EurWORK European Observatory of Working Life

Small and medium-sized enterprise

On 6 May 2003, the Commission adopted a new Recommendation 2003/361/EC (122Kb PDF) regarding the definition of small and medium-sized enterprises (SMEs) which replaced Recommendation 96/280/EC as of 1 January 2005. The revision takes account of the economic developments since 1996 and the lessons drawn from the application of the SME definition since 1996. It aimed to increase legal certainty and reduce the opportunities for abuse, particularly with regard to state aid, structural funds and the Research and Development Framework Programme. The revision ensures that enterprises which are part of a larger grouping and could therefore benefit from a stronger economic backing than genuine SMEs do not benefit from SME support schemes.

According to this recommendation, an enterprise is defined as ‘any entity engaged in an economic activity, irrespective of its legal form’. This includes, in particular, self-employed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity.

Under the new definition, a ‘medium-sized enterprise’ is an enterprise that employs fewer than 250 persons and that has an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million; a ‘small enterprise’ is an enterprise that employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed €10 million; a ‘micro enterprise’ is an enterprise that employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed €2 million.

Micro, small and medium-sized enterprises are socially and economically important, since they represent 99 % of all enterprises in the EU and provide around 65 million jobs and contribute to entrepreneurship and innovation. Nearly two million new SMEs emerge every year. They tend to predominate in sectors which are less capital-intensive, and where economies of scale are not crucial. For example, in construction, they account for nearly 90% of all jobs, and in wholesale and retail trades, hotels and restaurants, the figure is close to 80%. SMEs also dominate in business and other services, with nearly seven out of 10 people working in these sectors being employed by an SME. By and large, they are businesses with a high growth and employment potential.

European policies explicitly take SMEs into account. For example, Article 153(2) of the Treaty on the Functioning of the European Union (TFEU) provides for the Council to adopt directives imposing minimum requirements in a range of matters in the field of employment and industrial relations. However, it stipulates: ‘Such directives shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings’.

See also: European social dialogue; European social partners; UEAPME; BUSINESSEUROPE.

Please note: the European industrial relations dictionary is updated annually. If errors are brought to our attention, we will try to correct them.
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