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We are examining a fictitious company Gateway to Heaven Ltd. It has the following characteristics:

  • It has been operational for several years already.
  • If there are regional business rules in the country, the company is located in the capital of the country.
  • The company manufactures iron gates, fences and other blacksmith products.
  • It has four full-time employees. Two of them aged 20, and the remaining two aged 50. Two males and two females. The entrepreneur (owner) is not an employee and does not change over time.
  • During the year one employee would be fired and one would be hired.
  • Legal probation time is applied (if possible).
  • Worktime is 9-5, 40 hours per week (or the most usuall full-time contract equivalent in your country).
  • Each of the 4 employees is sick for 5-working days per year.
  • Each of the employees uses all of his or her legal holiday leaves. No other leave (unpaid, etc.) applies.
  • Each of the employees opts to use tax assignment (if eligible in your country, for example Slovakia has optional 2% personal income tax assignment to charity).
  • Annual turnover of the company is EUR/USD 100,000.
  • Pre-tax profit is EUR/USD 5,000.
  • Dividends are retained.
  • It sells its products both to other business and consumers.
  • The company is a VAT payer (if applicable in your country).
  • The company accepts cash, card and wire payments.
  • It does not import or export goods and materials outside of the EU (if your country is not an EU member, the model company does not import or export at all – do not regard any bureaucratic duties which are related to international trade).
  • The company produces waste on a monthly basis: 5 kg of electronics, 10 kg of oils/colors/chemicals (hazardous), 10 kg of mixed glass, 50 kg of metal, 25 kg of mixed plastics, 25 kg of mixed paper, 25 kg of unsorted (non-hazardous) waste per month.
  • 25 kilograms of package materials is used each month.
  • The company owns one delivery diesel truck with a 100kW engine with one dedicated driver from the staff members. The truck is replaced with a brand new one every four years.
  • Both indoor (10 pieces) and outdoor (10 pieces) power tools are used by the employees.
  • Risk factor of the working environment is considered medium (higher than office work, lower than high risk environments like a steel-mill).
  • The company resides in its own building.
  • There are no trade-unions (if such option is legally possible).
  • The company uses standard accounting software, but does not outsource accounting.
  • The company communicates with the public institutions electronically, when such option is possible.
  • The company strictly follows the law and fully complies with all requirements.
  • If there is an externally provided service (required by law, like health and safety training), the company searches for a new provider once in four years.
To calculate the index, we identify all the relevant bureaucratic duties of the model company. “Relevant” means they fulfil two conditions: v
    1. 1. They are imposed by law or any kind of regulation issued by a relevant public authority.
    1. 2. They fail the market test. It means that the same duty would not be required by the market, or the market requirements would be substantially lower and/or flexible. One example is accounting - bookkeeping would exist also without legal requirement.
Therefore, accounting is not counted into administrative duties – except for tax and social/health contributions related accounting events. Similarly, the duty of creating an employment contract does not fail the market test. However, any related agenda required by law (in Slovakia, hired employees have to sign “responsibility agreement”) is counted towards the administrative duties.

The identified administrative duties should fall into these two broad categories and subcategories: Employment and Operation.
This category should encompass duties related to employing people:

  Wages, taxes and contributions administration – everything related to the tax and obligatory insurance (health, pension, social) administration on behalf of the existing employee (only in the case the law requires the employer to provide these to the employee). Activities related to the salary (anything more than the payment itself, which does not fail the market test) also come in this category. This category also includes additional administration of sick leave and holidays.  

Hiring and firing administration – our model company hires one and fires one employee during the year. This subcategory may include obligatory introductory health and safety training, entry medical examination, registration of the new employee in the tax office, social insurance agency (and, eventually, deregistration of the fired one).  

Worktime reporting – the model company has only 4 employees. However, some countries require in their labor code detailed and recorded management of worktime, holidays etc.
This category should encompass all activities related to daily operations of the model company, besides employment.

Taxes administration – administration of any taxes (except taxes and contributions on behalf of the employee, which should be treated in the “Employment” category). These would typically involve corporate income tax, VAT, real estate tax,… Also management of fees to public institutions (Public broadcasting fee is a Slovak example), which do not fit into other categories (below) should appear here.

Waste administration – especially in the EU, keeping record about waste creation and disposal represents large bureaucratic burden. We created a separate category for it.

Vehicle administration – any bureaucratic duties related to purchase (one in 4 years – see below the section about counting the time cost), sale, operation and driving of the company vehicle.

Obligatory certification and external services – this category should involve any activities regarding obligatory certification (either from public or private providers), including various safety and technical checks (of power tools for example), which are imposed by law. Also, any kind of service provided by private or public bodies, which is required by law and fails the market test should be included here. See below on how to count time cost for regular certification provided by an external contractor.
Besides the two main (EMPLOYMENT and OPERATION) we also include a special category OTHER. Here, any important duty which does not fit previously mentioned categories should be listed. However, to make the Bureaucracy Index as comparable between countries as possible, duties should be placed in this category only in special occasion, after consulting it with the coordinator (INESS).

The duties you record should be explained in a layman details, so their list can serve not only as an internal repository of data for the calculation of the index, but also as a knowledge database of the bureaucratic duties of your country for other countries
Each of the bureaucratic duties from the list should be assigned a time cost. You should select one of the four possible values:

Short: 0.25 hour. Typically, you should assign this time cost to an automatized, repetitive action, often assisted with electronic solutions. Think of reports generated by accounting software, or by online tools of your tax authority, social/health insurance authority etc., and which do not require further manual elaboration, generic short forms, which require minimum inputs (signature, etc.) and similar.

