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

Most small and medium-sized enterprises in Germany expect wages and salaries for their employees to stop rising in 2025. In a survey, 47 per cent responded that they believed wage and salary costs will remain roughly the same this year, and 9 per cent even anticipate a decline. Even so, 37 per cent of SMEs expect wage costs to rise by as much as 10 per cent, and 7 per cent believe the increase will even exceed 10 per cent. In the past year, a majority of enterprises had anticipated rising wage and salary costs.

These are the findings of a special survey undertaken as part of the representative KfW SME Panel. It was conducted as an online survey in January. A total of 3,165 enterprises participated. KfW Research performed the analysis of the findings in collaboration with the Deutsche Bundesbank.

The survey also revealed that wages and salaries make up around 35 per cent of total costs incurred by SMEs. In April 2024, that figure still stood at 33 per cent. An increase of 2 percentage points within a year constitutes quite a remarkable shift for a structural variable such as the composition of the cost structure.

It has become evident that the share of enterprises that regard the current cost level as financially acceptable has dropped significantly since April 2024. At the time, 69 per cent of SMEs stated that their costs were acceptable for them or hardly had an impact on their finances. That share decreased to 58 per cent in January 2025. Twenty-three per cent cannot yet predict how well they will be able to shoulder the additional burdens, and 19 per cent feel financially overwhelmed. Last year, only 14 per cent admitted this.

The perceived cost burden has significantly increased in the construction and services sectors in particular. Here, the share of enterprises that consider the current cost level to be acceptable has fallen, while the number of those feeling financially overwhelmed has risen. These are the two sectors that are particularly labour-intensive and where wage costs represent the largest cost item – 34 per cent and 39 per cent.

“A much higher number of businesses than last year are now at breaking point when it comes to costs. Particularly in the services sector with its many micro-businesses, firms often find it harder to pass cost increases on to customers through higher prices”,

said Dr Elisabeth Grewenig, SME expert at KfW Research.

“Significantly more SMEs expect costs to remain steady this year than last year. That should stabilise the situation for many businesses.”

The findings of the special survey can be accessed 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