Time tracking software for SMEs enables legally compliant, digital documentation of working hours in accordance with the German Federal Labour Court (BAG) ruling of 2022. The software must record the start, end, and duration of daily working hours in an objective, reliable, and accessible manner. For small and medium-sized enterprises, cloud-based solutions with app access are particularly suitable as they are easy to implement and GDPR-compliant.
What Is Time Tracking Software?
Time tracking software is a digital tool for the systematic documentation of working hours. It records the start, end, and duration of daily working time as well as break times and overtime. Unlike manual methods such as timesheets or Excel spreadsheets, software offers automated calculations, evaluations, and legally secure archiving.
Benefits for SMEs
For small and medium-sized enterprises, a digital time tracking solution offers several advantages: Recording is error-free and tamper-proof, which meets the requirements of the German Federal Labour Court (BAG). At the same time, the manual effort for payroll processing is eliminated as data can be transferred automatically. Transparency regarding overtime, absences, and project times enables better workforce planning. Especially for SMEs without their own HR department, this means significant relief.
Legal Framework: Is Time Tracking Mandatory?
The question of mandatory time tracking concerns many HR professionals. The answer is clear: Yes, time tracking has been mandatory for all companies in Germany since 2022 – regardless of size.
ECJ Ruling 2019: The European Impulse
The European Court of Justice (ECJ) ruled on 14 May 2019 in the so-called "time clock ruling" (Case C-55/18 CCOO) that employers in the EU are obliged to set up an objective, reliable, and accessible system for recording daily working time. The aim is to protect employees from overwork and to ensure compliance with the Working Time Directive.
German Federal Labour Court Ruling 2022: Obligation for Germany
The German Federal Labour Court (Bundesarbeitsgericht, BAG) established in its ruling of 13 September 2022 (Case 1 ABR 22/21) that all working time must be recorded in Germany as well. The legal basis is found in Section 3(2)(1) of the German Occupational Health and Safety Act (Arbeitsschutzgesetz, ArbSchG), interpreted in conformity with EU law. According to the German Federal Ministry of Labour and Social Affairs (BMAS), this obligation already applies – employers do not need to wait for further legislation.
Current Legal Situation 2025/2026
The 2025 coalition agreement between CDU/CSU and SPD announces plans to specify the electronic time tracking obligation by law. Transitional periods based on company size are planned, with micro-enterprises with fewer than 10 employees potentially being exempt from the electronic requirement. However, until new legislation is passed, the obligation from the BAG ruling applies without restriction.
Requirements for a Time Tracking System
Legal Requirements According to BAG and ECJ
A legally compliant time tracking system must meet the following criteria according to the ECJ and BAG:
Objectivity: The system must reflect the actual, correct working time – without the possibility of manipulation.
Reliability: Recording must function consistently and error-free. Paper records are permitted, but digital solutions are considered more reliable.
Accessibility: Both employees and supervisory authorities must have access to the data when needed.
What must be recorded? The start, end, and duration of daily working time – including overtime. The retention period is at least two years.
GDPR and Data Protection
Working hours constitute personal data and are subject to the General Data Protection Regulation (GDPR). When selecting time tracking software for your SME, you should pay attention to the following points:
- Purpose limitation (Art. 5 GDPR): Data may only be used for working time management.
- Technical measures (Art. 32 GDPR): Encryption, access controls, and secure servers are mandatory.
- Server location: For cloud-based solutions, servers should be located in the EU.
- Data processing agreement: A data processing agreement (DPA) with the provider is required.
Types of Time Tracking Software
Cloud-Based Solutions (SaaS)
Cloud-based time tracking software is provided via the internet and requires no local installation. You typically pay a monthly fee per employee. These solutions are particularly suitable for SMEs as they are quickly deployable, receive automatic updates, and are accessible from anywhere. Most providers also offer mobile apps.
On-Premise Software
On-premise solutions are installed on your own servers. They offer more control over data but require in-house IT resources for installation and maintenance. For SMEs without an IT department, this option is usually less practical.
Mobile Apps and Hybrid Working
In times of home office and flexible working models, mobile time tracking is essential. Most modern systems offer apps for iOS and Android, allowing employees to record their times via smartphone – whether in the office, at home, or on the go. Features such as GPS-based location tracking or QR code clocking extend the possibilities.
Time Tracking Software for SMEs: Selection Criteria
Checklist: 5 Criteria for Selection
When selecting time tracking software for your SME, you should check the following points:
- Legal compliance: Does the system meet the requirements of the BAG and ECJ? Are start, end, and duration recorded? Is the solution GDPR-compliant?
