Government Regulation of Business: How Does It Work?

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When you open a small business, one of the first things that might surprise you is the number of rules and regulations by which small businesses must abide. You probably have to file for a business license, and you might find yourself confused by tax law and wondering if you are meeting licensing requirements. While regulations can create a series of hoops for small business owners to jump through, government regulation is intended to protect the greater good and ensure a fair playing field in the marketplace.

Government Regulations: Definition

Government regulations are any laws that control how a business can or cannot conduct business. These laws exist on federal, state and local levels, so small business owners have a lot to track. It can be helpful to keep a list of websites where you can find information that impacts your business, such as:

  • Internal Revenue Service
  • State department of revenue
  • Local permitting offices
  • U.S. Department of Labor
  • Federal Trade Commission 
  • U.S. Environmental Protection Agency
  • Licensing boards
  • U.S. Department of Health and Human Services
  • State and local business licensing offices
  • Equal Employment Opportunity Commission  

These governmental bodies set statutes and regulations pertaining to how you pay your employees, how much you must pay them, what taxes you must pay, permits, licenses, safety standards, environmental standards and more. It can be a lot to track, especially if you are new to small business, so don't be afraid to seek legal counsel if it's confusing or if your business presents unique legal considerations.

Purpose of Government Regulation

Government regulation is intended to work for the greater good through protecting people, businesses, communities and the environment. Because of governmental regulation, we enjoy some level of protection against environmental destruction, child labor abuses, improperly educated professionals, monopolies and more.

Though they can cause some measure of inconvenience, cost and stress for small business owners, regulations also help to protect us. For instance, a licensed mental health professional in private practice can offer her clients assurance about her training and can give them an avenue for filing complaints, leading to increased trust. Someone starting a child care business has a formal structure in place to help her learn the safest possible way to do that in order to provide desirable services to offer potential customers with less liability.

Types of Government Regulation

Government regulation of business likely impacts nearly every level of your operations in one way or another. From the day you apply for your business licenses to when you obtain building permits, insurance or pay your first employee, you will need to learn about the proper way to do it. Understanding and following government regulations can give you a road map for setting up your business in a legitimate and ethical way:

  1. Employment and labor: Labor laws encompass the areas of safety, wages, hours, equal opportunity, worker citizenship status, age and the Family and Medical Leave Act.

  2. Advertising: Advertising regulations protect consumers from predatory or false claims in advertisements and on labeling, the internet, the phone, email, the media and by potentially harmful industries. 

  3. Environmental regulations: Environmental regulations address protecting our environment and are very pertinent to food, organic and cleaning businesses. 

  4. Insurance: In every state but Texas, employers are required to pay workers' compensation insurance. 

  5. Collecting sales tax: Every state except Alaska, Delaware, Montana, New Hampshire and Oregon require sales tax on most goods. Some local governments require additional tax. 

  6. Tax code: Businesses file their own taxes, pay employment taxes for employees and sometimes pay excise taxes.

  7. Antitrust laws: Antitrust laws guard against a variety of conspiracies against competitors, monopolizing and price discrimination. 

  8. Privacy: Privacy regulations include HIPAA in the health field as well as rules preventing employers from disclosing private employee information.

  9. Reporting pay data: When your small business has 100 or more employees, you will need to file a report outlining how they are paid by gender, race, age and job category. 

  10. Licensing and permits: Professional licenses, business licenses and local permits are often required and vary by industry. 

  11. Patents and trademarks: These protect your business from competitors running off with products or names that distinguish you from the crowd. 

All of these regulations can be a lot to track, but think about how good you feel when you go to a doctor knowing that he is legitimate, and you have recourse should anything go awry. Following these regulations protects your business and offers your customers that same peace of mind.

Benefits of Government Regulation

Government regulation of business often gets a bad rap by people who believe that it gets in the way of the free market economy and imposes undue burdens on small businesses. While government overreach can certainly impose problems for small business owners, healthy regulation can result in the following benefits:

  1. Satisfied employees who make a living wage and feel loyal to your business.

  2. Higher customer retention rates and higher levels of consumer trust.
  3. A safe environment to sustain your business and employees.

  4. Decreased liability for your small business.

  5. Small businesses that feel good about contributing to needed social programs.

  6. Ethical practices between competitors.

  7. A plethora of consumer choices in the marketplace.

  8. Ethical relationships between employers and employees.

  9. Safe building and operations practices.

  10. Official recourse to fight unethical practices and businesses. 

Disadvantages of Government Regulation

While government regulation is intended to offer protection, this does not come without cost. Following government regulation or changing your business to meet new regulations can be costly and time consuming. Regulations can also be confusing, exposing you to great legal liability and putting you at risk of being shut down if you fail to comply with regulations you did not understand or realize. These laws can also limit how you do business in ways that keep you from offering your customers the goods and services you believe to be in their best interest.

You can help protect yourself against the downsides of government regulation in the following ways:

  • Save more money than you think you need before you start your business.

  • Keep a cushion of emergency funds in your operating budget.

  • Read everything you can find about regulations in your industry.

  • Talk with other business owners to find out their experience with regulations.

  • Network with potential investors and other professionals.

  • Seek legal advice and outside help with compliance. 

Finding Help With Compliance

Although the government does regulate small businesses in many ways, they don't do so without giving ways to find free help with compliance. Your local Small Business Administration can provide you with information about government regulation of business and governmental organizations. It can even connect you with free small business counseling and coaching.

Many metropolitan areas also offer free courses through the SBA and women's business center in areas like nonprofit law, taxes, finances, marketing, certification, business plans and more. Some community colleges, churches or community education initiatives also offer classes aimed at helping small businesses to remain compliant so they can thrive.

References

About the Author

Anne Kinsey is an entrepreneur and business pioneer, who has ranked in the top 1% of the direct sales industry, growing a large team and earning the title of Senior Team Manager during her time with Jamberry. She is the nonprofit founder and executive director of Love Powered Life, as well as a Certified Trauma Recovery Coach, certified HRV biofeedback practitioner and freelance writer who has written for publications like Working Mother, the San Francisco Chronicle, the Houston Chronicle and Our Everyday Life. Anne works from her home office in rural North Carolina, where she resides with her husband and three children.