Big Burden on Small Firms

The cost of complying with federal regulations is a much bigger burden for small businesses than it is for large businesses.

That’s according to an updated study by the Small Business Administration’s Office of Advocacy, which found that small businesses pay $10,585 per employee to comply with regulations, compared with $7,755 for large businesses.

The office issued a similar report, with slightly different numbers, five years ago. The new report was released today at a symposium celebrating the Regulatory Flexibility Act, the law that requires federal agencies to analyze the impact of regulations on small businesses. If a rule has a significant economic impact on a substantial number of small businesses, agencies are supposed to consider less-burdensome alternatives.

The SBA’s Office of Advocacy is in charge of making sure federal agencies follow this requirement. Some agencies, however, tend to ignore the office’s input. That could change, due to a provision in the Small Business Jobs Act, which will soon become law. It requires agencies to respond to the office’s comments when it issues a final rule. It also provides a separate line item for the office in the SBA’s budget, enhancing the office’s independence.

The Office of Advocacy’s role as small businesses’ watchdog in the regulatory process is so important that many business groups questioned President Barack Obama’s selection of Winslow Sargeant to head the agency. Unlike his predecessors, Sargeant isn’t a lawyer—he’s a high-tech entrepreneur and venture capitalist. The fear was that Sargeant wouldn’t be an aggressive watchdog on the regulatory front. As a result, his nomination stalled in the Senate, and Obama used his power to make recess appointments to send him to work in August.

We’ll see if he walks the walk, but today he talked he talk when it comes to protecting small businesses from excessive regulation.

The large disparity between large and small firms when it comes to regulatory costs “is an unfair burden to place on American small business,” Sargeant said.

Large companies have more employees to spread the costs of regulatory compliance, which tend to be fixed.

The disparity between per-employee regulatory costs for large and small businesses is greatest with environmental regulations, which cost small firms nearly four times as much as large businesses. The per-employee cost of tax compliance is three times higher in small businesses, the study found.

Small manufacturers are at a particular disadvantage: Their per-employee regulatory compliance costs are more than double the compliance costs for larger manufacturers. Regulatory costs also are particularly high for small firms in the health care sector, according to the study.

The report does not address the benefits of regulation, a job left to others.

Supporters of strong regulation have accused the SBA’s Office of Advocacy of exaggerating regulatory compliance costs in the past, and they’ll probably dismiss this new study as well. They don’t think any business interest—even if they’re representing small businesses, not large corporations—should be given a special place at the regulatory table.

One of those critics is OMB Watch, a public-interest organization that just released a study on the Obama administration’s approach to regulation.

The Environmental Protection Agency has made “real progress” in “repairing some of the damage that was done during the Bush administration,” said Rick Melberth, director of regulatory policy at OMB Watch. The Occupational Safety and Health Administration, however, has gotten off to a slower start.

Politics also has impeded the Obama administration’s ability to pursue an aggressive regulatory agenda, according to OMB Watch.

“Conservatives and business leaders have been criticizing the Obama administration for rapidly expanding the regulatory state,” said Matt Madia, a regulatory policy analyst at OMB Watch. “This exaggeration and negative spin on the president’s record obscures the complexity of rule making within agencies and ignores the basic premise that regulation is necessary to prevent crises and keep people safe.”

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Kent Hoover is the Washington bureau chief for bizjournals.