America’s small business community has long lamented the heavy burden of government regulations on their operations. One specific area government regulations come down hard on small businesses is in the hiring of new employees.
The Regulatory Cost of Hiring A New Employee
According to a new report by the U.S. Chamber of Commerce Foundation, regulatory costs for hiring one new employee sets back small businesses a whopping $11,700 per year on average.
What’s more disheartening is that the costs of regulation to smaller businesses with 50 employees or less are nearly 20 percent higher than they are for the average firm, as per the report.
Unsurprisingly, the Chamber of Commerce Foundation’s report titled, “The Regulatory Impact on Small Business,” (PDF) found that current regulations as a whole bring “significant inhibiting effects on free enterprise, entrepreneurship, and especially on small business.”
Current Regulations Limit Free Enterprise, Entrepreneurship
Drawing from available research and from interviews with small business owners and regulatory experts, the Chamber of Commerce Foundation set out to determine the impact of federal, state and local regulations on small businesses.
“Small businesses are the foundation of our economy and the embodiment of the promise of American entrepreneurship,” said Carolyn Cawley, president of the U.S. Chamber of Commerce Foundation, which educates the public on the conditions necessary for business and communities to thrive. “Their vitality is our nation’s vitality, so we care deeply about what they need to succeed.
The Foundation aggregated all the resources and noted that final federal agencies small business regulations have increased to more than 88,000 in the past 22 years. Of these rules, 15,458 have been identified by federal agencies as having a negative impact on small businesses.
While the comprehensive literature review also found that research on the burdens of state and local regulations is surprisingly slim, the overall conclusion nevertheless was that small businesses are disproportionately hurt by burdensome government regulations.
Small Businesses Hurt by Government Regulations
Some specific ways the report identified that small businesses are hurt by government regulations, and which prompted President Trump’s recent Executive Order to cut two federal regulations for every new regulation enacted include:
- Costly workers compensation and unemployment insurance laws: These laws heaped on small businesses vary from $657 per worker in North Dakota to as high as $2,340 per worker in Alaska.
- Restrictive state occupational licensing rules: Often referred to as the right to practice, these licensing rules and costs are particularly dire in education, health care and financial service sectors.
- The maze of red tape: Beyond the federal level, businesses also deal with complex state and local red tape that often hamper growth and make doing business more difficult.
“This important report… points to the critical influence the regulatory environment has on a small company’s ability to launch, to grow and to thrive,” stated Carolyn Cawley.
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I have learned all about this in accounting class. It seems that fixed cost has a bigger impact on a business than variable cost – this is the reason why businesses can lose more money in hiring regs than hiring contractuals. Just stating what I learned.
You’re right, Aira. Thank you for that added note.