Why This Business Owner Says It’s Harder to Start a Business Today
For Aaron Hageman, chief executive of Delivery Drivers of Orange County, Calif., the welter of federal and state regulations concerning who qualifies as an independent contractor has become an expensive sticking point. Consider this example: A driver crossing over the bridge from Vancouver, Wash., to Portland, Ore., could be classified as full-time by one state’s standards and as a contractor by the other.
The number of regulations determining worker status has increased to more than 100 from about six in the past 20 years, Hageman says. That’s important to his 23-person company because he provides delivery drivers on a contract basis to courier services and restaurants in 42 states.
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Balancing these regulations in dozens of states eats up about one-third of Hageman’s operating cash and has shaved about 10% from his bottom line over the years. Delivery Drivers now devotes five people full-time to managing compliance, up from one person at the company’s founding. “Our legal costs to manage audits and inquiries have really gone up, and our net profit margin has gone down,” Hageman says.
Does his experience mean that regulations have made it harder for small businesses to get started these days? Small business groups, such as the National Federation of Independent Business, say 45% of business owners consider regulations a very serious business problem today. That is up from 17% in 2001. For its part, the Office of Management and Budget concluded in a 2015 report that the impact on small business remains inconclusive.
To Hageman, there’s nothing inconclusive about it. “It would be a lot harder to start my business today,” he says. “There is more red tape than ever.”
A version of this article appears in the November 1, 2016 issue of Fortune as part of our “Red Tape” feature.