Costs of compliance

Complying with legislation is not free. Rules that protect consumers and employees cost money to follow, so new laws push up a business's costs and narrow the choices it can make. Compliance means doing what the law says, and every business must comply however small it is, so these costs cannot be avoided.

These costs constrain a business, meaning they limit what it can do. Money spent on protective gloves cannot also be spent on a new delivery van, so legislation can slow expansion and cut into profit unless prices rise. Rules also remove choices: a business cannot take on whoever it likes if that means discriminating, cannot pay below the minimum wage, and cannot skip safety checks to save time. Breaking the law is no cheaper: fines and compensation claims usually outweigh whatever the business saved.

Worked example

A day nursery caring for 60 children employs 14 staff. Four new playworkers start this year, and each must pass an enhanced DBS criminal record check before being left with the children, at around £50 each, so £200 in total. Three staff go on a two-day paediatric first-aid course at £190 each, which is £570, plus their wages for the two days and agency cover. New non-slip flooring for the baby room adds £2,300. On top of that, the manager gives up three hours a week to write risk assessments. That is over £3,000 of direct spending plus hours of management time, so the nursery must raise its weekly fee or accept a smaller surplus, and it delays opening a second baby room.