Modern Slavery Statements & PEOs: What Are the Ethical Ramifications?
November 6th, 2023
In today's global marketplace, where companies face increasing scrutiny regarding their ethical business practices, transparent and accountable human resources (HR) management strategies may play a critical role in promoting the right image. One important tool for achieving this is the Modern Slavery Statement, a requirement for organizations operating in several jurisdictions. If you're in the market for HR services, understanding the significance of these statements and their impact on ethical business practices is crucial.
These statements not only provide a framework for organizations to disclose their efforts in eradicating modern slavery and forced labor from their supply chains, but they also serve as a means of raising awareness among employees and stakeholders. By implementing effective HR management strategies, companies can contribute to eliminating unethical practices and fostering a culture of respect and fairness within their organizations.
This article explores the importance of modern slavery statements in driving ethical business practices and the role of HR professionals in ensuring their successful implementation. We will discuss the benefits of embracing ethical HR management, the challenges organizations may face, and strategies to overcome them. Join us as we delve into the world of ethical business practices and the integral role HR plays in making a difference.
What Is Modern Slavery?
Modern slavery is a term used to describe various forms of forced labor or exploitation. It's a hidden crime that, unfortunately, affects every country in the world, but there is hope. Governments, NGOs, and private organizations have begun raising awareness and taking action to make a difference. It's important to note that this industry generates billions of dollars each year and victimized 49.6 million individuals in 2021, with the victims being predominantly female and also including a lot of children.
Examples of modern slavery include debt bondage, human trafficking, unlawful recruitment, and forced marriage. These practices are prevalent in many industries, including agriculture, manufacturing, mining, and hospitality, among others. It is a complex issue that requires a multifaceted approach to address. Governments, NGOs, and businesses all have a role to play in combating this problem. For companies whose business models incorporate human capital management, understanding the nuances of modern slavery and its impact on businesses is of high importance.
What Legislations Have Addressed Modern Slavery?
There are a few recent laws that have targeted and defined modern slavery laws, one originating within the US and two from other nations: the United Kingdom (UK) and Australia.
The California Transparency in Supply Chains Act
The first statement to come out was the California Transparency Act, also known as the Transparency in Supply Chains Act of 2010. California put in place this law to require companies doing business in California and having over $100 million in annual worldwide gross receipts to publicly disclose their efforts to eliminate slavery and human trafficking from their supply chains. The law applies to companies that identify themselves as retail sellers or manufacturers on their California tax returns. These companies must post disclosures on their websites regarding five aspects: verification, audits, certification, internal accountability, and training. The goal of the law is to inform consumers and businesses about those companies' actions to address slavery and human trafficking in their supply chains.
The UK Modern Slavery Act
The first international legislation to have come out is the Modern Slavery Act of 2015, a piece of legislation enacted by the UK Parliament that mainly applies to companies operating in England and Wales, as well as in Scotland and Northern Ireland, to a lesser degree. The UK's act against modern slavery consolidates all definitions of offenses related to trafficking and slavery. It requires businesses to disclose a 'slavery and human trafficking statement' that spells out the actions they took to understand all potential modern slavery risks, as well as the steps they took to prevent these offenses within their dealings. It also enhances punishment for modern slavery crimes and the court's ability to protect people from harm.
Australia’s Modern Slavery Act
The Modern Slavery Act of Australia was passed by their parliament in 2018. It says that Entities in Australia with over AU$100 million annual revenue must annually report how they address modern slavery risks in their operations and supply chains. The act also mandates a 'slavery and human trafficking statement,' like those of the California and UK acts. It establishes a Commonwealth Anti-Slavery Commissioner to monitor compliance and publish guidelines. The legislation is currently under review for the first few years of its implementation.
What Are Modern Slavery Statements?
Modern Slavery Statements are a requirement for organizations that operate and meet specific financial criteria in the jurisdictions of the UK, Australia, and California. These statements require companies to disclose their efforts to identify and address modern slavery and forced labor in their supply chains.
Modern Slavery Statements typically include information on a company's policies and procedures for preventing and addressing modern slavery, as well as details on their due diligence processes for identifying and mitigating higher-risk areas. Companies may be expected to provide examples of the steps they have taken to eradicate modern slavery, as well as their plans for future actions.
The legal requirements for modern slavery statements
As previously mentioned, a company with a minimum annual revenue has to issue and display a modern slavery statement in those three regions. In the UK, all companies with a turnover of £36 million or more are required to produce such a statement or incur fines and reputational damage. In Australia, that number is $100 million (AUD) or more, and in California, it’s $100 million (USD).
