Even with the push toward regulatory flexibility for small businesses at the federal and state levels, the average cost of compliance with federal regulations per employee is still 45% higher when compared to large employers.
According to a study released this week by the Office of Advocacy of the U.S. Small Business Administration, firms with fewer than 20 employees annually spend $7,647 per employee to comply with federal regulations, compared with the $5,282 spent by firms with more than 500 employees.
The report thoroughly analyzes compliance costs for economic, workplace, environmental, and tax regulations. It details regulatory costs for five major sectors of the U.S. economy: manufacturing, trade (wholesale and retail), services, health care, and other (a residual category), revealing that the disproportionate cost burden on small firms is particularly stark for the manufacturing sector. The compliance cost per employee for small manufacturers is at least double the compliance cost for medium-sized and large firms.
Among its other findings, the report also shows that the annual cost of federal regulations in the United States totaled $1.1 trillion in 2004.
Where do those trillion dollars go? Much of it ends up in the pockets of lawyers and accountants. In a duplicitous dance, lawyers and accountants help politicians shape much of the legislation behind these regulations. These same lawyers and accountants then turn around and charge hundreds of millions in consulting fees to their clients to keep them in compliance with the very laws they helped to write.
The tax and regulatory compliance industry is very large and very powerful. And their axis with politicians and bureaucrats may be nearly unbreakable.
The peer-reviewed study, The Impact of Regulatory Costs on Small Firms, written by W. Mark Crain with funding from the Office of Advocacy, updates two earlier reports from 1995 and 2001, which showed similar patterns of disproportionate regulatory burden borne by small businesses.
