Insurance & Protecting Your Business: Cost of Federal Compliance Nearly $10K

Insurance and Regulation

President Donald Trump’s recent moves to cut back business regulations appears to align directly with the number one regulatory concern for small businesses.

A recent National Federation of Business (NFIB) report indicates that, among the many regulations related concerns small business owners have, the total number of regulations is their chief concern. The report, which reflects poll data taken from small business owners, reveals that 55% believe the volume of regulations is their “greatest problem.”

Small business owners surveyed also expressed additional concerns with regulations, including approximately half who say the number of regulations they must comply with having increased in the past three years.

President Trump indicated early on that decreasing regulations would be a priority for his administration. On February 24, the President signed an executive order directing federal agencies to create a “regulatory task force”. The order requires agencies to evaluate regulations directly tied to that agency and determine which regulations can either be simplified or eliminated altogether.

Small businesses are likely to be uniquely impacted by fewer regulations, as the cost of compliance can be high, depending on the industry. According to the National Association of Manufacturers (NAM), regulatory compliance in the manufacturing industry is more expensive for smaller businesses. While large businesses in the industry (100+ employees) pay around $13,750 per year per employee, businesses with fewer than 50 employees see a cost of over $34,000 per employee. On average, manufacturers pay just under $20,000 per year per employee on regulatory compliance, a cost that NAM indicates is “nearly double the rate seen for all U.S. businesses”.

Compliance is among many concerns, and costs, for small businesses. Liability concerns also make purchasing liability insurance, such as a Business Owners Policy, a necessity for small businesses. The risk of having the business shut down due to a liability claim is far more likely for a small business, while the costs of staying compliant with federal regulations is an additional cost burden for small businesses.  Indeed, certain required insurance purchases, like Workers Compensation, can’t be avoided. Economies of scale tend to favor larger businesses, making liability and regulatory costs much lower as a cost of business for larger companies.