More Red Carpet and Less Red Tape for the One-Person SMEs

11/05/2016 |

Self-Employed, Anyone?

According to the Flash Eurobarometer FL354 “Entrepreneurship in the EU and beyond”, in 2012, 37% of Europeans surveyed expressed a preference for self-employment over being an employee, and there is a lot of supporting evidence to suggest that work satisfaction is very high among the self-employed. However, only 14% of Europeans actually are self-employed. Such a gap between aspiration and reality exists because of 79% of respondents see complex administrative process and lack of information as a barrier to start on their own.

Who Are One-Person SMEs?

Independent professionals (occasionally called one-person SMEs) are work creators, part of the burgeoning small business sector and as such they are swallowed in the European SME definition under the micro enterprise category (1–9 employees). Individually, their impact on traditional economic measures may be limited, but taken together they are reshaping a people-powered European economy. Yet, public policy either ignores these individuals or subjects them to the same rules and regulations as larger SMEs.

Whereas making a distinction between large companies and SMEs has been a step in the right direction, it is key to recognise within the SME family, there are important differentiations. What is easily manageable for an SME with 250 employees, can be disproportionately onerous for an SME with 9 employees and simply impossible for a one person-SME with zero employees. Nevertheless, all 3 fall under the European SMEs definition and must comply with the same legislation. An independent worker, limited in his/her resources, is himself/herself who plays the role of accountant, health and safety department, HR manager, web developer, data protection officer and so on. The more time an independent worker spends on compliance, paperwork and other red tape, the less time he/she has to cultivate the business and generate growth.

The Red Tape

It is vitally important for independent workers and the one-person SMEs that regulation is clear, accessible and not unduly burdensome. Red tape should be eliminated or reduced wherever possible particularly for the smallest enterprises, who are exceptionally vulnerable to the burdens of bureaucracy due to their very small size and limited human and financial resources. As a matter of example, the EU High Level Group on Administrative Burdens (2014) estimates that exempting micro-entities from the European accounting and auditing rules could yield annual savings of EUR 6.3 billion in the EU.

The Red Carpet

EU policymakers must not only acknowledge the economic power of the smallest businesses, but also adapt public policies to support them, starting by recognisingthe value of independent workers and the self-employed as economic agents in their own rights and as a unique subset of micro-enterprises within the European SME definition. European institutions should seek to ensure the SME Test in impact assessments is adapted to the one-person SME and a principle of “Think Small-est First” is strengthened throughout all stages of the legislative process.

The flagship initiative of the Europe 2020 Strategy, entitled “An Agenda for New Skills and Jobs”, acknowledges that self-employment is a major factor in job creation, requiring European countries to eliminate measures that act as disincentives to self-employment. Nevertheless, the overall aim of a European SME policy should not only be that SMEs have to grow in number of employees and create jobs. It is the general framework conditions (horizontal policies) for SMEs that needs to be improved, one where progressive solutions can leverage this structural change allowing people to find multiple and better alternatives than a traditional full employment. This has already been stated in the European Charter for Small Enterprises, which aimed at “creating the best possible environment for small enterprises”.

Better SMEs Segmentation

Within the broader European enterprise and employment legislation, EU policymakers must give special consideration to how regulations will affect independent workers and the self-employed. Specifically they must recognise the differences between nano, micro, small and medium-sized enterprises and take that into account when applying the SME Test.Additionally, where appropriate, they must envisage specific regulatory exemptions and measures such as reduced fees or simplified reporting obligations for independent workers and the self-employed.

Impact Assessment for One-Person SMEs

EU policymakers must create one single impact assessment for each policy proposal to be updated at each stage of the legislative process by the relevant EU institutions. This should be scrutinised by an independent Regulatory Scrutiny Committee to serve the European Commission, Parliament and Council. Specific performance indicators need to be established measuring compliance costs as well as the costs of non-regulation for independent working and self-employment. In this direction, post-implementation impact assessments should be required with mandatory evaluation and reporting after three years of the adoption of any legislative proposals.

One Stop Shop

A central portal should be established, within which all employment, enterprise and internal market regulations in the EU member states impacting independent workers and the self-employed are visible. This “one stop shop” should possibly be integrated in the Enterprise Europe Network contact points at national level. A scoreboard could complement this portal, updated on a yearly basis, which will show all proposed exemptions and lighter regimes for micro businesses and the smaller economic operators in new legislation. This will allow all interested parties to identify where progress is made — or where different stages in the EU legislative cycle will require simplification.

eGovernment

Administrative procedures should be streamlined with eGovernment as to bring down burocratic costs and burdens, increase productivity, efficiency, transparency and policy effectiveness. A simplified EU wide licensing system should promote the following principle: “one person businesses should require only one day and one Euro to set up”.

One-Person SMEs Envoy

Finally, independent workers and the self-employed should be represented within the EU institutions by a dedicated Envoy (not dissimilar from the current SMEs Envoy). This would act as a conduit for the voice of the one person SMEs in the EU and make recommendations to simplify legislation for them, including the enforcement of national implementing measures.

Feedback From a One-Person SME

Back in 2015, I have interviewed Guillaume a 45 years old Ceramic Sculptor and Movie Script Writer from France who told me:

As an artist working in the creative sector, I am stereotypically perceived as an occasional small jobs seeker. I often face late payments from my clients who disregard the 30 days limit for B2B transactions of the EU Late Payment Directive. In one instance I brought one client based in Austria to court after failing to pay me for one whole year. All of this while I still had to make regular quarterly contributions to the tax authorities in France, my home country. I lost the case as the court ruled my invoice was sent by email and not by registered mail, so they could not establish the exact date of receipt. Moreover, this court proceeding and hiring a lawyer took 10 months and costed me a fortune.

My recommendation to the policymakers is to establish small claim conciliation courts to ease and speed up the litigation process and a prompt payment code which I could ask my clients to subscribe. A public registry where I could anonymously (as I don’t want to risk business relations) denounce offending clients may also be useful as well as the possibility to delay my quarterly VAT returns if I record no income.

As a small business owner, I already have so much on my plate, and have no one to delegate to. I do my own marketing, website design, branding, accounting, taxes, order supplies, packaging, inventory and most importantly, make the art that I sell. Simplifying the rules would free up more time for me to create, instead of doing research on the legislation for each country where I sell and then dealing with the back-and-forth problems that arise, involv­ing many emails about where the package is, why there are fees, and how long it will take to arrive. I dream of a collaborative community space where I can share and quickly learn further about regulations, good business practices, and consumer concerns with the items they buy. Falling behind on new regulations or updates to policies has been a real concern for me, so I schedule time to review updates to the regulations on a monthly basis. This is a lot to ask to a business of one like myself. I do not have the financial possibility nor the willingness to hire additional staff to deal with this administrative burden.

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Marco Torregrossa is Secretary General at the European Forum of Independent Professionals and Managing Director at Euro Freelancers. He is a One-Person SME.

This post originally appeared on Medium here.