When a company acquires another company, it’s important to consider various compliance requirements and HR responsibilities. Here is an overview of some compliance issues to consider during and after an acquisition.
Background: Under federal law, an I-9 Form must be completed to verify that each new hire is authorized to work in the United States. Section 1 of the form must be completed by the end of the employee’s first day of work for pay (but it cannot be completed until the employee has been offered, and has accepted, the job). Employers must complete Section 2 within three business days of the employee’s start date.
For the purposes of the I-9, employers that have acquired another company have the option of treating employees who are continuing their employment as:
New hires. If so, the employer must complete a new I-9 for each employee; or
Continuing employment. If so, the employer must obtain and maintain the previously completed I-9 for each employee. Note: By taking this approach, the employer may also be responsible for any violations associated with the I-9s completed by the acquired company.
Employers must generally use the same option for all of the employees acquired in the transaction.
New Hire Reporting:
Background: Federal law requires that employers submit certain information to their state regarding each new hire within 20 days of the employee’s start date (several states have shorter timeframes). New hire reporting is included in many RUN Powered by ADP® packages.
Employers should check with their state New Hire Registry to determine if acquired employees must be reported. For example, the state of California says that if an employer acquires an ongoing business and employs any of the former owner’s workers, these employees are generally considered new hires and therefore should be reported to the state.
Note: If you are a multistate employer that has registered to report all new hires to a single state and experience an acquisition, update your information through the Multistate Employer Registry online registration.
Background: Employee handbooks can help employers communicate rules, benefits and other important information to employees. Generally, employers are not required to have an employee handbook, but some laws do require employers to communicate certain information to employees in writing.
When you add new employees through an acquisition or otherwise, make sure you provide them with a copy of your employee handbook. Ask them to sign a form acknowledging that they are responsible for reading, understanding, and complying with all company policies. Make sure you give them enough time to read and ask questions about the handbook before they are required to sign the acknowledgment form.
FMLA, Sick Leave, and Other Mandated Leave:
Background: The federal Family and Medical Leave Act (FMLA) requires employers with 50 or more employees to provide unpaid leave to employees for certain purposes. Several states have similar laws that may cover smaller employers. To be eligible for federal FMLA, employees must work for the employer for at least 12 months and perform at least 1,250 hours of service for the employer during year immediately preceding the leave. Separately, many states and local jurisdictions have enacted laws that require employers to provide paid sick leave and/or other types of leave to employees.
Under the FMLA, employers that acquire another employer may be considered a “successor in interest” and must follow certain FMLA guidelines. For example, a successor that meets FMLA’s coverage criteria must count an acquired employee’s periods of employment and hours of service with the predecessor for purposes of determining FMLA eligibility. If the successor doesn’t meet FMLA coverage criteria (50 or more employees), it must grant job-protected FMLA leave for eligible employees who qualified for leave while employed by the predecessor. See 29 CFR 825.107 for the criteria used to determine whether an employer is a “successor in interest.”
Employers covered by a sick leave law (or other leave laws) should review the relevant laws and regulations carefully to determine their obligations in the event of an acquisition. Even in the absence of a requirement to carryover unused sick leave for acquired employees, many employers do so to help maintain positive employee morale.
Background: No law requires employers to offer vacation to employees; however, for employers who do, they may have to follow certain state rules. For example, several states explicitly prohibit policies that force employees to forfeit unused vacation time (also known as use-it-or-lose-it policies). In these states, employers must generally pay employees for accrued, unused vacation at the time of separation. In some other states, employers can exclude accrued, unused vacation from final pay only if they have a written policy that explicitly states that employees will not be paid for that time. Some states don’t require payout at all. Keep in mind that these rules may cover paid time off (PTO) policies as well.
Employers involved in acquisitions should understand all vacation/PTO payout rules that apply to newly-acquired employees. Depending on the state and policy, employees may have to be paid out for unused vacation if they are acquired by a new employer. Alternatively, some states allow employers to give employees the option of receiving a payout or carrying over their unused vacation to the new employer. Even in the absence of a requirement, many employers will payout or carryover unused vacation to help maintain positive employee relations.
We have just scratched the surface of some of the HR compliance issues associated with acquisitions. Your specific requirements may differ based on your state and the type of transaction involved. If your business is contemplating an acquisition, make sure you understand the rules that apply and consult legal, benefits, and tax advisors as needed.