- User-friendliness: Is the software intuitive to use? Can employees start without lengthy training? A complicated solution leads to low acceptance.
- Flexibility: Does the system support different working time models such as flexitime, part-time, or shift work? Is a mobile app available?
- Integration: Can the software be connected to your payroll software or HR system? Automated data transfer saves time.
- Support and updates: Does the provider offer support in your language? Are legal changes implemented promptly?
Typical Cost Ranges
The costs for time tracking software vary depending on the range of features and company size:
- Cloud-based solutions: approx. €3-10 per employee per month
- Setup costs: €0-500 (included with some providers)
- Free basic versions: Available from some providers for small teams
- On-premise solutions: Higher one-time costs (several thousand euros), but lower ongoing costs
For an SME with 20 employees, the monthly costs for a cloud solution are typically between €60 and €200.
Implementation in 5 Steps
Implementing time tracking software in your SME succeeds with a structured approach:
Step 1 – Define requirements: What working time models does your company use? What integrations are needed? How many employees need to be tracked?
Step 2 – Compare providers: Test 2-3 providers with free trial periods. Pay attention to the criteria mentioned above.
Step 3 – Inform the team: Explain the benefits of time tracking to your team – not as surveillance, but as protection against excessive overtime and for fair compensation.
Step 4 – Start pilot phase: Begin with a small team or department. Gather feedback and optimise processes.
Step 5 – Go live: After a successful pilot phase, roll out the system company-wide. Plan short training sessions or online introductions.
Frequently Asked Questions About Time Tracking Software for SMEs
Is time tracking mandatory for SMEs?
Yes, since the BAG ruling of 13 September 2022, the obligation to record working time applies to all companies in Germany – regardless of size. The legal basis is Section 3(2)(1) of the German Occupational Health and Safety Act (ArbSchG), interpreted in conformity with EU law.
What must be recorded in time tracking?
The start, end, and duration of daily working time must be recorded – including overtime. Break times should also be documented to demonstrate compliance with the Working Time Act.
Does time tracking have to be electronic?
Currently, paper records are also permitted. However, the 2025 coalition agreement announces an electronic obligation. Exceptions may be planned for micro-enterprises with fewer than 10 employees. A digital solution is recommended due to its reliability and evaluability.
Can employees handle time tracking themselves?
Yes, delegation to employees is permitted. However, the responsibility for correct recording and compliance with working hours remains with the employer. The employer must ensure that the system is actually used.
Is trust-based working time still possible?
Yes, trust-based working time as a working model remains permitted. However, time tracking must still take place. Documentation of working hours is mandatory, even with flexible models.
What does time tracking software for SMEs cost?
Cloud-based solutions typically cost €3-10 per employee per month. One-time setup costs vary between €0 and €500. Some providers offer free basic versions for small teams.
What penalties apply for missing time tracking?
Currently, no specific fine is anchored in the Occupational Health and Safety Act. However, the competent supervisory authority can issue orders. Violations of these orders can be penalised. Future legislation could introduce specific sanctions.
What GDPR requirements apply to time tracking?
Working hours constitute personal data. Purpose limitation applies: data may only be used for working time management. Technical and organisational measures according to Art. 32 GDPR are mandatory. The retention period is at least two years.
Conclusion
Time tracking software is no longer optional for SMEs – it is a legal obligation. Since the BAG ruling of 2022, all companies must systematically record the working hours of their employees. Cloud-based solutions offer small and medium-sized enterprises the best combination of legal compliance, easy implementation, and manageable costs. When making your selection, you should pay attention to GDPR compliance, user-friendliness, and integration options. With a structured implementation and transparent communication, the transition to digital time tracking can be accomplished within a few weeks.
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Sources
- German Federal Labour Court (2022). Ruling 1 ABR 22/21 – Working Time Recording Obligation. https://www.bundesarbeitsgericht.de/entscheidung/1-abr-22-21/
- German Federal Ministry of Labour and Social Affairs (2023). Questions and Answers on Working Time Recording. https://www.bmas.de/DE/Arbeit/Arbeitsrecht/Arbeitnehmerrechte/Arbeitszeitschutz/Fragen-und-Antworten/faq-arbeitszeiterfassung.html
- European Court of Justice (2019). Ruling Case C-55/18 CCOO – Time Clock Ruling. https://curia.europa.eu/juris/liste.jsf?num=C-55/18
- German Occupational Health and Safety Act (ArbSchG). https://www.gesetze-im-internet.de/arbschg/
- German Working Time Act (ArbZG). https://www.gesetze-im-internet.de/arbzg/
- Coalition Agreement 2025 (CDU/CSU, SPD) – Passages on working time recording
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