A modern slavery statement is not just a matter of ticking boxes, and a company needs to go through several steps to ensure their statement is effective and engaging. Some of those key steps are:
- Due Diligence: Companies should conduct due diligence to identify and mitigate modern slavery risks in their supply chains. This can involve conducting audits, engaging with suppliers, and implementing risk management strategies
- Policies and Procedures: Companies should develop policies and procedures to prevent and address modern slavery and forced labor in their supply chains. These policies should be communicated to employees, suppliers, and other stakeholders
- Training and Awareness: Companies should provide training and awareness programs to employees and suppliers to raise awareness of modern slavery and promote ethical business practices. This can involve providing training on identifying and reporting modern slavery risks, as well as promoting a culture of respect and fairness
Do PEOs Need to Display Those Statements?
Some PEO companies are required by law to display a modern slavery statement, which discloses their efforts to prevent modern slavery and human trafficking in their operations and supply chains. Though it’s only a requirement for a larger company that operates in those countries or states with high revenue, this statement goes a long way to legitimizing a PEO because it demonstrates their commitment to ethical practices and respect for human rights worldwide. It is especially important in companies with extensive international professional services and reach because it ensures that their clients follow legal and ethical standards for hiring and paying their workforce.
Benefits of implementing modern slavery statements in PEOs
Implementing modern slavery statements in a PEO, or any HR management services company, can have several benefits for them and their clients, including the key issues of:
- Enhancing Transparency and Accountability: These statements provide a framework for companies to disclose their efforts to eradicate unethical work conditions and forced labor from their supply chains. By being transparent about their policies and procedures, companies can build trust with stakeholders and demonstrate their commitment to ethical business practices
- Reducing Risks: Companies can avoid reputational damage, legal risks, and financial losses by identifying and addressing modern slavery risks in their supply chain. To minimize their clients’ exposure to such risks, PEOs need to conduct due diligence and implement effective risk management strategies. This would involve closely examining their entire supply chain and taking proactive measures to prevent modern slavery from occurring. By doing so, companies can ensure that they are not inadvertently supporting unethical practices and can uphold their reputation as socially responsible organizations
- Attracting and Retaining Talent: Companies that prioritize ethical HR management are more likely to attract and retain top talent. By creating a workplace culture that acts in accordance with the values of respect, fairness, and inclusion, companies can build a strong employer brand and attract a diverse range of candidates
The PEOs Implementing Modern Slavery Statements
Most PEO or HR outsourcing companies we have encountered do not display such statements on their websites. For most, it may simply mean that they do not operate in the UK or Australia, or if they do, their reported annual turnovers are less than the minimum requirements. Even top US-based companies may not be large enough to meet the criteria set out by the California Transparency Act.
That being said, a few PEOs do display modern slavery statements online, as signed by their chief executive officers, which talk about their implemented mitigation strategies, including:
- ADP: As a large, international HR solutions provider who employs over 60,000 individuals and whose 2023 financial year brought revenues of $18 million, ADP does issue a statement that demonstrates their full adherence to the UK and Australian Modern Slavery acts, although they do not mention the California act. ADP says that they have committed to minimizing the risk of modern slavery in their operations, procurement, and supply chain. They have revised their code to explicitly state that their approach to human rights is consistent with the United Nations Universal Declaration of Human Rights. They provide annual training to all associates on the code and modern slavery to help them identify and mitigate such risks in the supply chain or operations
- Omnipresent: As a global employment company that was founded in England, and which has raised $120 million in 2022, they fit the criteria of the UK Act. As such, Omnipresent displays their modern slavery statement on their website, which briefly outlines their commitment to preventing human trafficking and slavery in their supply chains and operations. They acknowledge that their services are offered in high-risk regions, and say that they have taken specific measures to ensure that they practice ethical employment, including instituting a whistleblowing policy and developing a set of guidelines that will solidify their stance
- Mercans: It’s unclear if this global payroll and HR company is required to put out a statement, as their stated revenue of USD 76 million is below the requirements. That being said, they put out a statement to show their commitment without mentioning any specific legislation. In it, they share their strategy of supplier due diligence, raising employee awareness, policy review, continual risk assessments, and taking corrective measures
The Bottom Line
All in all, it’s clear that displaying a modern slavery statement on a company's website is an important step towards demonstrating a dedication to ethical business practices and respect for human rights. PEO companies such as ADP, Mercans, and Omnipresent have demonstrated their commitment to addressing modern slavery risks in their operations and supply chains.
Companies can build trust with clients and stakeholders and make informed decisions by implementing strategies to mitigate slavery and human trafficking risks. Laws brought forward by the California Transparency Act, the Modern Slavery Act 2015 (UK), and the Modern Slavery Act 2018 of Australia require businesses to disclose information regarding their efforts to assess and address the risks of modern slavery in their operations and supply chains. Compliance with these acts will enable companies to demonstrate their commitment to ethical business practices and respect for human rights.
A PEO that displays such a statement tells their clients that they have a strict modern slavery policy, and that they don’t have to worry about being compliant with modern ethical employment standards. Clients can rest easy knowing they contribute to eliminating modern slavery and forced labor from their supply chains and fostering a culture of respect and fairness within their organizations.