Turn on a television news show or browse any political or news website and quickly you will find a politician or commentator lamenting the sluggish economy and the dire need for job creation. With unemployment hovering around 9% for two and a half years now, finding the elixir for job growth seems increasingly unlikely. What exactly is the missing ingredient?
We may have simply reached the tipping point where the complexity of business and employee compliance matters makes it impossible for the vast majority of small and start up businesses to either expand or launch. Small business is commonly cited as the primary engine that drives the economy, a key cog in the job creation machine. But what if the cards are so stacked against start-up and micro-enterprises that only extraordinary managers and extraordinary ideas will ever make it to the further stages of development?
Consider the following anecdote of a small business operation with which I have worked. The company has had aspiring growth plans for the last two years and a modest management team in trying to build a profitable operation in a very competitive business world. There is very little room for error. Over the course of the last month the company has received, as all businesses do, a steady stream of correspondence from government agencies. The following is a sampling of such correspondence:
- A notice from the state indicating that the company’s unemployment tax rate for 2012 would increase to 8.3% from its current 2011 rate of 1.6%.
- A brochure describing the state’s use tax and the reality that many businesses are subject to use tax liability of which they are not aware and that many audits by the state result in significant, unexpected tax liability.
- A mandatory survey from the US Department of Labor to verify general business information about the company that must be returned within 14 days.
- Information about complying with the state’s unemployment benefit system reporting requirements including a note that federal legislation signed on October 21, 2011 prohibits states from relieving charges to employers if it is found that improper payments were made because of an employer’s failure to respond to an information request. Apparently improper payment by the government to a person no longer associated with the company is now the fault of the company.
This sampling hasn’t touched on the fact that through the employer tax withholding system all employers are required to collect taxes from their employees on behalf of federal, state and local governments. And what do employers get in return for doing the government’s work? Not a dime. In fact, employers get a huge pile of potential liability, including company owners’ personal assets, in the event that an employer does not comply with the maze of applicable government regulation. By hiring a single employee, a company is immediately subject to, among other things, federal tax withholding, state tax withholding, local tax withholding, payroll taxes, unemployment compensation tax and workers compensation premiums.
It doesn’t end there. The following is a small taste of compliance matters that business owners of all sizes, at least in theory, should understand:
- Using a website and/or email marketing requires compliance with state and federal laws regarding information collection, including the Children’s Online Privacy and Protection Act and the CAN-SPAM Act of 2003.
- Accepting payment by credit card, even for a modest number of transactions, likely requires compliance with the Payment Card Industry Data Security Standard; failure to comply can result in significant financial and operational penalties.
- Occupational Safety & Health Administration regulations require a workplace, among a sea of other requirements, to maintain a list of hazardous substances used in the workplace, with a material safety data sheet readily available for each hazardous substance. Windex is an example of a potentially hazardous substance that could require the provision of a material safety data sheet.
- Use of a background check in the employee hiring process requires compliance with the Fair Credit Reporting Act and following certain procedures if adverse action is taken based upon information obtained from the background check.
- All employers are required to display posters that provide a multitude of notices pursuant to federal and state law, including the newest notification requirement from the National Labor Relations Board effective in early 2012 announcing employees’ rights to unionize.
- Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 mandates reporting workers compensation claims in cases where the claimant is Medicare eligible. The reporting requirement is intended to enable Medicare to avoid making payments when another payer has primary responsibility. Failure to comply can result in a penalty of $1,000 per day for non-compliance.
It is a daunting task as a business owner to find time for compliance matters while already putting 80-plus hours per week into running the actual business of the business. My suspicion is that the vast majority of new companies don’t comply, because it is simply impossible for the average business owner to understand and implement compliance measures and still have the time and energy to compete in the marketplace.
Have we hit the tipping point where a rational decision maker evaluates the enormity of compliance and related personal liability and elects not to bother to start or grow a business (i.e. create jobs)? I do not doubt the earnest intentions of most government programs. But as with all decisions, there has to be a realistic cost/benefit analysis of these programs. Our public policy makers bemoan the lack of job creation and at the same time churn out policy decisions that would have you believe employers are a cog in making government programs run rather than the reverse. If serious reform isn’t undertaken in a hurry then these times of 9 percent unemployment might become the good old days, and the only job creators may end up being attorneys.
