Sue Lani Madsen: Government regulations bedeviled small business even before minimum wage jump

Last week, a farmer told me he’s dropping his minor work permit. After years of mentoring young employees, he says no more starter jobs for unskilled high school kids. The new higher minimum wage was the last straw, but a whole haystack came first.

The cost of labor is more than just wages and payroll taxes. According to the U.S. Small Business Administration, the cost to small businesses of federal regulations is over $10,000 per employee before the state piles on its load.

For the owner of a small grocery store, zealous enforcement from the state was his last straw. He was hit with a substantial fine when an ambitious teenager stuck to a task until it was finished and clocked out a few minutes late. He stopped employing anyone under 18 several years ago.

We attempted to expand our ranch operation in 2011 by adding a hired hand. It meant wading through regulations from the federal U.S. Department of Labor and Internal Revenue Service and the state of Washington’s Department of Labor and Industries, Employment Security Department, Department of Social and Health Services and the ironically named Office for Regulatory Innovation and Assistance. It wasn’t very helpful. The cost of adding an employee was too high, but not because of wages – it was the regulations.

In 2011, then-Gov. Gregoire declared a moratorium on new regulations to give the struggling economy a break from the cost of adaptation. Yet in that 12 months, the Office of the Code Reviser confirmed 1,410 new permanent rules were adopted; 2,692 rules were amended and recodified; 516 emergency rule filings were made; and 1,833 rules were repealed and decodified. That’s a total of 6,451 new or revised regulations.

If you worked a standard 40-hour week and read 25 regulations every day, you would barely keep up with the pace of change. You’d still be responsible for complying with the existing volumes of regulations. And that was a year with a moratorium.

Rep. Joe Schmick (R-Colfax), a small-business owner himself, said “small business just doesn’t have the personnel to keep up … large companies may have one person whose only job is regulatory compliance.”

A small business is defined by the state as one with 50 or fewer employees. Small businesses make up 96 percent of all Washington businesses and employ almost half of all private-sector workers. Many regulations add the same fixed cost of operating whether there are five employees or 500. The Washington Legislature recognized this problem when it passed the Regulatory Fairness Act in 1982, requiring rule-making agencies to identify and mitigate disproportionate impact on small businesses.

Until the requirement for performance audits was passed in 2005, monitoring state agency compliance with the Regulatory Fairness Act depended on complaints from constituents. Now the state auditor’s office has provided data, in a report submitted to the Legislature on Dec. 27. While written in diplomatic Olympia-speak, the conclusions are clear. There’s a lot of room for improvement and specific recommendations to the Legislature. Rep. Norma Smith (R-Clinton) has already indicated she’ll be filing a bill to follow up on the audit report.

Agencies found reasons to exempt 92 percent of the rules from requirements to consider the impact, either as an outright exemption or because the agency determined the costs of compliance were less-than-minor. In about half of those exemptions, the documentation was missing or incomplete. Agencies crack down on citizens for much less serious acts of noncompliance.

The formula for less-than-minor is based on the greater of 0.3 percent of gross revenue, 1 percent of annual payroll or $100. If the cost of compliance exceeds the less-than-minor threshold, agencies must prepare a Small Business Economic Impact Statement and figure out ways to mitigate the cost burden.

But the last straw isn’t just the cost of complying with one rule.

Agencies are only required by the Regulatory Fairness Act to consider the impact of each rule individually. Where one rule adding $100 to overhead may not be a big deal, ten rules adding $1,000 to overhead and tens of thousands of rules to monitor make for a tall haystack.

Columnist Sue Lani Madsen can be reached at rulingpen@gmail.com or on Twitter @SueLaniMadsen.