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Small Business Amendment to Financial Reform Bill Draws Mixed Feelings

Posted on by GoingConcern

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

The financial reform bill contains a small-business related amendment that hasn’t received a lot of attention. And it’s either very small-business friendly or very unfriendly, depending on whom you listen to.

Sponsored by Senator Olympia Snowe of Maine, the ranking Republican on the Small Business Committee, it directs the new Consumer Financial Protection Bureau to take into account how proposed regulations would affect the cost of credit to small companies. It also mandates that the bureau be covered by the Small Business Regulatory Enforcement Fairness Act of 1996.

That law, until now, has applied only to the Occupational Safety and Health Administration (OSHA) and Environmental Protection Agency (EPA). It’s aimed at policing proposed regulations that could have a “significant impact on a substantial number of small entities.” In that case, a special government panel has to consult with small businesses who could be affected by the law to see just how they think it could hurt them.


Opponents, like the Consumer Federation, objected to the amendment on the grounds that it required the consumer bureau to consult with the very businesses it regulates. And they said it would slow down the regulatory process, thereby hurting small businesses that need fast access to credit to finance their operations.

On the other hand, such odd organizations as the National Federation of Independent Business–which didn’t much like a whole lot about the rest of the bill–supported the amendment, presumably because they liked including small businesses in the rule-making process.

Who’s right? It’s undoubtedly true that the amendment allows–requires–that the consumer bureau seek input from the folks it’s supposed to regulate. But the bureau doesn’t have to pay attention if it thinks the input lacks merit. The law only says that “Where appropriate, the agency shall modify the proposed rule.” It doesn’t say the bureau is required to modify the proposed rule.

And in the few occasions when a special panel was convened to deal with OSHA and EPA issues, the officials did their work well within the 60-day limit the law requires, according to Rob Mandelbaum in the You’re the Boss blog.

So, on balance, it’s not a bad thing.

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Here’s More Evidence That Complying with Federal Regulations Is a Pain in the A$$ for Small Businesses

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

If you’ve suspected that complying with federal regulations is particularly onerous for small businesses, a new report from none other than the US Small Business Administration will provide you with plenty of new ammunition.

The report, called the Impact of Regulatory Costs on Small Firms and written by the SBA’s Office of Advocacy, estimates just how much it costs very small, smallish and big companies to follow the rules. The conclusion is that businesses with under 20 employees pay the most per worker–$10,585 per employee each year. The cost for businesses with 20 to 499 employees is $7,454 and for firms with 500 and more employees, $7,755.

The reason, of course, is the matter of fixed costs. A small business incurs about the same expense as a larger one. But the big guys can spread the expenses over more revenue, output, and employees, resulting in lower costs per unit of output.

The report, which looked at data from 2008, found that small businesses with under 20 employees pay the most to comply with environmental, tax, and occupational safety and health and homeland security regulations. Most notably, the cost per employee for environmental compliance is $4,101 compared to $883 for the biggest companies.


Clearly the unequal burden of regulatory compliance makes life a lot harder for small businesses and, in fact, serves to undercut their ability to compete. “This potentially causes inefficiencies in the structure of American enterprise, and the relocation of production facilities to less regulated countries, and adversely affects the international competitiveness of domestically produced American products and services,” says the report. “All of these effects, of course, would have negative consequences for the US labor market and national income.”

Still the report didn’t comment on the benefits of regulations. That’s another issue entirely. In fact, just because they cost a lot doesn’t therefore mean the rules shouldn’t exist. It does, however, indicate that something is very wrong with the way they’re applied–and that, for small companies to thrive, change is imperative.

According to the report, economic regulations, which include things like rules related to tariffs, are the only area where large firms have the highest cost. That is due, in part, to the Regulatory Flexibility Act, which requires agencies “to assess the effect of regulations on small businesses and to mitigate undue burdens, including exemptions and relaxed phase-in schedules.” The RFA, says the report, has been particularly effective in shielding small businesses from the cost of complying with the Sarbanes-Oxley Act.

Seems there should be a significantly more concerted effort to exempt small businesses from certain regulations or, at least, to help with compliance efforts. Some 89 percent of all companies in the US employ fewer than 20 people. If the cost of complying with regulations is really egregiously high for the vast majority of companies simply due to their size, it’s incumbent upon the rule-makers to do something about it.

New Healthcare Tax Credit Should Help Small Businesses, Nonprofits

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

The Internal Revenue Service recently released some information to help companies take advantage of a tax credit provided by the health reform law.

The IRS estimates that about 4 million businesses qualify, and is sending out notices to as many as possible advising them of the tax break. If you haven’t received anything but believe your company may qualify, here’s what you should know:


The credit is available to companies with fewer than 25 employees with average wages of $50,000 or less. The full credit goes to companies with 10 or fewer employees and average annual wages of $25,000 or less. It is not available to self-employed individuals.

The credit covers 35 percent of an employer’s contribution to employee health premiums, so long as that doesn’t exceed 35 percent of the average cost of a health plan in the small group market. For a tax-exempt organization, the credit is 25 percent. Once the health exchanges are set up, the credit increases to 50 percent for businesses and 35 percent for nonprofits. At that time, the credit will only be available to companies purchasing insurance through the exchange.

A company can use the credit to reduce income tax owed and can carry the credit forward 20 years or back one year after 2010. Nonprofits can use the credit against withholding and Medicare taxes owed on behalf of their employees.

A key caveat is that employers must pay for half of the premium. For most workers, especially low-wage employees, a company that does not pay for at least half the premium is offering insurance that is essentially unaffordable. Even 50 percent is most likely not enough to do low-wage workers much good, especially at small companies where health care premiums are more expensive.

The amount of the credit is based on the premiums an employer pays for, so the more generous the coverage, the greater the credit. While premiums paid for owners and their families cannot be counted, those paid for seasonal workers can be. And the IRS has defined “premiums” broadly: not only does it cover premiums for standard medical insurance but it also applies to dental, long-term care and vision insurance-though again, an employer must pay 50 percent of each premium to count it toward the credit.

Calculating the credit probably requires any small employer to consult an accountant to see if the benefits are worth the cost of providing insurance. The tax credit is in effect, allowing employers who are already thinking about health insurance for their employees to factor in the savings as they plan ahead.

As an observer, I think the key issue is whether the credit is enough to offset the rising cost of health insurance. Those costs have hit small employers the hardest. We’ll see if the tax credit makes a difference in reversing the trend among small employers of dropping health insurance for their employees altogether.

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