Regulatory Compliance Costs Canada’s Economy $6,000 per Employee, Possible Relief on the Way

Regulations cost Canadian businesses nearly $6,000 per employee per year, with most of that cost borne by small businesses

A report by the Canadian Federation of Independent Business (CFIB), which represents Canada’s small and medium sized businesses, estimates that the country’s regulatory burden costs Canadian businesses nearly $6,000 per employee per year, with the cost falling heaviest on small businesses.

The report, done in partnership with auditor KPMG, also found that compliance costs are higher in Canada than the US for businesses in all size categories except the largest – those with 100 or more employees – for which per employee costs in Canada, at $1,146, are slightly lower than the $1,278 cost in the U.S.

For the smallest businesses, which are categorized as those with 5 or fewer employees, regulatory costs in Canada average $5,942 per employee, significantly more than the $4,082 per employee cost in the US.

In the survey outlined in the report, 31 percent of Canadian business owners said they may not have gone into business if they had known the burden of regulation, a discouraging finding for Canada’s business environment.

The report is the second major analysis in the last year showing that regulations are placing a heavy burden on Canada’s smallest economic players.

A study by the Canadian Labour Market and Skills Researcher Network (CLSRN) last October found that occupational regulations are preventing many of Canada’s immigrants from working in their field of study, at a cost of $2-5.9 billion a year to the country’s economy.

A turning of the tide

Like most OECD countries, Canada has experienced gradual regulatory creep over the past several decades, as a diverse array of labour and business interest groups have promoted the expansion of regulations in their respective sectors, to limit the competition they face from the greater labour and business markets.

The trend could see a reversal over the coming years though, with the seminal Red Tape Reduction Action Plan. The plan is one of the most ambitious regulatory reform initiatives in Canadian history, and includes:

  • A One-for-One Rule which will require compliance costs imposed by the enactment of new regulations to be offset by an equal reduction of regulatory compliance costs through the reduction of existing regulations.
  • A Small Business Lens which will require regulators to take into account the costs imposed on small businesses by regulations.
  • The publication of Forward Plans, which will inform businesses of upcoming regulatory changes 24-months in advance of their enactment, to allow them to prepare for the changes.
  • Service Standards that set targets for speedy issuance of licences, certifications and permits, and encourage the establishment of feedback mechanisms by regulators for businesses subject to licensure.
  • An Annual Scorecard which will publicize progress on reforms, in particular the One-for-One Rule, the Small Business Lens and the Service Standards.

In addition to the six systemic reforms, the plan requires 90 department-specific reforms over the next three years. The President of the Treasury Board of Canada, Tony Clement, described the Red Tape Reduction Action Plan as a “game changer” when it was unveiled last October.

Canada Ranks 17th in ‘Ease of Doing Business’, Shines in ‘Starting a Business’ Category

Canada's largest port, the Port of Vancouver. Canada placed 17th in the World Bank's Doing Business report that ranks countries by general ease of doing business.

Canada ranks as the 17th easiest place in the world to do business in a report released on Tuesday by the World Bank. The 2013 edition of the Doing Business report rates 185 countries according to 11 sets of indicators that quantify the ease of complying with regulations and the protection of property ownership rights.

Canada’s overall ranking was weighed down by the low scores it received in the ‘Dealing with construction permits’ (69), ‘Getting electricity’ (152), and ‘Enforcing contracts’ (62) categories. It ranked near the top of the rankings in the ‘Starting a business’ category, at third, with a business requiring one procedure and five days to start on average in the country.

Last month, Canada placed fifth in another international economic freedom index, the Fraser Institute’s annual Economic Freedom of the World report. In that ranking, Canada placed well ahead of its southern neighbour, which came in 18th.

The situation is reversed in the World Bank report, with the US, at 4th in the world, ranking 13 places ahead of Canada -exactly the same number of places that Canada was ahead of the US by in September’s report.


The accuracy of economic freedom indices has been questioned by some groups, due to the arbitrary weighting of the indicators used to formulate the final score a country receives, and the non-recognition of the ease of participating in the un-regulated, informal economy – an area where less developed countries have an advantage due to their less developed regulatory enforcement mechanisms – as a factor in economic freedom in all of the major indices.

Nevertheless, a good showing in an economic freedom index is highly sought after due to the perception it gives of a country being open for business and having a strong rule of law.

Canada’s placing in the indices should improve considerably in coming years due to the comprehensive Red Tape Reduction Action Plan, a major overhaul of the regulatory framework, announced this month, which will implement the recommendations of the federal government’s year-long Red Tape Reduction Commission.