Soaring labour costs are becoming a major threat to small businesses in Spain, new figures have revealed, with company collapses among SMEs and self-employed workers hitting record levels.

Labour costs in the smallest companies have risen dramatically since the pandemic, with microbusinesses seeing increases of 29% between the first quarter of 2021 and the end of 2025.

Small firms recorded a similar jump of 28.7%, while medium-sized companies saw a lower increase of 23.4%.

Business groups say the smallest firms are being hit hardest because they have less financial flexibility, lower productivity and far less ability to pass rising costs onto customers without losing business.

For many local shops, bars and family-run companies, staffing costs are now becoming one of the biggest pressures threatening day-to-day operations.

The financial strain is increasingly spilling into the courts.

Bankruptcies involving SMEs and self-employed workers have reportedly risen by 15%, reaching historic highs.

In the final quarter of 2025 alone, labour costs for SMEs rose by 3.2% year-on-year.

Over the past four years, those costs have increased at an average annual rate of 4.3% – far above the 0.8% average recorded during the four years before Covid-19.

The rise is being driven not only by wages themselves, but also by the growing cost of everything linked to employment.

Average salaries increased by 3.5% year-on-year at the end of 2025, while additional labour-related expenses – including social security contributions, overtime, bonuses and other employment costs – rose by another 2.5%.

Business owners say this means hiring staff has become significantly more expensive overall.

One of the biggest factors behind the increase has been the sharp rise in Spain’s minimum wage.

Since 2016, the salario mínimo has increased by 86%, placing particular pressure on smaller firms where salaries tend to be lower and profit margins tighter.

As a result, many companies are reportedly delaying recruitment, asking existing staff to work longer hours, automating tasks or abandoning expansion plans altogether.