Why Your Employee Policies Could Make or Break Your Business Sale

In this episode of Mergers She Wrote, employment law expert Sarah O’Keefe explains why getting your people and policies in order is essential if you want to protect your valuation and avoid last-minute deal breakers.

One of the biggest risks is misclassifying workers as independent contractors when they should be employees. If someone works on a set schedule, uses your equipment, or plays a key role in your daily operations, chances are they should be on payroll. Misclassification might not seem like a big deal, but during due diligence it can lead to wage claims, tax issues, benefit disputes, or even discrimination concerns. These problems do not disappear when you sell your company. In fact, they often come up during audits that can look back years and carry serious penalties.

The episode also explores a common mistake many business owners make: using full employment contracts when a simple offer letter would do. Full contracts can limit your flexibility and create unnecessary legal exposure. For most team members, an offer letter is enough. Reserve contracts for executive-level roles.

Another red flag is inconsistent benefits. If perks like bonuses or paid time off are being offered unevenly, especially to family members, that can raise compliance issues and open the door to discrimination claims. Every benefit should be clearly tied to legitimate classifications, like full-time versus part-time or exempt versus non-exempt status.

If you do have family members on payroll, treat them like any other employee. Document their job, hours, and pay. Make sure they are doing real work. These details matter if questions arise during a sale.

One of the most important takeaways is the need to get your systems in place early. Many small businesses wait too long to create clear employment policies. But once you hit 10 to 15 employees, more labor laws apply and the risk increases. Sarah recommends setting up policies and doing internal audits well before you ever think about selling.

The message is simple. Good HR practices are not just about staying compliant. They help you build a business that is easier to sell and more valuable when the time comes. Listen in for practical, real-world advice every business owner needs to hear.