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Small Business Bears Brunt of Cost of Compliance

If you run a small business and it feels like your pockets are getting picked, you’re not mistaken, according to a new study from the Small Business Administration (SBA). And the perpetrator is none other than the cost of complying with a host of federal regulations.

Small businesses face a disproportionate burden compared to larger firms when it comes to costs of federal regulation , according to “The Impact of Regulatory Costs on Small Firms,” a study released by the SBA’s Office of Advocacy. The study looked at the overall cost of federal regulations in four categories — economic, environmental, tax compliance and OSHHS (occupational safety and health and homeland security). Its findings were consistent with previous studies on the topic.

“Small businesses still face higher costs when they encounter government regulations compared to larger firms,” said Winslow Sargeant, chief counsel for the Office of Advocacy. “Today’s report shows that on a per employee basis it costs small firms $2,830 more than larger firms to comply with government regulations. That’s 36 percent difference and that is an unfair burden to place on American small business.”

The cost of complying with environmental regulations leads the list in having a disproportionate impact on small firms. It costs small business 364 percent more than large firms to comply with these regulations. The cost of tax compliance is 206 percent higher for small firms than for large ones.

The National Small Business Association (NSBA) endorsed the report.

“I think they’re spot on,” the NSBA’s Molly Brogan told BusinessNewsDaily. “They serve as an important regulatory watchdog for small business. We’ve been very concerned about this issue and have been monitoring it for a long time. Legislation on regulation must take into account the effect is has on small businesses.”

The report looked at the distribution of regulatory costs for five major sectors of the U.S. economy: manufacturing, wholesale and retail trade, services, health care and other, a category consisting of miscellaneous business types.

The disproportionate cost burden of small firms was particularly stark in the manufacturing sector, where the compliance cost per employee for small firms with fewer than 20 employees was more than double the cost for medium-sized and large firms. In the service sector there was parity in regulatory costs between small businesses and larger firms. The distribution of regulatory burden across firm sizes in the other major business sectors fell in-between.


Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.