Economic Development, Human Resources, and Small Business & Startups

Small biz tussles with red tape

Overtime pay, numerous regulations and health care all are sticking points.

May 20, 2016
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There are thousands of regulations on the city, state and federal levels that a small business owner must meet in order to start a business.

Is it too much?

Lately, the issue of “red tape” regulation clogging up Michigan’s small business engine has been on the minds of state legislators, Grand Rapids city administrators and local small business owners.

For starters, just last month the SEC Small Business Advocate Act was introduced in Washington, D.C., by U.S. senators Gary Peters, D-Michigan; Heidi Heitkamp, D-North Dakota; and Dean Heller, R-Nevada. The act is seeking to establish better lines of communication between small businesses and the federal government, a move that could help small business owners advocate for regulations that will support the growth of small businesses and get rid of those that essentially won’t.

There’s also been chatter about the federal government’s involvement in small businesses after a new overtime pay ruling from the Department of Labor was announced May 17.

“Every week, millions of Americans work more than 40 hours a week but do not receive the overtime pay they have earned. (On May 18), the Department of Labor will be finalizing a rule to fix that by updating overtime protections for workers. In total, the new rule is expected to extend overtime protections to 4.2 million more Americans who are not currently eligible under federal law, and it is expected to boost wages for workers by $12 billion over the next 10 years,” said a statement from the White House.

The statement continues: “That’s why tomorrow, the Department of Labor is finalizing a rule to update overtime protections so they can help millions more Americans. The final rule, which takes effect on Dec. 1, 2016, doubles the salary threshold — from $23,660 to $47,476 per year — under which most salaried workers are guaranteed overtime (hourly workers are generally guaranteed overtime pay regardless of their earnings level). Additionally, this new level will be automatically updated every three years to ensure that workers continue to earn the pay they deserve.”

The ruling is one of the main concerns the Grand Rapids Area Chamber of Commerce has been hearing from its members, said Janet Wyllie, GRACC’s vice president of business growth initiatives.

The numbers Wyllie found are slightly different than the ones offered by the Obama Administration. But either way, small businesses are going to have to react quickly to this ruling, as will nonprofits. It could hurt small businesses, especially when it comes to finding talent, she said.

“(According to) the Fair Labor Standards Act, currently salaried workers are compensated if they work over 40 hours and make $450 per week or less — that would equal out to $23,660 annually — so right now, that’s the way it’s stated. … The proposed increase would take it from $450 to $970 per week, so the annual salary would be $50,440,” she said.

“This has the potential to have a significant impact on small business, especially low- to mid-level salaried employees. This could also impact the workplace flexibility that people are trying to incorporate as people are spending more time telecommuting. This could really damage salaried employees.”

Another concern GRACC members have when it comes to federal regulations is the cost of health care, namely the Affordable Care Act, commonly known as Obamacare.

“When we did our annual survey, that was the top concern (in terms of cost),” Wyllie said. “Our members said if costs were contained, 57 percent reported they would increase wages, and 34 percent reported they would hire more employees. It’s definitely the cost of the health care.”

Recently, the Michigan Department of Licensing and Regulatory Affairs rescinded 1,200 unnecessary or irrelevant rules and regulations that apply to businesses in the state, and is looking for more to cut, said Andy Johnston, GRACC vice president of government and corporate affairs.

Although regulations tend to balance free markets, that’s a sign Michigan might have too many, he said. Trimming the regulatory fat will make Michigan more competitive for business.

“We hear a lot about the piling on of regulations. It’s not that they’re bad, but there’s so many on all different levels. We do a member survey once a year to touch base with folks on a policy perspective. We asked about regulatory burden; it’s one of our top five issues we’re hearing about from members,” he said.

“I think these regulations tend to get built up over time and they need to have a review process to keep them up to this day and age. The chamber is all-ears about hearing from folks about what is burdening their business, and we’re here to improve or get rid of it, if that’s the case, and we need to fundamentally figure out how to make it easy to do business in the state.”

Part of the issue is many small businesses aren’t availing themselves of available resources, Johnston said. In West Michigan, one group trying to help is the Michigan Small Business Development Center, headquartered at Grand Valley State University’s Seidman College of Business. Keith Brophy, state director of the MSBDC, said things are getting better, but the regulatory streamlining process still needs to be more clear and easier to use for small businesses, especially since more businesses rely on technology than ever before.

“It really does take diplomacy skills for the person with a small business to work with regulations. When they hit the first patch of frustration, if they don’t treat it like a diplomat, they can run into more problems,” said Brophy.

“Oftentimes, with technology outpacing regulation, it provides a real window of opportunity for this business to move rapidly, although sometimes the lack of regulation on technology can also provide a paralyzing effect as everybody waits to see where the regulation will land.”

Usually there is kernel of common sense at the heart of each regulation, but “then they outgrow it and more regulations are added on,” Brophy said. What that allows room for is quite a bit of gray area even if the original regulation is clear. To get ahead of it definitely favors a small business that is proactive, that does its homework and works collaboratively with its licensing agency.

It’s also troubling when legislation shifts and various bodies on state and local levels forget to take a clarifying and streamlining approach to helping citizens navigate it better, he said.

“The more prepared you are, the more understanding you have of the process, the more the red tape seems to go away,” said Dante Villarreal, the center’s regional director.

“That’s where we come in, where we can help you get it, and we can coach you on how to do this, even down to the level of what kind of attitude style do you want to have when you go to get your regulation work done. I guarantee you’ll get angry at some point. How do you keep your cool when working with another person on the other side of the counter? That can go a long way.”

Villarreal said sometimes the regulations cause gray areas because it’s not clear which regulation might take precedence over another if they seem to conflict. He’s also seen businesses get shut down because of a misunderstanding about regulations, particularly in the food industry.

When asked if complicated regulations created a system ripe for legislative corruption, Brophy answered that the multiple facets of the business regulatory system, as they stand today, reflect the complex nature of “our various governing bodies,” and that often they operate in a “vacuum” or “silo” without necessarily the whole perspective of all small business circumstances.

“I think that often those creating and implementing regulations may not realize how extremely valuable clear-cut, well communicated, and easily accessed and interpreted guidelines enhance small business success, whatever the industry,” Brophy said.

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