The European Council has agreed on a significant update to company classifications under the “Omnibus IV” legislative package.

A new category — Small Mid-Cap Companies (SMCs) — is being introduced to bridge the gap between SMEs and large enterprises. This change aims to smooth the transition for growing businesses and maintain a supportive environment for scaling up.

But what does this mean for supply chain management, hiring companies, and suppliers operating across the UK and EU?

What’s Changing?

Under the new definition, SMCs will include companies with fewer than 1,000 employees and either:

• Annual turnover of up to €200 million, or
• Annual balance sheet total of up to €172 million.

This classification is designed to prevent a “cliff edge” effect when SMEs grow beyond their current thresholds. Companies falling into this bracket would previously have been classed as large enterprises under EU definition.

It ensures continuity in regulatory benefits and incentives, while encouraging SMEs to scale without fear of losing compliance advantages.

Note: The UK has already adopted the SME definition. At the time of publication, it is unclear whether it will adopt the EU SMC classification.

Why It Matters for Supply Chains

Supply chains are becoming increasingly complex, and legislation, particularly around ESG, often hinges on company size and turnover.

Frameworks like CSRD (Corporate Sustainability Reporting Directive) and CSDDD (Corporate Sustainability Due Diligence Directive) use these parameters to determine applicability.

For hiring companies, understanding where your business and your suppliers fit within these classifications is critical. It influences:

• Eligibility for sustainability and reporting requirements
• Insurance and risk management considerations
• Contractor qualification processes

For suppliers and contracting companies, this shift could open new opportunities, or introduce new compliance obligations, depending on where they fall under the updated thresholds.

Implications for Compliance and Risk Management

The influx of new legislation throughout the European Union is tied to company size and turnover, meaning businesses must stay informed.

Misclassification can lead to missed obligations or unnecessary costs. For example:

• SMCs may benefit from extended or modified measures under environmental regulations, such as those related to batteries and fluorinated greenhouse gases.
• Companies scaling up should plan for future compliance requirements early to avoid disruption.
• Failure to implement risk mitigation programmes focused on human rights issues within the supply chain.

Action Points for Companies Procuring Services and Materials

1. Map your supply chain: Categorise suppliers within the supply chain; identifying which suppliers fall under SME, SMC, or large enterprise categories.
2. Review ESG obligations: Check how CSRD, CSDDD, and other regulations apply based on new thresholds. You may be required to provide other companies with specific information as required by the legislation.
3. Engage suppliers: Communicate changes and collaborate on compliance strategies.
4. Leverage technology: Platforms like Avetta can help streamline contractor management and ensure visibility across complex supply chains.

Action Points for Suppliers and Contracting Companies

The new Small Mid-Cap (SMC) classification doesn’t just affect hiring companies; it also has implications for suppliers and contractors. Here’s what you should do to stay ahead:

1. Understand your classification: Confirm whether your organisation falls under SME, SMC, or large enterprise thresholds. This determines which compliance obligations apply to you under directives like CSRD and CSDDD and your supply chain respectfully.
2. Review contractual requirements: Expect hiring companies to update their procurement policies and ESG requirements based on these new classifications. Be prepared to provide accurate size and turnover data when providing the client with pre-contract award information; this will ensure that during the procurement cycle, any applicable information that needs to be collected and provided is factored into the delivery programme.  
3. Update compliance documentation: Ensure sustainability reports, due diligence processes, and health and safety performance, including any initiatives align with the latest EU standards. Misalignment could lead to lost contracts or penalties.
4. Communicate proactively: Inform clients of your classification and compliance readiness. Transparency builds trust and can position you as a preferred supplier.
5. Invest in technology: Consider platforms that streamline compliance and contractor management. Digital tools will help maintain visibility and meet evolving requirements efficiently.

Final Thoughts

This update is a strategic move to boost EU competitiveness and sustainability. For supply chain leaders, now is the time to assess your network, update compliance frameworks, and prepare for the evolving regulatory landscape.

Stay ahead of compliance changes. Learn how Avetta helps businesses manage supply chain risk and ESG obligations holistically.