Paperwork has always been a burden for businesses of all sizes, especially paperwork that is required by various government agencies in response to regulatory requirements. However, while large companies often have well-staffed departments that specialize in the various paperwork requirements imposed on businesses by government agencies, small businesses often find the paperwork requirements to be crushing, since few of them have full-time staff people devoted to these matters, or even individuals with the necessary expertise.
"Small businesses face record levels of red tape under President Obama's policies, and America's small manufacturers can attest that the regulatory burden is a growing problem," said Rep. Sam Graves (R-MO), chair of the House Committee on Small Business. "Compliance costs are soaring for small businesses, which often do not have the employee expertise to decipher and handle more government paperwork and other mandates." As a result, according to Chairman Graves, small businesses are "forced to invest in attorneys, accountants, consultants, tax preparers, and other advisors, rather than their companies."
Chairman Graves added, "Small manufacturers and the entire economy would benefit from a major course correction away from burdensome government. It's time for Washington policies to start working with small businesses for growth, not against them."
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A recent report published by the National Association of Manufacturers (www.nam.org) confirms Chairman Graves' observations. The report, titled, "The Cost of Federal Regulation to the U.S. Economy, Manufacturing, and Small Business," noted that: "Our regulatory system produces unnecessarily costly rules, duplicative mandates, impediments to innovation, and barriers to our international competitiveness. Despite many initiatives and efforts to reduce the unnecessary regulatory costs imposed on businesses, the cumulative regulatory burden continues to expand."
The report also noted that regulatory and paperwork burdens are heaviest on small businesses and manufacturers, because their compliance costs can rarely benefit from the economies of scale that larger businesses usually enjoy. "The analysis finds that the average U.S. company pays $9,991 per employee per year to comply with federal regulations," noted the report. "The average manufacturer pays nearly double that amount – $19,564 per employee per year. Small manufacturers, or those with fewer than 50 employees, incur regulatory costs of $34,671 per employee per year. This is more than three times the cost borne by the average U.S. company."
The report broke down total Federal regulatory costs of $2.028 trillion this way: $1,448 billion for "economic" regulations, $330 billion for "environmental" regulations, $159 billion for "tax compliance" regulations, and $92 billion for "occupational safety and health, and homeland security (OSHHS)" regulations.
As noted earlier, businesses (manufacturing and non-manufacturing) of all sizes pay an average of $9,991 per employee per year to comply with federal regulations. However, small businesses (manufacturing and non-manufacturing) pay an average of $11,724 per employee per year.
While businesses of all sizes pay an average of $1,889 per employee per year for environmental regulatory costs, small businesses pay an average of almost double that – $3,574 per employee per year. Tax compliance costs for businesses of all sizes average $960 per employee per year, while those costs for small businesses average $1,518 per employee per year. OSHHS compliance costs for businesses of all sizes average $761 per employee per year, while those costs for small businesses average $970 per employee per year.
The only category for which small businesses pay less on average than businesses of all sizes is economic regulatory costs, with an average of $6,381 per employee per year for businesses of all sizes, and $5,662 per employee per year for small businesses.
Adding further burdens to small businesses is the fact that, rather than decreasing, regulatory-related paperwork from government agencies continues to grow. One example of an agency requiring more paperwork from businesses is the Occupational Safety & Health Administration (OSHA). For example, OSHA plans to issue a final rule in 2015 that will require employers to electronically submit certain information from the OSHA 300 log, OSHA 301 Incident Report, and OSHA 300A summary. Currently, employers must only provide this information if it is requested.
Another agency, the Environmental Protection Agency (EPA), is in the midst of proposing the very controversial "Waters of the United States" rule, which would expand the scope of the Clean Water Act, and, according to the House Committee on Small Business, impose a significant new burden on small businesses. "For small entities, such as a rural town government, a farmer, or a homebuilder, the determination of whether a water body is an adjacent water under the Proposed Rule will be well nigh impossible due to the inherent vagueness," said Chairman Graves.
Overall, besides the time required to fill out regulatory paperwork, the activity is having a negative financial impact on businesses, their employees, and the economy in general. When manufacturers participating in the NAM survey were asked what they would do with funds that are currently allocated for federal regulatory compliance, 63 percent responded that they would devote those funds to "Investment," 22 percent responded "Employee Initiatives," nine percent responded "Sales," four percent responded "ROI and Debt Reduction," and two percent responded "Other."
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