Small businesses are the engine of job creation in the United States. They create a majority of new jobs and employ nearly 50 percent of the workforce. This week, we celebrate their contributions to the economy and American families with National Small Business Week.
In the first 100 days of the Trump administration, optimism has been high among small businesses. Two recent surveys, from the National Federation of Independent Business and the Jobs Creators Network, show that the business community is on board with the Trump administration’s agenda for job creation. Catching the eye of the small business community in particular is the Trump administration’s focus on tax and regulatory reform.
To keep confidence high, the new administration must take immediate action to remove regulatory roadblocks on small business. Repealing the Obama-era policies mentioned below will go a long way toward creating conditions that allow small business to flourish.
- Joint Employer Standard: One thorn in the side of small businesses is the shifting definition of “joint employment,” modified recently by both the National Labor Relations Board and the Department of Labor. The goal in expanding joint employer liability—holding one company liable for bargaining responsibilities and violations of another employer—is to punish large companies for violations of a small company they contract with. This negatively impacts small businesses by discouraging larger employers from outsourcing functions. Bringing more functions in-house at higher labor costs will result in fewer jobs and fewer opportunities for entrepreneurs. Just last week, the American Action Forum estimated that the NLRB’s new joint employer standard could result in 1.7 million fewer jobs.
- Overtime Rule: Currently, the overtime rule is on hold pending litigation. It is crucial that newly confirmed Labor Secretary Alexander Acosta take a stand against the costly, burdensome rule. If it goes into effect, all businesses must inspect their entire workforce and determine how many salaried employees will no longer be exempt from overtime pay. Then they must perform a cost-benefit analysis on whether to reclassify salaried employees as hourly or to give raises over the new threshold to keep these employees exempt from overtime. This a costly and time-consuming effort. However, unlike big business, small businesses are less likely to have attorneys and experienced human resource professionals on staff to assist with compliance. Moreover, the rule imposes billion in costs on employers.
Providing regulatory relief is essential for small businesses. And it goes far beyond the two rules mentioned above.
According to the most recent edition of the CEI’s annual study Ten Thousand Commandments, all federal regulation costs small firms with less than 50 employees $11,724 annually. For comparison, large employers with more than 100 employees must absorb costs of $9,083 per employee stemming from regulatory costs.
Another report from the Small Business Administration finds that “Costs per employee thus appear to be at least 36 percent higher in small firms than in medium-sized and large firms.”
Regulations hit small businesses harder than mid-sized and large businesses because many regulatory costs are “fixed” meaning that a company with under ten employees incurs the same cost as a Fortune 500 company with hundreds of employees.
President Trump campaigned on improving the economy and creating jobs. With tepid economic growth, it is important that the Trump administration remain dedicated to deregulatory reform efforts that can help jumpstart the economy. There is no better way to celebrate National Small Business Week than for the Trump administration to rollback red tape that discourages business formation and job creation.