BUYING A BUSINESS - PAYROLL

When it comes to assessing the employee costs involved in a business acquisition, the focus is typically limited to reviewing the seller’s corporate financials and projecting those costs going forward.

Nevertheless, in making that review, rarely, if ever, does the prospective purchaser scrutinize the payroll practices and pay calculations of the seller’s business.

And employee payroll can be exceedingly costly if mistakes have been made, with the legal and financial obligation falling on the employer, which is the purchaser after the closing of the business acquisition. These costs can be truly staggering, as they involve both unpaid earnings that have accumulated over many years and increased employee pay on a forward-going basis.

Through our own extensive analysis of Canadian employee payroll, this is a major problem throughout the country, impacting big and small employers, and driven by the improper use of payroll software built for United States payroll practices and computations.

Unfortunately, as the prospective purchaser, if you don’t request access to payroll and know what you are looking for, you’re going to be oblivious to the potential payroll disaster that is looming in the business’ future. It is always possible that you can perpetuate the seller’s stated ignorance of the payroll errors, which are in fact exceedingly common, the concern is when it does come to light and you, as the current employer, have to pay both unpaid earnings from the past and heightened employee pay going forward.

Even though ignorance may be bliss, it can also be very costly, such that appropriate steps and precautions should be taken to minimize the financial impact associated with employee payroll when acquiring a business. Once you understand the unique differences of payroll, from province to province, and how it differs from US payroll and American originating payroll software, will you properly understand its significance and how costly it can be.

Working with experienced legal counsel when acquiring a business is invaluable to the purchase process, given the many dimensions, problems and issues that can arise in putting the deal together and completing it to realize your intended goals. To learn more about our legal practice with respect to the purchase and sale of businesses, contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.