Medium: 1 hour. Reports, forms, declarations etc., which require numerous manual inputs and personalization, calculations (which are not done automatically in 0 time by software, or which require corrections or checks by human). Consider this category also when communication within the company or with external environment (authorities etc.) is required.

Long – half day: 4 hours. Duties, which require intensive manual input, analysis and calculations, large number of inputs, which have to be personalized, require creation of long texts, schemes, maps, etc. This may also include activities which require presence of an employee on an event (think entry medical exam). Any market search will cost 4 hours (see below about market search).

Long – full day: 8 hours. Duties, which require intensive manual input, analysis and calculations, very large number of inputs with difficult data collection, require creation of long texts, schemes, maps, etc and which occupy the responsible person for a whole work day. This may also include activities which require presence of an employee on an event (think health and safety training) during the whole workday.

There are four more time assignments, which may influence the final time cost: payment, submission, travel and market search.

Payment – 0/0.25 hour. If a bureaucratic duty requires manual payment, the payment will add 0.25 hour of time cost (no matter if it’s paid cash, by cheque or electronically). If the payment is fully automated recurring payment, it costs 0 hour.

Submission – 0/0.25 hour. If the required form, or application or any other outcome of a bureaucratic duty can be submitted electronically, it cost 0 hours. If it has to be submitted in paper, add 0.25 hour (it represents the time cost of printing, fitting in envelope, marking with address etc.)

Travel – 2 hours. If a responsible person has to leave the workplace to fulfill the bureaucratic duty (to visit a bureau for example), add 2 hour travel cost. This does not count for the visits of post office (see submission) or a bank (see payment).

Market search – 1 hour. If any duty requires a commercial provider (think health and safety training), market search cost has to be added. The methodology sets that such a provider is searched on the market every 4 years and the search takes 4 hours, therefore the annual cost is 1 hour. The market test (see above) applies – consider only duties, required by law. Market search cost for a new truck is not considered, because the purchase of a truck is not required y law.

If more employees are affected by the duty at the same time (for example, a law requires all employees to undergo regular health and safety training). The time cost is multiplied by the number of persons involved! The time cost represents the time during which the entrepreneur or any of his employees were absent from work.


You are counting annual time cost. Therefore you have to take periodicity of the bureaucratic duties into account. Periodicity is counted according to your local legal requirements. If the law requires your model company to submit tax statement every month, you have to multiply the cost 12-times. For duties with periodicity longer than one year, you should divide the time cost with the number of years. An example could be a power tool check, required by law every two years. In this case, you divide the time cost of the duty (4 hours for example) by 2, so the resulting time cost is 2 hours per year. In the case of irregular duties, we consider such events occur in our model company every 4 years.  One example is the purchase of a new truck.

Legal changes – time cost

An entrepreneur (or his/her employees) have to be up to date with certain laws. Rapid changes in crucial laws require time to study the changes and incur time cost. We consider three bodies of laws: labor code, corporate tax code, and commercial code. If there is a novelization during the considered year to any of these three laws, you should add 1 hour per law per novelization to the final time cost. We are following the period January 1  - December 31 of the previous year. The key is the date, when the law becomes effective.  Example: if there was one novelization to the labor code, three to the corporate tax code and zero to the commercial code, you should add 4 hours (1+3) to the final time cost.
Example 1: Every month, employer has to report paid social insurance contributions to the Social Insurance Agency. It is a routine duty, with inputs quickly generated by a standard accounting software used by the company, so it is considered “short” with 0.25 hour cost, but multiplied by 12 (monthly periodicity). The report is submitted electronically and requires no payment, so there is no payment, submission or travel cost added. Final annual time cost for this duty is 3 hours.

Example 2: All employees have to undergo health and safety training once in two years. This training must be contracted from a licensed provider. The training requires all employees of the company to visit the offices of the provider. This training will take several hours (yet not a full day) so we count it into the “long – half day” category, with 4 hour cost assigned. However, it requires the presence of all 4 employees, who have to travel to the event venue. Therefore, we end up with 4 employees times 4 hour + 2 hour travel, which equals 24 hours divided by two years, coming to 12 hours cost. The training is provided by a commercial provider, so we also have to add the market search cost 1 hour. Final times cost is 13 hours.

Example 3: The Company sells the old one and buys a new vehicle every 4 years. This operation itself is a standard market operation as it not counted as a time cost in the Bureaucracy Index. But  deregistration of the old vehicle and registration of the new vehicle is counted. Suppose the registration itself is a medium process with cost 1 hour. It has to be done personally in a transport authority bureau building; therefore 2 hours travel cost is added. The procedure includes also cash payment for the stamp, with additional 0.25 hour cost. It sums up to 3.25 hours. However, since this event happens only once in four years, the time cost is 3.25/4 = 0.813 hours annually.
There are also random events, like statistical reporting, how should we calculate it? Try to assign statistical probability of occurrence and turn it into frequency. For example, if there is 10% chance of being selected for statistical reporting, it means once in 10 years, therefore frequency 0,1.

I do not know how to apply market test on events like "signing a contract with a new employee". We suggest you break the event into more parts and select those, which are not "voluntary". For example, "Agreement on material liability" may be part of the contract, narrowly defined by law. If it is not possible, or feasible to break the event into "voluntary" and "involuntary" parts, you can include it as a whole and calculate the time cost only for the part, which does not pass the market test.