KfW Research: SMEs in Germany Spend EUR 61 Billion Annually on Legal Compliance and Administrative Costs

KfW Research: SMEs in Germany Spend EUR 61 Billion Annually on Legal Compliance and Administrative Costs

(IN BRIEF) A KfW Research survey has revealed that SMEs in Germany are spending an average of 32 hours per month to comply with legal requirements, costing the economy EUR 61 billion annually. The survey also highlighted expectations for wage and salary costs in 2025, with many businesses anticipating stability or decreases, but some fearing increases. The burden of rising costs, particularly in the construction and services sectors, is becoming more pronounced, with many businesses struggling to manage increased expenses. KfW Research’s findings provide crucial insights into the challenges SMEs face and the need for policy adjustments.

(PRESS RELEASE) FRANKFURT, 2-May-2025 — /EuropaWire/ — A recent survey by KfW Research highlights the significant administrative burden faced by small and medium-sized enterprises (SMEs) in Germany, with businesses spending an average of seven percent of their working time on administrative tasks. This amounts to roughly 32 hours per month just to meet legal requirements, excluding the “psychological costs” associated with long processes, high fees, and the poor accessibility of agencies. According to the findings, complying with obligations costs SMEs approximately EUR 61 billion annually.

The survey also sheds light on wage expectations for 2025, with most SMEs anticipating no increase in wage and salary costs. Forty-seven percent of respondents believe that wages will remain stable, while 9 percent foresee a decrease. However, 37 percent expect wage costs to rise by up to 10 percent, and 7 percent expect an increase of more than 10 percent. This shift in wage expectations contrasts with the majority of enterprises that anticipated wage hikes in the previous year.

The survey, conducted as part of the KfW SME Panel, collected responses from 3,165 businesses in January 2025. It was carried out in collaboration with Deutsche Bundesbank, providing valuable insights into the financial pressures facing SMEs. The results reveal that wages and salaries now represent 35 percent of total costs for SMEs, up from 33 percent in April 2024—an increase of 2 percentage points in just one year.

In addition, a growing number of SMEs are finding it difficult to accept their current cost levels. In January 2025, only 58 percent of businesses considered their costs manageable, a sharp decline from 69 percent in April 2024. Nineteen percent of enterprises now report feeling financially overwhelmed, compared to just 14 percent last year. The construction and services sectors have been particularly hard-hit, with many businesses in these labor-intensive industries, where wages are the largest cost item, struggling to cope with rising costs.

Dr. Elisabeth Grewenig, SME expert at KfW Research, commented, “A significantly higher number of businesses are now at a breaking point when it comes to costs. Especially in the services sector, where many micro-businesses operate, firms often find it harder to pass cost increases on to customers through higher prices.” However, she also noted that more SMEs expect their costs to remain steady this year, which could help stabilize the situation for many businesses.

The full findings of the special survey, along with an in-depth analysis, are available through KfW’s “Focus on Economics” series. KfW Research also explores the state of the German economy in its position paper “Managing the Transition, Strengthening Growth,” which includes recommendations for future economic policies and can be downloaded from KfW’s website.

Media Contact:

Ms. Nina Luttmer
+49 69 7431 41336
nina.luttmer@kfw.de

SOURCE: KfW