Over the past several decades, there has been an explosion in the number of federal and state laws and regulations that have significantly affected the ability of American business to complete in the globalized economy. In 2014, the costs of federal regulations on American consumers and businesses was an estimated $1.88 trillion and that number has increased over the past two years in part due to the compliance costs of the Affordable Care Act (ACA). The National Association of Managers (NAM) concluded that the annual cost burden for an average U.S. firm is $233,182, or 21 percent of average payroll. Having the ability to navigate through these financial and regulatory burdens is critical for employers both in managing costs and employing talent.
Competition for hiring and retaining top talent is increasing across all industries as shown in a 2015 CIPD talent planning survey report, whereby 82% of respondents said that competition for talent had increased. Even after identifying and recruiting talented individuals for critical job openings, there are a number of regulatory burdens that a business must overcome before employing these individuals. Some, but not all, of the regulations that affect a business' ability to employ quality talent are:
- Federal Insurance Contributions Act (FICA)
- Patient Protection and Affordable Care Act (PPACA) or (ACA)
- Family and Medical Leave Act (FMLA)
There are a number of other costly regulations that affect businesses, but these three in particular will be examined in regards to the cost of employing and retaining an individual.
FICA, the tax that funds Social Security and Medicare, adds a minimum of 7.65% to an employer's cost for a worker through a 6.2% Social Security (SS) tax and a 1.45% Medicare tax. For people who are self-employed, this tax burden becomes truly onerous as those individuals pay both the employer taxes and the matching employee portion of these taxes as well.
The PPACA has significantly impacted employer's ability to employ quality talent by:
- Mandating all businesses offer ACA-approved insurance or pay a $3,000 tax if they have 50 or more employees
- Levying a health insurance tax (HIT) on insurers
- Prohibiting use of flexible spending accounts (FSA) to purchase OTC drugs
The first point listed above is crippling for many small businesses as the cost of hiring the 50th employee is not only the wages and benefits of that employee, but also the cost of paying the mandate tax for the first 49 employees as well.
The FMLA costs have become increasingly burdensome for all businesses but particularly for small and medium-sized companies. In Washington D.C. alone, private employers pay about $123.3 million per year for family and medical leaves. Besides the cost of providing this benefit, the FMLA has been regularly abused by employees who have found loopholes in the law resulting in extra burdens on employers.
There are many other taxes and regulations that add to the cost of employing talent. To learn how to navigate through the myriad of laws and regulations, contact an expert on these matters.