Hardwiring Sensitivity to Small Business Impacts of Regulation: Guide for the Small Business Lens
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Purpose
The purpose of the "small business lens" is to drive better analysis of small business realities and consultation at the earliest stages of regulatory design and to consider risk-based alternate compliance approaches that minimize costs for small business.
This document provides guidance to federal departments and agencies on how to implement the small business lens when regulating, based on section 7(N) of the Cabinet Directive on Regulatory Management.
Effective Date
The small business lens takes effect on February 1, 2012.
Area of Application
The small business lens applies to all federal departments, agencies and instruments to which the Cabinet Directive on Regulatory Management applies, as described in section 3 of the directive ("Scope of Application").
Costs: The small business lens applies to the direct compliance and administrative costs that small businesses face when complying with regulations.
Proposals: The lens applies to regulatory proposals that impact small business and that have nationwide cost impacts of over $1 million annually.[1]
On an exceptional basis, the lens may also apply to regulatory proposals that have nationwide cost impacts of under $1 million annually, where costs on small businesses are disproportionately high (e.g., high costs for a few small businesses).[2] Applying the lens will be determined on a case-by-case basis for such regulatory proposals.
The lens does not apply to proposals that have no impacts on business. If proposals decrease costs to small businesses, the lens does not apply if this decrease can be demonstrated. An appropriate demonstration would be to quantify and monetize this decrease using the Regulatory Cost Calculator and include results in the Regulatory Impact Analysis Statement (RIAS).
Definitions
All costs defined in the following are "incremental" costs, i.e., costs that are related only to the proposed regulatory change, as compared with the baseline (usually the prevailing situation in the absence of the proposal). Costs that would occur under the baseline scenario are not part of the incremental costs associated with a proposed regulatory change.
- Compliance costs:
- Up-front capital costs as well as ongoing maintenance and training costs that businesses face when complying with a regulation. These include signage or notifications (when in material form, such as a road sign), testing, training staff, purchasing new equipment or software, maintaining equipment and software, renting additional space, purchasing equipment to maintain records (such as secure filing cabinets), etc.
- Administrative costs (also known as "administrative burden"):
- Costs related to the planning, collecting, processing and reporting of information, and completing forms and retaining data required by the federal government to comply with a regulation. This includes filling out license applications and forms as well as finding and compiling data for audits and becoming familiar with information requirements. Refer to Appendix A of Controlling Administrative Burden That Regulations Impose on Business: Guide for the One-for-One Rule for examples of activities that are considered administrative costs.
- Direct costs:
- Defined as compliance or administrative costs that are directly related to the change in behaviour induced by the regulation. Generally, a direct cost is a cost to a party that is either targeted by the regulation or that will face requirements as a result of implementing the regulation. In addition, direct costs are limited to costs that are measurable using the Standard Cost Model and other methodologies generally accepted to measure compliance costs as previously defined.
- Taxes, fees and penalties:
- As per the Treasury Board of Canada Secretariat's Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, taxes, fees, levies and other charges, because they constitute transfers from one group to another, are not considered to be compliance or administrative costs, whether they are intended as incentives to foster compliance and change behaviour or whether their purpose is to recover the costs of providing a service.
- ↑ An example of such a case is a proposed regulation or regulatory amendment that would impose $1,000 in average annual compliance and administrative costs (up-front capital costs as well as ongoing maintenance, training and reporting costs) on 5,000 small businesses in Canada. If there are no other costs, the nationwide cost impacts would amount to $5 million annually, and, as such, the small business lens would apply.
- ↑ This case could occur when, for example, a proposal would impose $5,000 in average annual compliance and administrative costs, but on only 100 small businesses in Canada. If there are no other costs, the nationwide cost impacts would amount to $500,000 annually, which is below the $1 million threshold. However, because small businesses face high costs, the lens would apply to ensure that every effort is made to minimize costs on those small businesses impacted.
