Why does modern slavery matter for small businesses?

Amidst an emerging global tariff war, companies seeking to drive down costs should keep in mind that there’s more at stake than the bottom line. Increased demand for low-cost labour and resources raises the risk of breaching modern slavery laws, which carry severe penalties. 

What is modern slavery?

Modern slavery relates to situations where individuals are exploited and cannot refuse or leave because of threats, violence, deception, or abuse of power. It includes practices such as human trafficking, forced labour, debt bondage, child labour, and servitude and is often hidden within supply chains or service industries.

How does the Modern Slavery Act impact smaller businesses?

While the Modern Slavery Act 2018 applies only to companies with a consolidated revenue of $100m or more, it has become more important in today’s economic environment for smaller businesses to take notice, too. For one thing, revenue thresholds can vary by state; NSW requires compliance from organisations with an annual turnover of over $50m. 

There are also several advantages to early preparedness, regardless of the size of your operations.

Supply chain due diligence can help you avoid a PR nightmare

Here is an example of what could go wrong. 

You are a rapidly growing manufacturer turning over $10m a year, meaning you haven’t hit any of the thresholds for modern slavery compliance. Performing a due diligence check on your suppliers is likely something you’ve never thought about. 

One day, without warning, one of your key suppliers is publicly outed for exploiting vulnerable people in a developing nation to make their products. The media go to town on the story, digging up every business connection so they can name and shame those who are guilty by association.

You find your company in the crosshairs, with more to lose than your biggest supplier. Your reputation and future credibility for securing major contracts also take a hit. So does employee morale when your staff are confronted with the realities of their employer’s supply chain. In addition, there are significant unplanned time and cost burdens involved in managing the crisis.

While this scenario may seem extreme, it’s more common than you might expect. 

Address modern slavery risks early

Resolving to put in place the proper measures to ensure this scenario doesn’t happen to you just makes good business sense. It also ensures you’re laying the right foundations ahead of time, so compliance is already woven into the fabric of your organisation when you do reach those thresholds. 

It is also worth noting that government and large entities are increasingly including modern slavery considerations in their tender processes. The clauses set expectations for suppliers to identify, assess, and address modern slavery risks in their operations and supply chains. Taking no action could see your business excluded from these lucrative contract opportunities.

Practical steps to reduce modern slavery risks

So, what do the proper measures look like in practice? They could include:

1. Publishing a company statement on modern slavery.
2. Updating supplier contracts to address modern slavery.
3. Incorporating due diligence and vetting into supplier onboarding processes.
4. Periodically reviewing your supply chains.
5. Conducting staff training.

Each of these plays an important role in demonstrating your company’s stance on modern slavery, and protecting against the ramifications of inadvertently engaging with it. 

Implications for international expansion and global compliance

On the same token, if you plan to expand your business operations overseas, you will want to work with an expert team that understands the landscape and can help you establish a presence lawfully. There are plenty of stories about well-meaning foreigners who unknowingly partner with local operators claiming to run legitimate businesses, only to later discover the exploitation of workers behind the scenes.

Play small, stay small

Having the right expertise at the right time can make all the difference as you embark on your business journey. While a young company might get by just fine with their everyday tax accountant, a growing enterprise needs guidance that not only helps you avoid risk but also empowers you to capitalise on opportunity. 

RSM’s audit and assurance team can work with you to implement appropriate modern slavery risk control measures – using our compliance audit expertise as a trusted benchmark. 

Could you benefit from an external audit?

You may also want to consider introducing periodic third-party audits, which is a great way to gain assurance, enhance investor confidence, and create avenues for suggestions on how to take your business to the next level. 

If you’re planning a joint venture with an overseas company and need to conduct due diligence or prepare for complexities such as transfer pricing, we can connect you with experts at RSM who specialise in these areas. 

Where overseas expansion is on the cards, we’ll put you in touch with RSM’s local presence in that region. With firms in 120 countries that are home to leading tax, audit and consulting professionals, we’re guaranteed to know someone who would be very happy to support your business through its next phase.

Our purpose is to help you make the best decisions for your business – including those that accelerate your path to success.

FOR MORE INFORMATION

To learn more about audit and assurance, or any other RSM services to support your business journey, please contact your local RSM office.