EU SME Test

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The SME Test is a key tool in the European Union's better regulation process aimed at assessing the impact of new legislation on small and medium-sized enterprises (SMEs).
What are the main aims and objectives?

The main objectives of the SME Test are to identify how proposed EU legislation may affect SMEs, evaluate any disproportionate burdens on SMEs compared to larger companies, and propose mitigating measures if needed. The SME Test seeks to ensure that the needs and challenges of SMEs are considered early in the policy-making process, following the "Think Small First" principle. It aims to make EU legislation more SME-friendly by analyzing costs and benefits for SMEs, comparing impacts on SMEs versus large companies, and suggesting alternatives or simplifications where appropriate. Ultimately, the SME Test strives to create a regulatory environment that works for SMEs and supports their competitiveness and growth within the EU single market.

How does the program work?

The SME Test is a key component of the European Union's better regulation process, designed to assess and minimize the impact of new legislation on small and medium-sized enterprises (SMEs). It consists of four main steps:

The first step involves identifying affected businesses. This requires determining whether and how SMEs are impacted by a proposed legislation, ideally distinguishing between micro, small, and medium-sized enterprises. The analysis should begin early in the policy-making process, starting with the Call for Evidence or Inception Impact Assessment.

The second step focuses on consulting SME stakeholders. This involves conducting public consultations that are accessible to SMEs, employing targeted consultation methods like SME panels, and presenting SME views in the impact assessment report. The consultation process should respect a 12-week period, avoid holiday overlaps, and be available in all EU official languages to ensure maximum participation.

The third step assesses the impact on SMEs. This involves measuring costs and benefits for SMEs, comparing impacts on SMEs versus large companies, and quantifying impacts where possible. The assessment should ideally differentiate between micro, small, and medium-sized enterprises and analyze impacts for all policy options under consideration, not just the preferred one.

The final step focuses on minimizing negative impacts on SMEs. If disproportionate burdens on SMEs are identified, mitigating measures should be proposed. These could include exemptions, reduced fees, simplified reporting requirements, or transitional periods. However, the goal is to consider SME needs early in the policy-making process to avoid unnecessary burdens from the outset.

What is the overall cost?

There is no information on the cost of running the SME Test.

How was it implemented?

In 2008, the European Commission launched the Small Business Act (SBA) for Europe. The SBA aimed to improve the overall policy approach to entrepreneurship and anchor the "Think Small First" principle in policymaking. This principle committed the Commission to take SMEs' interests into account at the very early stages of policy development, striving for SME-friendly legislation.

As a key tool for implementing the "Think Small First" principle, the SME Test was introduced as part of the Commission's Impact Assessment process. The test aims to analyze the costs and benefits of policy options on SMEs through consultation with SMEs and their representative organizations, as well as statistical analysis.

The SME Test was further refined and formalized over time. In 2009, the European Commission provided a detailed example of the SME Test in the Impact Assessment report on the directive for combating late payments in commercial transactions. This report dedicated an entire annex to the SME Test, setting a benchmark for how it should be conducted.

In 2012, the Commission further illustrated the proper execution of the SME Test in its Impact Assessment report on "Electronic identification and trust services for electronic transactions in the internal market." This report summarized all four steps of the SME Test and provided evidence that SME-specific concerns were considered.

Over time, the SME Test has become an integral part of the European Commission's better regulation guidelines and toolbox. It is now considered a mandatory element in Impact Assessments for legislative proposals that may affect SMEs, although its implementation and quality can vary across different Commission services.

What impact has been measured?

The 2024 SME Test Benchmark report found that the test had a mixed impact on EU policymaking, with some improvements but also ongoing areas for development: 

Positive Impacts

  • Increased Consideration: Almost all impact assessments (22 out of 23) now consider whether SMEs are affected by proposals, an improvement from previous years.
  • Better Consultation: The majority of consultations (20 out of 23) now allow respondents to identify as SMEs or SME representatives and are available in all EU official languages.
  • Improved Presentation: 18 out of 23 impact assessments now present SME views either in a dedicated section or throughout the report.

Areas for Improvement

  • Inconsistent Application: The SME Test is still not systematically and consistently applied across European Commission services.
  • Limited Differentiation: Only 4 out of 23 impact assessments differentiated between micro, small, and medium enterprises.
  • Insufficient Quantification: Quantitative analysis of SME impact was only carried out in 13 out of 23 impact assessments.
  • Consultation Timing: Only 17 out of 23 initiatives respected the 12-week consultation period, with many overlapping holiday periods.
  • Unclear Presentation: 7 out of 23 legislative initiatives lacked a dedicated SME Test chapter, making results less transparent.
What lessons can be learned?

The 2024 SME Test Benchmark report offered several recommendations for improvement:

  1. Adopt a common SME Test template across all Directorates-General to ensure consistency and clarity.
  2. Ensure Calls for Evidence always reflect potential impacts on SMEs and micro-companies.
  3. Respect the 12-week consultation period and avoid holiday overlaps to maximize SME participation.
  4. Improve quantification of impacts on SMEs and differentiate between micro, small, and medium enterprises where possible.
  5. Include a dedicated SME Test chapter in all relevant impact assessments for better transparency.
  6. Ensure mitigating measures for SMEs are clear, targeted, and fully address identified issues.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom