Payroll due diligence in Romania for the renewable energy sector: 7 red flags to avoid

In the solar and wind energy industry, payroll structures can be complex due to geographically dispersed projects, reliance on subcontractors, and evolving labour regulations. During mergers, acquisitions, or investments, payroll due diligence in Romania for the renewable energy sector is essential to identify hidden liabilities and ensure compliance.

Below are key red flags to watch for during the analysis of such due diligence:

1. Misclassification of employees vs. contractors

Renewable energy companies often use independent contractors for construction, installation, and maintenance. A red flag arises if these individuals are functionally employees but classified as contractors to avoid payroll taxes or benefits – exposing the company to back taxes, penalties, and legal risks.

2. Non-compliance with local labour laws

Projects may span multiple regions or countries, each with distinct wage laws, social security rules, and collective bargaining agreements. Inconsistencies in pay practices, benefits, or leave entitlements across jurisdictions can lead to fines, litigation, or reputational damage.

3. Unpaid or underreported payroll taxes

Payroll tax underpayments – whether due to miscalculations, incorrect computation base, late filings, or incorrect employee classifications – pose significant risk. Warning signs include discrepancies between payroll records and tax filings, or historical audits and penalties from tax authorities.

4. Use of subcontractors without oversight

Using third-party labour providers is common in renewable energy construction. However, red flags include missing contracts, lack of proof of tax compliance by the subcontractor, or co-employment risks if management oversight is too direct.

5. Unrecorded bonus, overtime, or severance liabilities

Improper tracking or recording of accrued but unpaid bonuses, overtime, or severance obligations may distort the true payroll liability. These issues are particularly common in seasonal or milestone-based projects.

6. Inadequate HR systems and documentation

Poor recordkeeping of employment contracts, mandatory medical check-up, health and safety procedures, timesheets, wage adjustments, or terminations can hinder compliance and raise concerns about wage theft or labour disputes. Absence of documentation around benefits and equity compensation (such as stock options or phantom shares) is also a red flag.

7. Pending or past labour disputes

Any history of employee lawsuits, union actions, or labour authority investigations should be scrutinised. These may signal systemic issues in workforce management or potential liabilities not reflected on the balance sheet.

Identifying and addressing the red flags in payroll due diligence in Romania for the renewable energy sector

Payroll due diligence in the renewable energy industry requires a close look at workforce structure, compliance with the applicable tax treatment of salary-related income, compliance with labour laws, and internal controls. Identifying and addressing these red flags helps investors and acquirers avoid costly post-transaction surprises and ensures a compliant, sustainable operation.

How we can help

An effective due diligence analysis reveals red flags and vulnerabilities within compensation policies among the companies within the renewable energy sector

Our specialists are ready to offer you support in conducting a thorough due diligence review by evaluating the payroll situation and HR administration processes in Romania, providing clarity and assurance in the context of mergers, acquisitions, or investments.