What might be worse than deregulation? The answer, according to corporate America, is regulatory whiplash, where the government abruptly changes direction so quickly that businesses can’t keep up. Companies have always had to deal with regulatory compliance changes enacted by new government labor laws. But compared to the Obama administration, under Trump, the cost of these labor-regulation changes has increased dramatically and is crushing businesses, especially smaller ones.
In partnership with the Kronos Workforce Institute, my firm recently surveyed over eight hundred human resource and payroll leaders at a diverse group of US companies. We discovered that over half say that each regulatory change costs their organization up to $100,000 on average. More than two-thirds say that compliance has become more expensive in the past year, and 74% say compliance is more expensive than a decade ago. Under the current administration, 64% said they anticipate the complexity of labor-related regulations will be more complex, while only 14% said they would be less complex. These costs can be a burden on their growth, force layoffs, and create stress for HR professionals who have to react to them.
The cost of new labor regulations keeps increasing, and it’s becoming harder for companies to prepare for new workplace rules. The study found that half of businesses say they aren’t given enough time to get ready for new workplace rules brought on by labor laws. Regulation changes can take between sixty to ninety days to become law and then organizations often have to immediately implement them. In most cases, they don’t have the bandwidth and knowledge to react quickly enough as new regulations start to add up. When we asked business leaders about how much time they actually require, almost half said they need between 120 and 150 days to prepare for recently passed legislation. Companies also say that more time is needed to create and communicate new internal policies to employees after each regulatory change.
Under Trump, over fifty bills have become law so far, with a few specifically focused on labor. Most of these new laws are undoing regulations from the Obama era, and despite their intent of allowing companies to no longer have to do something, they carry a cost. While these laws may appear like they are saving firms money through deregulation, they are actually doing the opposite. The cost of a regulatory change covers a wide range of activities, including consulting with a legal council, training for HR and payroll employees, and communicating the changes. When employers invest time in reacting to these policy changes, they have less time engaging with customers, and growing their bottom line.
There have been several key compliance changes even in the past few months. First, The White House just announced that it would be undoing a regulation that required companies to report worker compensation by race, gender and ethnicity. Second, Trump endorsed Congress’s repeal of a rule that allowed states to create retirement savings plans for private-sector workers. Third, he signed a bill repealing a law that required employers to log workplace injuries. Finally, he removed the rule that government contractors had to disclose previous violations of labor laws. The other laws under threat that employers are still dealing with, or preparing for, include the Affordable Care Act, the heavily delayed FLSA white-collar overtime rule, the end of employers being able to pool workers’ tips, and the overhaul of the federal tax code.
All these regulatory changes will snowball into major financial burdens for companies, who are reporting that they simply can’t keep up anymore. Over half of our respondents report that they’ve witnessed their colleagues occasionally cut compliance-related corners. When this happens, companies can be fined by the government over and above the original compliance expense. Only larger companies have HR departments big enough to manage these compliance changes fast enough.
While large enterprises have the capital to combat regulation changes, small firms are suffering. Since their overhead expense is spread throughout their smaller workforce, they have to make tough decisions about managing regulations and operational cuts. A study by the US Small Business Administration found that smaller firms spend 80% or more per employee on compliance than larger enterprises. In many cases, the CEO him or herself has to react to new policies, and make changes throughout the organization, rather than focus on growing their company.
President Trump is often unpredictable, so it will be almost impossible to know what further new shifts in labor policies might occur. With Richard Trumka, president of the AFL-CIO and other business leaders resigning from various business advisory councils, there’s little doubt further unenlightened HR policy changes are afoot. As the Trump administration continues to deregulate, it’s likely that the costs to businesses will increase, and the American worker will bear the brunt of the impact.