How do I check employment records in due diligence?

Financial due diligence gets most of the attention on a small business deal, but employment records are where quiet, expensive problems tend to hide — a verbal promise nobody wrote down, a contractor who has really been an employee for years, a workers’ compensation balance nobody disclosed.

The core document list

• Written employment contracts and offer letters for every employee, and confirmation of who has none
• A current org chart with start dates, roles and reporting lines
• Payroll registers and source deduction remittance history
• Accrued vacation pay, overtime and any bonus or commission balances outstanding
• A workers’ compensation clearance certificate covering the seller
• Any restrictive covenants, confidentiality agreements or key employee retention arrangements already in place

Where classification problems hide

Check how every contractor or freelancer is actually treated day to day — set hours, exclusive engagement, tools supplied by the business, and ongoing supervision all point toward an employment relationship regardless of what the paperwork calls it. A misclassified worker can mean back entitlements the buyer inherits, particularly in a share sale where the corporation itself carries that exposure.

History that does not show up on a balance sheet

Ask about past terminations, any settled or pending employment standards complaints, human rights complaints, workers’ compensation claims, and grievances if any part of the workforce is unionized. A clean-looking payroll report says nothing about a wrongful dismissal claim quietly working its way through a tribunal.

Why the deal structure changes what matters most

In a share sale, every item on this list is a liability the buyer is about to own outright, so the diligence bar should be higher. In an asset sale, the focus shifts toward confirming which employees the buyer can realistically expect to hire, on what recognized service, and whether any of the seller’s past conduct could still attach to the buyer through continuity or successor rules.