The Federation of Small Businesses (FSB) has called on the government to do more to help small businesses cope with the new minimum wage.
Following the rise in minimum wages for workers under 25 on October 1, the FSB warned that many businesses could be forced to cut jobs to meet rising labour costs.
They encouraged the government to extend employment allowance in order to aid small businesses from having to cut staff positions.
“Small businesses are reacting to difficult economic conditions with characteristic resilience, but they will need more help if increases to the minimum wage are to be a success and not affect employment levels or investment decisions,” FBS chairman Mike Cherry said.
“We call on ministers to consider a significant uprating of the Employment Allowance from its current £3000 level.
"This has already helped to boost pay levels and incentivise job creation, and could be the lifeline many smaller firms need due to fast-rising labour costs.”
The British Chambers of Commerce (BCC) conducted a survey in which they found that a third of small businesses had increased wages since the National Living Wage was introduced, and a quarter of those had to reduce recruitment.
From October 1 workers aged 18-24 have seen their wages rise by 25p per hour, meaning many will be earning £450 a year more.
The minimum wage is now the highest it has ever been in the UK.