Before acquiring a company, we need to know much more than just how many employees it has or what its monthly payroll costs are. We may encounter differences in collective bargaining agreements, incorrect social security contributions, bogus self-employment, irregular temporary contracts, open lawsuits, outstanding overtime, or commitments to managers that can significantly alter the true cost of the transaction.
That's why a labor audit before buying a company is one of the most important reviews before closing an acquisition.
At MGI Àmbit we specialize in labor consulting for companies and labor due diligence. From Barcelona, we analyze the target company's labor situation so that the buyer understands the workforce they are acquiring, their existing obligations, and potential contingencies after closure.
Quick answer: a pre-acquisition labor audit allows us to review contracts, salaries, collective bargaining agreements, social security, bogus self-employment, litigation, risk prevention, equality plans, and management conditions. At MGI Àmbit we don't just detect issues: we identify the labor contingencies that could truly affect the transaction and quantify their potential impact so the buyer can make informed decisions before signing.
Why conduct a labor audit before buying a company?
Workplace problems can remain hidden until long after the acquisition.
Before finalizing any purchase or sale transaction, make sure you understand all the hidden labor risks. Our experts in labor law and business consulting analyze every detail so you can make informed decisions.
A company can have a seemingly stable workforce and, at the same time, accumulate obligations that have not yet become claims.
Workplace hazards that can be turned into money
In a labor audit before buying a company, we can detect:
- Salary differences compared to the collective agreement.
- Incorrect quotes.
- Outstanding overtime hours.
- False self-employed workers.
- Temporary contracts used irregularly.
- Incorrect professional categories.
- Labor litigation.
- Special compensation for executives.
- Non-compliance with occupational risk prevention.
Our job is to separate a minor incident from a contingency that could have a significant impact on the purchase.
What do we review in a labor due diligence
A labor due diligence should allow us to understand how the workforce actually works and not just check if there are signed contracts.
Employment contracts and seniority
We check that the contract, working hours, seniority, professional category, and salary conditions match reality.
An incorrect seniority or a lower professional classification than the one that corresponds may subsequently generate claims for amounts or higher termination costs.
Collective agreement and wages
We check which collective agreement is applicable and whether the company is respecting it:
- Salary tables.
- Accessories.
- Day.
- Extra payments.
- Antique.
- Permits.
- Specific bonuses.
This part is especially important in companies that have grown rapidly or that have several work centers.
Social Security contributions
We analyze contribution bases, salary concepts, registrations, cancellations and possible accumulated differences.
A labor audit before buying a company should allow us to detect any contingencies with Social Security before the buyer discovers them after closing the deal.
False self-employment and disguised employment relationships
The existence of professionals who invoice as freelancers but actually work within the business organization can be one of the most significant risks of a pre-purchase employment review.
What we analyze
We don't just look at whether there's an invoice.
We study elements such as:
- Schedule.
- Organizational dependency.
- Means used.
- Method of providing the service.
- Remuneration.
- Integration within the company.
- Percentage of shares.
- Whether he holds the position of Administrator or Chief Executive Officer, and whether this position is remunerated or not.
If an employment relationship actually exists, back payments, penalties, and recognition of labor rights may appear.
Business succession and Article 44 of the Workers' Statute
When we acquire a company, a workplace or a production unit, we must analyze whether we are dealing with a business succession.
Article 44 of the Workers' Statute establishes that, when the transfer affects an economic entity that maintains its identity, the new employer is subrogated to the labor and social security rights and obligations of the previous one.
Liability for prior obligations
In inter vivos transfers, the transferor and transferee are jointly and severally liable for three years for labor obligations prior to the transfer that have not been satisfied.
That is precisely why we consider it essential to conduct a labor audit before buying a company when the operation may involve business succession.
Purchase of shares
If we buy shares in a company, the employer remains the same company.
In that case, there is no change of employer due to the mere change of shareholders, but all labor contingencies remain within the company we are acquiring.
Labor litigation and pending claims
A labor audit prior to purchasing a company should also identify all procedures that may have consequences after the acquisition.
What work procedures do we review?
- Dismissals challenged.
- Wage claims.
- Collective conflicts.
- Professional classification procedures.
- Open labor inspections.
- Work accidents.
- Claims related to labor rights.
It is not enough to know how many procedures exist. We must analyze their potential value, status, and likelihood of generating an obligation for the company.
Timekeeping and overtime
Recording working hours is another point we review within a labor relations audit.
Daily work log
The company must guarantee the daily recording of the start and end times and keep it for four years.
A lack of records or a significant difference between the recorded hours and the hours actually worked may indicate a risk.
Wage claims
The four-year retention period does not mean that any salary amount can be automatically claimed for four years.
The Workers' Statute establishes, in general, a period of one year to claim economic compensation from the date on which the action could be exercised.
Prevention of occupational risks before an acquisition
In industrial, logistics, construction or other sectors with greater exposure to risk, this analysis can be especially relevant.
What preventive labor documentation do we analyze?
- Risk assessments.
- Preventive planning.
- Internal investigations.
- Surcharges on benefits.
- Actions of the Labor Inspectorate.
Our goal is to detect if the buyer is entering a company that has preventive deficiencies that could generate future liabilities.
Equality plans and collective labor obligations
Companies with 50 or more employees are required to have an equality plan in accordance with applicable legal rules.
