During due diligence, the buyer engaged Stone Capital Partners to conduct a human capital audit. We immediately identified a critical compliance issue: the seller had misclassified the majority of its workforce as 1099 independent contractors when they should have been classified as W-2 employees. This misclassification created significant exposure across payroll taxes, workers' compensation insurance, employee benefits, and potential penalties. The issue threatened deal certainty and exposed the buyer to inherited liabilities that had not been factored into valuation or integration planning.
Working under a compressed 30-day timeline before close, we:
- Conducted a comprehensive workforce audit to assess the scope and financial impact of the misclassification
- Quantified the buyer's exposure across tax liabilities, insurance gaps, and regulatory risk
- Collaborated with the buyer's legal and financial advisors to model corrected compensation structures, benefits packages, and insurance requirements
- Developed a post-close reclassification roadmap that ensured compliance while minimizing operational disruption
- Provided the buyer with clear data to support deal term renegotiation
The compliance audit fundamentally changed the transaction. Armed with our findings, the buyer successfully renegotiated deal terms that reflected the true cost of workforce compliance. The revised structure included adjusted purchase price considerations and contractual protections for post-close remediation. Beyond the financial impact, our work gave the buyer confidence to move forward with clarity rather than walking away from a strategically valuable acquisition. Post-close, the company transitioned to compliant W-2 employment with proper benefits and insurance in place, eliminating inherited risk and positioning the business for sustainable growth.
