How do red tape costs compare between U.S. and Canadian businesses?

New CFIB report reveals huge shift in relative expenses since 2013

How do red tape costs compare between U.S. and Canadian businesses?

While red tape remains a reality for entrepreneurs on both sides of the U.S.-Canada border, a new report from the Canadian Federation of Independent Business (CFIB) reveals that the balance between the two countries has changed.

In the report titled Regulatory Costs in Canada and the United States: A Small Business Perspective, CFIB said that small businesses on both sides of the border face significant red tape, but Canadian entrepreneurs today spend significantly less on regulatory compliance than their American counterparts.

This is true even when both countries have had an opportunity to spur post-pandemic recovery with regulatory modernization. The report was done for the first time in partnership with the Small Business Roundtable in the United States and supported by Intuit Canada.

According to the CFIB, each year, the smallest Canadian businesses pay $7,310 (CAD) per employee to comply with government regulations, which is similar to previous years. That means, the smallest businesses in Canada spend nearly ten times more on regulatory compliance per employee than the largest businesses.

On the other hand, similar-sized enterprises in the United States have seen costs rise to $11,904 (CAD) per employee, a significant increase over the previous estimate in 2013. That indicates that the smallest American businesses spend 14 times more per employee than their largest counterparts.

Canadian business owners also reportedly spend less time each year on regulatory compliance (677 hours, equivalent to 85 days) compared to their U.S. peers (889 hours, 111 days).

The figures represent a shift from the CFIB's 2013 study, which found that Canadian expenses were greater than those in the United States. The cost of red tape to Canadian enterprises is $11.3 billion (CAD) each year in comparison to the $167.5 billion (CAD) cost to American firms.

The figures do not include the expense of COVID-19 compliance, which three quarters of business owners in each country believe is substantial. Generally, nearly nine tenths of business owners in both countries (87% in Canada, 84% in the U.S.) say excessive government regulations are a source of significant additional stress to their lives.

"Businesses have been hammered by the cost of COVID-19 over the past two years," Laura Jones, CFIB executive vice president, said in a statement. "While governments have shown more regulatory agility during the pandemic, this needs to be their default setting moving forward. It's critical to our recovery."