Small Business Hard Hit By Federal Regulatory Compliance Burden

New Study Shows Smallest Firms Bear Largest Per Employee Burden

America’s smallest firms bear the largest per employee burden of federal regulatory compliance costs, according to a study released in 2005 by the Office of Advocacy of the U.S. Small Business Administration. Firms with fewer than 20 employees annually spend $7,647 per employee to comply with federal regulations, compared with the $5,282 spent by firms with more than 500 employees.

The report measures disproportionate regulatory compliance impact on small business. The study finds that small business faces a 45 percent greater burden than their larger b usiness counterparts.

The report thoroughly analyzes compliance costs for economic, workplace, environmental, and tax regulations. It details regulatory costs for five major sectors of the U.S. economy: manufacturing, trade (wholesale and retail), services, health care, and other (a residual category), revealing that the disproportionate cost burden on small firms is particularly stark for the manufacturing sector. The compliance cost per employee for small manufacturers is at least double the compliance cost for medium-sized and large firms.

Among its other findings, the report also shows that the annual cost of federal regulations in the United States totaled $1.1 trillion in 2004.

The peer-reviewed study, The Impact of Regulatory Costs on Small Firms [PDF], written by W. Mark Crain with funding from the Office of Advocacy, updates two earlier reports from 1995 and 2001, which showed similar patterns of disproportionate regulatory burden borne by small businesses.

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