The Cost, Scope and Complexity of Workplace Regulations

What Price Workplace Regulation?

A year 2000 study by W. Mark Crain and Joseph M. Johnson of George Mason University concluded that U.S. manufacturers spent an average of $1,700 per employee to comply with workplace regulations, or what amounted to a 1.6 percent excise tax on manufacturing in the United States. The study looked just at the year 2000, but both authors continued their research on regulatory costs and issued new opinions.

In the summer of 2008, Crain updated his findings for the Small Business Administration (SBA) and estimated that the cost to American businesses of federal regulations alone came to $1.1 trillion a year (in contrast, health care in America costs $2.1 trillion annually). The average yearly regulatory cost for every business in America, Crain’s report says, is $5,633 per employee, but for small businesses with fewer than 20 employees, it’s $7,647. Midsize businesses ($5,411 a year per employee) and large businesses of more than 500 employees ($5,282) factor in to lower the overall average.

Johnson seemed to disagree a bit in a separate follow-up study in which he estimated yearly costs to be “at least $91 billion.” He compared various studies and came up with “low,” “best,” and “high” cost estimates in each of six categories (detailed below): Labor Standards, Employee Benefits, Labor-Managements Relations, Occupational Safety and Health, Civil Rights, and Employee Decisions. Adding up the “bests” came to $91 billion annually. However, Johnson is still relying on year 2000 estimates in his study, while Crain is using year 2004 expenses in his. The truth may lie somewhere between the two researchers’ estimates. Either way, the cost to businesses of complying with regulations is not insignificant.

The Scope of Regulation

Which federal laws and regulations are mostly responsible for these business expenses? Following is a list of the 25 main components of federal workplace regulation as compiled by the GAO (Government Accounting Office), though a few apply to only certain types of enterprise:

Labor Standards:

♦ Fair Labor Standards Act (FLSA)
♦ Davis-Bacon Act
♦ Service Contract Act
♦ Walsh-Healey Act
♦ Contract Work Hours and Safety Standards Act
♦ Migrant and Seasonal Agricultural Worker Protection Act

Employee Benefits:

♦ Consolidated Omnibus Budget Reconciliation Act of 19 (COBRA)
♦ Family and Medical Leave Act (FMLA)
♦ Employee Retirement Income Security Act (ERISA)
♦ Federal Unemployment Compensation Act (FUCA)

Labor-Management Relations:

♦ National Labor Relations Act (NLRA)
♦ Labor-Management Reporting and Disclosure Act (LMRDA)

Occupational Safety and Health:

♦ Occupational Safety and Health Act (OSHA)
♦ Federal Mine Safety and Health Act (MSHA)
♦ Drug Free Workplace Act
♦ Omnibus Transportation Employee Testing Act (OTETA)

Civil Rights:

♦ Equal Pay Act
♦ Title VII of the Civil Rights Act of 1964
♦ Age Discrimination in Employment Act (ADEA)
♦ Americans with Disabilities Act (ADA) (Updated in 2009 with the ADAAA)
♦ Executive Order 11246
♦ Rehabilitation Act of 1973

Employment Decision Laws:

♦ Employee Polygraph Protection Act (EPPA)
♦ Immigration Reform and Control Act (IRCA)
♦ Worker Adjustment and Retraining Notification Act (WARN)

It is not the purpose of this paper to explain each of these laws and regulations but to advise employers of the need to stay compliant with all applicable workplace requirements. In addition to these 25 federal mandates, many states have overlapping and overriding laws and regulations, some with even more stringent requirements than those in the list.

California’s implementation of the ADA, for instance, covers workplaces with just five or more workers while the ADA doesn’t kick in until 15 employees. New York has its own version of the WARN Act that lowers the bar for compliance from 100 to 50 employees and ups the mass layoff notification requirement from 60 to 90 days. Many states—and even cities—regulate their minimum wage above the federal FLSA standard, with Washington’s being the highest state rate in 2009 at $8.55 per hour. The top rate in the nation, however, is the City of Santa Fe’s at $9.92 an hour.

Here is a breakdown by business size and the laws and regulations pertaining to them:

ONE OR MORE EMPLOYEES:

♦ NLRA
♦ ERISA
♦ OSHA
♦ IRCA (I-9 filing)
♦ LMRDA (if unionized or being organized)
♦ EPPA
♦ FUCA
♦ Payroll taxes not mentioned on the GAO list, including Social Security, Medicare and FICA
♦ USERRA (Uniformed Service Employment and Re-employment Rights Act, not mentioned by the GAO)

TWO OR MORE EMPLOYEES:

♦ ALL OF THE ABOVE
♦ FLSA
♦ EQUAL PAY ACT

FOUR OR MORE EMPLOYEES:

ALL OF THE ABOVE
♦ IRCA (non-discrimination provisions)

FIFTEEN OR MORE EMPLOYEES:

♦ ALL OF THE ABOVE
♦ TITLE VII OF THE CIVIL RIGHTS ACT
♦ ADA

TWENTY OR MORE EMPLOYEES:

♦ ALL OF THE ABOVE
♦ ADEA
♦ COBRA

FIFTY OR MORE EMPLOYEES:

♦ ALL OF THE ABOVE
♦ FMLA

ONE HUNDRED OR MORE EMPLOYEES:

♦ ALL OF THE ABOVE
♦ WARN

Several of the listed laws, such as Walsh-Healey and Davis-Bacon, apply only to federal contractors and subcontractors, while other laws apply just to certain industries, such as MSHA and OTETA. In addition, businesses of any size that are completely staffed by primary family members (parents and children) are exempt from everything.

Complexity of Workplace Regulation

Even trained human resources professionals find it a daunting task to keep up with all the rules, regulations and interpretations by courts and supervising agencies of these 25 basic workplace mandates. On top of these, one must also factor in executive orders and state and local requirements. In the first month of 2009 alone, major revisions and additions were piled on both the FMLA and the ADA, which are still being implemented and interpreted and will no doubt face some court test cases quickly enough.

Each law and regulation carries with it certain notification requirements, some mandating posters in conspicuous places and others demanding written policies and procedures. Detailed recordkeeping is also part and parcel of many initiatives, certainly the two laws that so far this year have been updated (FMLA and ADA). Failure to comply can result in fines by various agencies, while legal action by employees is always a possibility under any of these regulations. And in a climate of economic uncertainty, lawsuits by laid-off workers naturally rise, as they have beginning in late 2008.

Staying compliant with all applicable workplace regulations is certainly a prima facie defense in lawsuits and also serves to ward off costly noncompliance fines from inspecting agencies. So it is in any business’s best interest to follow all laws and regulations and transform them into traceable company policies, procedures and records. Again, this is a major challenge, especially for smaller businesses that may lack the resources in personnel and the time to devote to keeping up with every regulation and piece of legislation, especially as the new Obama Administration ramps up its pro-labor agenda. Witness already the passage of the Lilly Ledbetter Fair Pay Act, which establishes a virtually open-ended statute of limitations in pay discrimination charges.

Personnel Concepts is the leader in the labor law compliance poster industry but does not stop with just necessary workplace posters. Personnel Concepts also provides ongoing notification of labor law changes through its subscription service and on its Web site, PersonnelConcepts.com. Its software, manuals, compliance kits, videos, newsletters and automatic poster updates keep clients compliance-happy and worry-free.

About the author:
Gary McCarty is a researcher and Web Content Manager for Personnel Concepts.

Note: The details in this white paper are provided for informational purposes solely. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.