The importance of robust payroll systems during M&A  

Recent headlines surrounding fast-fashion mogul Mike Ashley and his Frasers Group, which acquired brands I Saw It First and Choice, have highlighted the critical importance of robust payroll systems. After nearly £7 million in wages went unverified following the acquisitions due to missing payroll data, the group faced significant audit issues, sparking concerns over corporate governance. The incident serves as a stark reminder to businesses of all sizes, across various sectors, of the crucial preparations required to ensure payroll systems are resilient during such transactions.

Operational preparedness

A crucial factor to consider ahead of an M&A transaction is whether your business’s systems are ready to be integrated with another.

The lead-up to a transaction serves as an opportunity to review whether certain upgrades or changes are needed to ensure a smooth transition. Businesses must consider whether the existing systems can handle changes that come with a merger or acquisition. This can involve an increase in employee headcount or the introduction of new systems and processes. By being prepared for these operational changes, businesses stand a better chance of maintaining stability for management teams and wider employees.

Robust security measures

Data security is imperative during payroll integration due to the sensitive information involved. Systems that are used for HR requests, attendance monitoring and payroll management are likely to be streamlined or combined. When a transfer of data is taking place, security measures are crucial to ensure that data isn’t lost or mishandled.

Without robust security measures and thorough audits, the risks can be significant. Mishandling payroll data, as seen in the Frasers Group case, can lead to severe consequences for both the business and its employees. If employee HMRC records are lost or compromised, it can result in costly data breaches, regulatory penalties, and additional recovery expenses. 

Inadequate preparation can also lead to inaccurate reporting in company accounts, further compounding financial and reputational damage. Beyond the financial impact, such errors erode employee trust, attract unwanted publicity, and, in the worst cases, may lead to legal action.

Compliance and employee trust

Payroll issues can affect compliance, but they can also erode employee trust, an essential factor when retaining talent during a merger or acquisition. Changes in management and company culture are often inevitable during an M&A, so maintaining consistency in payroll processes, such as accurate and timely payments, is key.

If changes to payroll systems are unavoidable, it’s important for business leaders to keep employees informed and updated. Effective communication builds trust and instils confidence, even in times of transition.

By listening to any concerns about payroll or wider operational change, employers will be able to address challenges before the change goes live. Getting this wrong can be costly in the long run – not only can it affect a business’s reputation but can affect how employees feel about their financial stability and personal wellbeing.

Best practice for data migration integrity during M&A

For businesses to ensure operational systems work smoothly for both managers and employees in a merger or acquisition, there are some steps that can be taken to ensure smooth migration.

Strategic planning: Identify key stakeholders and ensure they are fully trained ahead of a system migration.

Comprehensive audits: Audit both systems to identify differences in functionality. No two systems are ever the same, and by understanding the intricacies of this, it can help to align them before starting the process. Bringing in experienced personnel to oversee the migration can significantly reduce risks and ensure compliance.

System understanding: Managers and business leaders must have a solid understanding of the payroll system that the business is migrating to. Pay attention to details like pay frequency, pension contributions, and any existing PAYE schemes. 

Regular audits: Ongoing audits of the payroll process will help to future proof the changes. Continuous backups and data reconciliations will allow businesses to spot a potential issue, and therefore be proactive in minimising any risk.

Leveraging technology: Ever-evolving technology, such as automation, can streamline payroll processes, reduce manual effort, and improve accuracy. Advanced systems can integrate data from multiple sources, providing efficiency and flexibility while minimising human error.

Preparing your business for an M&A transaction is all about having the right systems and processes in place to make the transition as smooth as possible for employees and business leaders alike. By adopting the correct auditing processes, whether that includes utilising experienced personnel or drawing on technology to speed up processes, the business’s data will be much better protected, reducing risks and ensuring long-term success.