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The Compliance Conundrum

Drowning in red tape? Talk to an HR expert.
February 19, 2010
URL: http://www.entrepreneur.com/article/205148

Frankly, for today's small-business owner, the risk-reward ratio sucks.

Historically the United States prospered as a laissez-faire, business-friendly country, where entrepreneurs were relatively unencumbered by federal, state and local statutes. Now the complexity and risk of running a small business is rising exponentially thanks to increased regulation (which means more paperwork). Simply put, it's hard to operate your business when you're busy worrying about compliance and federal lawsuits around every corner. From an HR perspective, the increase in unemployment insurance taxes and the over-extended COBRA benefits are two perfect examples of this phenomenon.

  1. The rise in payroll taxes
    This March, many small businesses will receive an unemployment insurance tax bill (State Unemployment Tax Act, or SUTA) that could be 2.5 percent to 600 percent greater than the year before, according to the National Association of State Workforce Agencies. Most small businesses simply haven't built this increase into their 2010 budgets, and they're going to be blindsided by the new rate. Without a doubt, this tax is going to be the No. 1 cause of small-business attrition and bankruptcies in Q2. This increase also serves as a deterrent to employers thinking about hiring new people. What happened to the idea of reducing unemployment?
  2. COBRA strikes again
    Late last year, Congress extended the COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) health insurance subsidy to 15 months. For small businesses, this means that they'll be required to extend health insurance to qualified plan participants for that duration of time and then be reimbursed by the government.

    Floating this benefit further strains the cash flow of small businesses in hard economic times. Failure to comply with this continually changing law (not to mention the regulations passed by states to cover areas exempted or ignored at the federal level) also means costly penalties and litigation. As if the penalties and liability are not enough, the paperwork is a large drag on the growth of a small business.

What is most frustrating about these two examples is the disproportionate burden that they place on the backs of small businesses. Instead of focusing on the competition and clients, small businesses are forced to focus on extracting themselves from this regulatory mire. This country became successful because of its entrepreneurial spirit; these moves are the latest nail in the small-business coffin--death by 1,000 cuts.

The Small-Business Solution
To fight this, small-business owners need to stay informed and consult with a human resources advisor to ensure they have the right processes in place. HR experts can help entrepreneurs prepare for constantly changing regulations and new tax laws for long-term cost management. An HR professional knows the impact of federal and state unemployment insurance taxes and can offer advice about what a small business can do now to prepare for whatever may come if and when health-care reform legislation passes. They can also help ensure COBRA compliance.

There is less upside in starting a business today, and that worries me. Our country's success is not going to be about the survival and growth of GM, Wachovia or Ford; small businesses are the backbone of everything we do. The challenge for this administration is to find ways to support small businesses--not stifle their spirit or profitability with red tape and increased taxes. Let's really get people back to work.