German SMEs Face Pay, AI, and Cost Pressures as Government Unveils New Labour Reforms
Published on 07/10/2026 at 20:05 | Redaktion boerse-global.de
The German government’s “Programme for Upturn and Employment” aims to ease AI implementation and expand fixed-term employment rules, but small and medium-sized enterprises remain caught between rising costs, staffing shortages, and legal demands for fairer pay.
Under the package, the permissible duration of fixed-term contracts without objective reason would be extended to 48 months until the end of 2030. At the same time, policymakers are debating a reform of mini-jobs: the flat-rate tax could climb from two to five percent. Researchers at the IAB (Institute for Employment Research) describe that increase as financially manageable but warn it fails to address deeper structural flaws, such as the crowding out of regular positions.
A landmark ruling by the Federal Labour Court (Bundesarbeitsgericht) on 26 November 2025 has sharpened the stakes for employers. The court granted a female employee a pay rise that had originally been reserved for newly signed contracts only, because no objective justification existed for excluding her. For SMEs, the message is clear: any differentiated salary increases must rest on a precise, documented rationale.
The shift in workplace value is also fuelled by artificial intelligence. A study published by the German Economic Institute (IW) on 9 July found that roughly 40 percent of German companies now use AI — a 118 percent jump from 2024. Even in businesses with fewer than 50 employees, the adoption rate sits just below 40 percent. Consequently, the share of job ads referencing AI has risen from ten percent (2019–2022) to 17 percent in 2025.
IT service provider Cognizant is responding by scaling up its workforce for Google Cloud Gemini. The company plans to train 5,000 certified engineers and 10,000 business operators, with the first cohort expected to be ready by the fourth quarter of 2026. Meanwhile, software vendor Unit4 is offering mid-sized firms AI modules for their ERP systems — covering finance, HR and procurement — that can be tested until August 2027, provided users register by the end of 2026.
Pay pressure is also emerging from the public sector. A collective bargaining agreement concluded on 2 July 2026 at Südwestrundfunk (SWR) delivers a total wage increase of roughly 5.73 percent in two stages. IT career paths received a full overhaul, and an additional 30 salary grades were created for clerical and assistant roles.
Despite these pressures, sentiment among Mittelstand companies is mixed. The Axa/Sotomo SME Labour Market Study 2026 shows that 86 percent of firms believe they will still be in business a decade from now. Yet 43 percent describe their current environment as uncertain. The top burdens are rising costs (65 percent) and labour shortages (41 percent). Psychologically related staff absences have increased by ten percentage points since 2023.
Even adjacent sectors feel the courts tightening the rules. On 9 July 2026, the Berlin-Brandenburg Social Court (Landessozialgericht) temporarily halted a planned 4.5 percent fee cut for psychotherapists, criticising the flawed calculation methodology used when comparing specialist doctors’ revenues.
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