Small U.S. businesses, which are central to the economy, spend nearly 200 hours of work and about $11,700 per employee annually to meet compliance requirements, according to the U.S. Chamber of Commerce. This burden is even heavier for smaller businesses, which often lack the resources to fully comply with regulations. This can lead to operational disruptions as resources are diverted from core business operations to understand and comply with regulations.

Violations can result in severe penalties, including fines, lawsuits and reputational damage, so it is critical for small businesses to find cost-effective and efficient compliance solutions. This can include using technology and expert support to streamline the process.

Rising compliance costs are putting significant pressure on U.S. businesses and having a significant impact on the wider economy. Policymakers are looking to strike a balance between operational costs and compliance without compromising strict corporate regulations. Technology-based initiatives such as automation are seen as a potential key to controlling rising costs.

Automated systems can increase efficiency, reduce human error and save costs, but companies are advised to make the transition in phases to address potential risks and challenges, including adequately training employees and combating cybersecurity.

Balancing compliance and costs in small businesses

They are also encouraged to contribute to policy-making and promote shared responsibility and pragmatic arrangements.

Gusto’s co-founder Tomer London offers a positive perspective amid these challenges. With his experience in the technology industry, he suggests simplifying complex requirements and replacing them with digital forms to streamline processes. London also recommends involving small business representatives early in the regulatory development process to understand unique business challenges and create practical, actionable regulations.

As a final proposal, London advocates a system that rewards compliance to create a supportive business environment, rather than traditional penalties for non-compliance. He believes that incentivizing compliant behavior will encourage the growth and prosperity of small businesses.

By addressing the challenges faced by micro and small businesses, policymakers can leverage their potential for expansion and broad economic contribution. London’s proactive strategies aim to create an economy-enabling environment and ensure that regulations do not stifle smaller businesses but instead strengthen their growth.

In the aftermath of the pandemic, small businesses are in dire need of such optimistic and supportive regulatory reforms. An empathetic regulatory environment can significantly impact the new development of these businesses and provide them with the chance to recover, thrive and make a strong contribution to the global economy. Therefore, policymakers should stand up for small businesses, infuse their regulatory actions with empathy, and thus set a positive precedent for future regulatory trends.