Half of Small Businesses Say Regulations are a Problem

Tom Scott
CA Executive Director, National Federation of Independent Business

According to new research by the National Federation of Independent Business (NFIB), small business owners are drowning in regulations imposed by every level of government. It is a major problem affecting millions of businesses, and the federal government is the biggest contributor.

For small businesses in California, however, we know that in many areas including labor and environmental law, the state frequently reaches far beyond federal regulations, which only compounds the regulatory burden imposed by the federal government.

According to the survey, 25 percent of small employers say regulations are a “very serious problem.” Another 23 percent say regulations are a “somewhat serious problem.”

While regulations affect small businesses of every size, firms with 20 to 249 employees seem to be struggling the most. Among that cohort, 38 percent described regulations as a “very serious problem.” Another 26 percent said regulations are a “somewhat serious problem.”

Regulations are a problem for employers in every size cohort, but the pain gets more intense with more employees. This creates a clear disincentive to add jobs, and overregulation should be the first consideration for policymakers.

Twenty-eight percent of small employers cited cost as their biggest regulatory problem. Other problems cited were: “understanding how to comply” (18 percent); “extra paperwork” (17 percent); and “time delays” caused by regulations (10 percent).

Slightly more than half of small firms said the number of regulations with which they must comply has increased in the last three years. Within that figure, 65 percent of firms with 20 to 249 employees said their regulatory burdens have increased in the last three years.

Other key findings include:

  • The volume of regulations is the largest problem for 55 percent of small employers compared to 37 percent who are most troubled by a few specific regulations coming from one or two sources.
  • One-third of small employers have had a government official enter their place of business to inspect or examine their records and/or licenses or otherwise check on their compliance with some government requirement in the last 12 months. For larger small businesses, 57 percent were visited in the last 12 months compared to 28 percent for the smallest ones.
  • Over the last three years, 41 percent of small employers have contacted a government agency for help complying with a regulation. About 19 percent of those were very satisfied with their experience.
  • Almost one in ten small employers have been fined, sued, or penalized for a regulatory violation in the last three years. Larger businesses are twice as likely to have this occur compared to smaller ones.
  • Twenty percent find that regulations affecting their business have no relevance to safety or consumer protection. Thirty-one percent find them of little or no value for customers or consumers and not worth the cost of compliance.

In simple terms, regulatory compliance uses valuable human and financial capital, which is in short supply for small employers. Regulations drain trillions of dollars from the economy and the value of many is questionable. Employers and the public are not getting their money’s worth.

Click here to view the full report.

Tom Scott is the State Executive Director for NFIB California, which represents 22,000 dues-paying small business owners across the state.

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