Are you considering acquiring a company and don't know where to start with labor due diligence? At MGI Àmbit we guide you through the entire process with a multidisciplinary team of specialized lawyers and economists.
What we checked
As part of the labor audit before purchasing a company , we review, when applicable:
- Existence of the equality plan.
- Record.
- Validity.
- Compensation audit.
- Protocols against harassment.
- Legal representation of the workers.
- Collective agreements in force.
These obligations are especially important in medium and large companies and should not be left out of a labor due diligence.
Senior management, bonuses and special clauses
Executive contracts can contain obligations far exceeding those found in an ordinary payroll.
What do we look for in executive contracts?
We specifically reviewed:
- Agreed compensation.
- Pending bonuses.
- Variable compensation.
- Non-compete agreements.
- Commitment clauses.
- Conditions associated with a change of control.
If the acquisition is going to cause changes in the management team, knowing these conditions before signing can be crucial.
How we use labor due diligence to protect the buyer
Detecting a contingency is not very useful if we then don't know what to do about it.
At MGI Àmbit we guide the labor audit before buying a company towards decision-making.
We quantify occupational risk
Whenever possible, we calculate the economic exposure of the main contingencies.
We prioritize risks
We do not give the buyer an endless list of issues without any hierarchy.
We differentiate between:
- Critical risks.
- Relevant economic contingencies.
- Situations that require regularization.
- Incidents of lesser impact.
We indicate what should be resolved before closing
Certain irregularities can be corrected before the acquisition is completed.
Others will need to be identified and handled later.
How do we conduct a labor audit before buying a company at MGI Àmbit
Our approach focuses exclusively on understanding the working reality of the target company.
1. We request employment documentation
Contracts, payrolls, agreements, contributions, time records, open procedures, management information, preventive documentation and collective agreements.
2. We cross-referenced the documentation
We do not check each document in isolation.
We compare contracts, payrolls, actual functions, collective agreement, contributions and the worker's actual situation.
3. We detect work-related contingencies
We identify which situations could turn into claims, regularizations, or higher costs for the buyer.
4. We quantify the relevant contingencies
When we have enough information, we estimate its potential economic impact.
5. We deliver clear conclusions
We want the buyer to be able to quickly find out what labor issues exist and which ones should influence their decision.
MGI Àmbit: specialists in labor due diligence in Barcelona
At MGI Àmbit we have a team specializing in Labor Law and labor management of companies.
That daily experience managing contracts, payroll, agreements, contributions, dismissals, labor disputes and collective relations allows us to analyze a company from within and detect problems that may go unnoticed in a superficial review.
When we conduct a labor audit before buying a company, we are not only looking to check documentation.
We want to answer the questions that the buyer really needs answered:
- Is the staff properly hired?
- Is payment being made according to the agreement?
- Are there any workers who could file a claim?
- Are there bogus self-employed workers?
- Are there any outstanding debts or price differences?
- What lawsuits are currently open?
- What commitments do managers have?
- What irregularities should we correct?
- What might the actual labor costs be after the purchase?
This approach allows us to transform the labor review into a decision-making tool and not just a simple documentary report.
Conclusion: The labor review should be carried out before signing
A labor audit before buying a company allows us to discover risks that can completely change the valuation of an acquisition.
Incorrect contracts, bogus self-employment, salary differences, social security contributions, litigation or collective breaches can become significant costs after closure.
The sooner we conduct the review, the greater our capacity will be to analyze the situation and decide how to address the contingencies detected.
At MGI Àmbit we specialize in labor consulting for companies and labor due diligence. We review the target company with a technical and business focus so that the buyer can understand the labor situation before taking it over.
Frequently asked questions about labor audits before buying a company
What does a labor audit before buying a company include?+
We review contracts, salaries, collective agreements, social security contributions, bogus self-employed workers, litigation, timekeeping records, risk prevention, equality plans, managers and any other labor obligation that could generate a contingency for the buyer.
Why is it important to conduct labor due diligence before buying?+
Because many labor-related contingencies don't appear clearly in the company's accounts. Detecting them before closing allows you to know the true cost of the workforce and prevent certain irregularities from being discovered after the acquisition is complete.
Can the buyer assume previous employment debts?+
Yes, depending on the structure of the transaction. When there is a transfer of undertaking in accordance with Article 44 of the Workers' Statute, the transferor and the transferee are jointly and severally liable for three years for any outstanding employment obligations prior to the transfer.
What happens if we detect bogus self-employed workers?+
We must analyze the actual employment relationship of each professional. If a disguised employment relationship exists, it may reveal outstanding social security contributions, penalties, and unpaid labor rights. That's why it's one of the contingencies we consider a priority in a pre-purchase employment review.
Do companies with 50 employees need an equality plan?+
Companies with 50 or more employees are required to develop and implement an equality plan in accordance with the legal rules for calculating such plans. Furthermore, these equality plans must be registered with the appropriate registry.
Why choose MGI Àmbit for employment due diligence?+
Because we specialize in business labor consulting and have practical knowledge of contracts, agreements, payroll, social security contributions, disputes, and collective bargaining obligations. Our approach consists of identifying and prioritizing the labor-related contingencies that could actually affect the buyer before closing the deal.
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A well-executed labor due diligence process can save you thousands of euros in future contingencies. Contact MGI Àmbit and discover how to protect your investment from day one.
Do you have any questions about this topic?
Our team of expert advisors will help you resolve any issues related to our services.
Contact us now
A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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