests starting your analysis by taking inventory of all facets.

For example, she recommends comparing group health plans – medical, prescription, dental, and vision coverage including flexible spending accounts, (FSAs), health savings accounts (HSAs) and other benefits. Other group plans include life insurance, accident insurance, disability insurance, as well as voluntary benefits.

Make sure you review the following:

  • Funding arrangement – fully insured vs. self-insured, and associated claims experience
  • Create a listing of carriers, vendors and administrators involved in the process; including plan documents, fees, contracts, effective dates and end dates, if any
  • Cost sharing arrangement including employee and employer contributions

These will be key considerations when your business decides whether to include elements from the current plans. Tripathi also notes the importance of accounting for statutory workers' compensation, which can be different in all states.

Other areas worth surveying includes the process and tools used for:

  • annual enrollment
  • new hires/newly eligible employees
  • qualified life events
  • dependent verification
  • leaves of absence
  • PTO allotment and administration
  • carrier integration, including billing and remittance

You also must consider retirement and savings plans, including:

  • defined benefit and defined contribution plans
  • supplemental retirement plans
  • employee stock purchase plans
  • restricted stock purchase plans
  • financial wellness

Finally, review other fringe benefits such as educational assistance programs as well as employee discounts and awards programs. All tie into total compensation, which is important to everyone at your organization.

"In general, it's a good idea to create a list of each plan and program so you know what's offered, what's provided and who's administering it," says Tripathi. Doing so can help you ensure that the offerings included in your new program are in line with the aims of your organization.

Meet compliance and regulatory requirements

"Compliance related complexities can result in operational issues and unexpected costs, including fines and penalties," says Tripathi.

It's critical to meet compliance and regulatory requirements throughout the M&A process to mitigate risks to your business. A top issue in this regard is satisfying the conditions of the Affordable Care Act (ACA). You'll want to make sure that the acquired organization is in compliance with all ACA requirements.

You will also need to ascertain who is responsible for COBRA compliance and ERISA compliance to ensure that those requirements are being met as well. For instance, ERISA compliance under the Pension Benefit Guaranty Corporation requires that Form 5500 be filed by the plan administrators as well as adequate funding status.

Other compliance and regulatory matters worth examining in M&A situations include employment agreements and non-compete agreements, HR contract vendor agreements, union contracts, commitments to retirees, fringe benefits, severance plans, bonus payments and unemployment compensation. Tripathi recommends that businesses remain mindful of any agreements and promises that were made before the M&A process began, such as commitments around business vehicles or club dues. She also advises organizations to think about any unwritten practices that could affect compensation and benefits.

It's also important to track any pending litigation involving the business, such as wage and hour litigation, to avoid a wrongful discharge matter during the M&A process. Also, be sure to collect standard operating procedures, including HR policies and employee handbooks, to help with your analysis.

Manage payroll challenges

To reduce HR challenges in mergers and acquisitions, you'll need to consider several factors when you add payroll into the mix. Tripathi suggests deciding how you will define a work week, a workday, work shift, pay frequency and pay day first. From there, you can look into other details, such potential changes to your security access rules, gross-to-net calculations, paperless processes, direct deposits, manual checks, pay cards, pay statements, Form W-2 processing, check reconciliation, positive pay and benefits integration. Checking that tax compliance and registration are in order is also critical, because you may need to meet regulatory requirements across different states or jurisdictions.

Proper payroll process integration is key to ensuring that employee paychecks and salaries look the same after the M&A. Tools and technology integration will be important as well, so you will likely need to compare employee and manager self-service tools, call centers, web portals and mobile apps across organizations.

Also, consider tax compliance, tax registration as new states and jurisdictions may be a part of M&A.

Finally review vendors and processes for garnishment as well as W-2 processing and other monthly, quarterly and annual processes including key metrics and service level agreements.

Tripathi advises HR leaders to remain mindful of onboarding and new hire processes, the effective dates of all plans, and termination dates as you make M&A payroll decisions.

Address potential culture clash

"Remember that mergers, acquisitions and divestitures play a crucial role in shaping an organization's business portfolio for long-term gains; they generally fail due to inadequate strategy, communication and employee retention issues," says Tripathi.

Many HR challenges in mergers and acquisitions will require you to ensure that culture integration during the M&A process is positively influencing your organization's productivity and profitability. To that end, carefully draft all internal messaging and adopt a transparent communication strategy to minimize disruption.

According to Tripathi, "Lack of communication around timing, expectations, roles and responsibilities, as well as next steps can lead to employee distrust and lack of engagement." Combining companies with misaligned cultures can result in low morale, reduced productivity, diminished performance, inconsistent customer service, departure of key talent, revenue/profit loss and tarnished brand image.

To make sure you are reaching everyone, Tripathi suggests getting a list of employees who are on leaves of absence, COBRA, short-term disability, long-term disability or worker's comp before you begin communications.

Tripathi recommends that businesses "think about what employees would lose and what they would gain" as a result of consolidation. And most importantly, what is the employee experience. By adopting this mindset, organizations can solidify cultural integration efforts and work toward conducting a successful merger or acquisition.

Case study & video

Discover how ADP helped home security company ADT overcome their growing pains through strategic planning and communications support – ultimately leading to an enhanced employee experience and time and cost savings.

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