KfW Research: SMEs spend seven per cent of their working time on administrative processes

• On average, it takes businesses 32 hours per month to comply with legal requirements
• This does not cover “psychological costs” such as lengthy processes, high fees and poor accessibility of agencies
• Meeting all obligations costs SMEs around EUR 61 billion a year

On average, workers at the approx. 3.8 million small and medium-sized enterprises in Germany spend around seven per cent of their working hours on administrative processes. That amounts to 32 hours per month on average per business – or 1.5 billion working hours per year.

These are the findings of the representative KfW SME Panel. Each year since 2002, KfW Research surveys small and medium-sized enterprises from all economic sectors and size classes. Around 10,000 businesses took part in the most recent survey.

The specific question around the topic of bureaucracy in the panel was: “How much time (in working hours per month) do you estimate that your business spends on complying with all legal requirements?” This refers to documentation and information obligations such as filling in forms required by tax and social security authorities, as well as the time businesses need to comply with laws and regulations on, for example, data protection, the rights of employees, environmental protection or minimum technical standards.

The question did not refer to burdens that cannot or can hardly be measured in working time, such as lengthy planning and approval procedures, poor accessibility of authorities or disputes about the interpretation of requirements.

“These specific psychological costs of dealing with red tape, however, play a critical role for many businesses. But they are not measurable. One thing is clear: From the perspective of SMEs, bureaucracy is by far the greatest risk to competitiveness and to Germany as a business location,”

said KfW SME expert Dr. Michael Schwartz.

The survey among businesses revealed that sole traders had the highest administrative burden. On average, they dedicate 8.7 per cent of their working time to completing these tasks. The larger the business, the lower the relative administrative burden. One sector that commits a particularly large amount of time – 8.1 per cent – to administrative processes is the construction industry.

SMEs spend a mean of three per cent of their working time – a maximum of 15 hours per month – on complying with bureaucratic requirements. That means half of them needs more, the other half less time. Managing tax matters requires the greatest amount of work, with 70 per cent of SMEs surveyed mentioning this issue. It was followed by record-keeping and documentation obligations, before accounting requirements.

According to the Federal Statistical Office, the average cost of a working hour in Germany in 2023 was EUR 41.30. Based on this figure, SMEs spent around EUR 61 billion on compliance with all legal requirements in the past year. The work associated with this represented roughly 3.9 per cent of small and medium-sized enterprises’ annual personnel costs.

“The term bureaucracy has a very negative connotation. In principle, bureaucracy is a key foundation of our economic system. Standardised and formalised procedures are a prerequisite for rules-based action that enables legal safety and fair competition,”

said Dr Michael Schwartz.

“But increasing bureaucracy raises the risk that the costs exceed the benefits. From the perspective of SMEs, reducing bureaucracy is therefore the most urgent economic-policy issue today.”

The brief analysis can be found at Focus on Economics | KfW

Where does the German economy stand today? What does the country need to become future-proof? KfW Research explores these questions in the position paper “Managing the transition, strengthening growth”, with analyses of the current situation and recommendations for action in five policy areas. The paper is available for download at Papers and Proceedings on Economics | KfW