Compliance Costs of Small and Larger Businesses*

Perceptions and Experience of Employment Regulation in UK Small Firms

“…As predicted, small firms reported higher mean compliance costs than large firms and, while few small firms actively avoided compliance, there was greater variation between small firms as a result of differences in compliance strategies (Sommers and Cole, 1985). More recent analyses have highlighted the variable effects of regulation on small businesses (Athayde et al, 2006;Edwards et al, 2004;Small Business Research Centre, 2005).…”

“…There have been long-standing concerns that regulation and`red tape' constitute excessive burdens on the small business sector (Fairman and Yapp, 2005;Sommers and Cole, 1985;van Stel and Stunnenberg, 2006). The view that excessive regulation stifles enterprise and constrains business growth is common across developed economies (Garibaldi et al, 2003;Massey, 2003;OECD, 2001;World Bank Group, 2006).…”

“…Estimates of the overall compliance costs of small and medium-sized enterprises (SMEs) suggest these equate to 3^4% of gross domestic product (European Commission, 1995), while the costs to small firms average 4% of turnover (OECD, 2001). Research also demonstrates the regressive nature of compliance costs, with smaller firms disproportionately affected with costs declining rapidly as firm size increases (Bennett, 2006;Chittenden et al, 2003;Cressy, 2000;Sandford, 1995;Sommers and Cole, 1985).…”

“…While governments have been responsible for adding to the regulatory burden on small firms, they have also recognised the need to reduce the impact of these`burdens' on small firm owner^managers (OECD, 2001;Schiffer and Weder, 2001;van der Horst et al, 2000), a stance strongly advocated by business lobby groups (Edwards et al, 2004). Governmental attempts to reduce the administrative burdens on smaller firms have existed, in the modern era, since at least the 1950s (Sommers and Cole, 1985). By the mid-1990s, fourteen of the EU15 countries had either implemented or planned reductions in administrative burdens including simplification of existing regulations, reduction in regulatory requirements, and greater transparency in tax systems (ENSR, 1997;van der Horst et al, 2000).…”

“…Given these continual pressures towards regulatory expansion, some consideration should be afforded to understanding how small firms have managed to accommodate regulation which is both increasing in volume and scope, and regressive in its effects. An early analysis of small business compliance costs hypothesised a tension between incurring the costs of full compliance and`t aking the risk of not fully complying or avoiding information about requirements, hoping to escape un-noticed or unchallenged by regulatory authorities'' (Sommers and Cole, 1985, page 701).…”