Regulation’s Price on Small Tech Companies

by on September 20, 2005

It’s amazing that small companies can compete in today’s regulatory climate. We all know about the way that Steve Jobs and Stephen Wozniak created the first Apple computer in the Jobs family garage . Such small business success (now a big corporation of course) happens despite the disproportionate regulatory burden they share compared to their larger competitors. A study released last week by the Office of Advocacy of the U.S. Small Business Administration shows that small firms bear the largest per employee burden.

According to the study, 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. Thus small business faces a 45 percent greater burden than their larger business counterparts.

This is to be expected. The regulatory overhead required for attorneys, accountants, and HR to interpret and implement federal regulation is enormous. The fixed costs of regulatory compliance become increasingly dispersed with each employee hired. Even with employment law carveouts for companies under 50 or so employees, the burden of overall compliance is high.

Businesses with less than 500 employees generate 60 to 80 percent of net new jobs annually over the last decade. Many of these are in the tech industry. Here on the Tech Liberation Front, we often focus on tech-related regulatory burdens on the tech and telecom industries. As the SBA study shows, the burden is also tax, environmental, workplace and general economic-related laws.

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