Spanish small businesses are suffocating due to hiring costs growing by almost 30% in five years

Hiring has become one of the biggest sources of pressure for smaller businesses in Spain. SMEs (small- and medium-sized businesses) have seen their labour costs accelerate sharply since the pandemic, but the impact is not distributed equally: the smaller the company, the greater the effect.

Between the first quarter of 2021 and the fourth quarter of 2025, labour costs rose by 29% in micro-enterprises and 28.7% in small companies. In medium-sized companies, the increase was 23.4%.

The difference matters because smaller businesses have less room to absorb the increased costs. They have lower productivity, less financial strength and less capacity to pass all their costs on to prices without losing customers.

Personnel costs have become one of the main bottlenecks for daily operations and the survival of many local businesses. Bankruptcies of SMEs and the self-employed have skyrocketed by 15%, reaching record levels.

This trend has intensified in recent years. In the fourth quarter of 2025, labour costs for SMEs rose by 3.2% year-on-year. This confirms a period of significant upward pressure: over the last four years, these costs have increased at an average rate of 4.3% annually, well above the 0.8% in the four years prior to the pandemic. Since 2021, the cost of employment has risen each year at a rate far exceeding that of the pre-pandemic period.

The increase has two main components. On the one hand, the average ordinary salary rose by 3.5% year-on-year in the final quarter of 2025. On the other hand, other labour costs (social security contributions, overtime, bonuses, benefits and other employment-related payments) increased by 2.5%. It's not just that salaries are rising: everything surrounding hiring is also becoming more expensive.

Rising labour costs have become one of the Achilles' heels of SMEs. It's not just another item on the balance sheet: it's the cost that determines whether a business can extend its hours, expand its workforce, handle peak demand or maintain competitive prices.

The pressure is most intense for companies with the least capacity to defend themselves. Micro and small businesses have endured labour cost increases more than five percentage points higher than those of medium-sized companies over the last five years. They have done with high overhead costs, more expensive financing and price-sensitive consumer spending.

One of the factors that has most contributed to this pressure is the rise in the minimum wage. Between 2016 and the end of 2026, the minimum wage will have increased by 86%. This has a particularly strong impact on smaller businesses, because their average wages are lower and their productivity is generally lower.

The underlying problem is that labour costs have grown much faster than productivity. Since 2015, labour costs across all SMEs have increased by 26.3%, while productivity per employee has barely risen by 6.2%. This gap drives up labour costs per unit produced and reduces companies' ability to compete.

The result is increasing pressure on hiring decisions. Many companies are delaying new hires, replacing contracts with longer hours for current employees, automating tasks where possible or simply forgoing growth. The impact is particularly noticeable in the service, retail, hospitality and other labour-intensive sectors.