The National Living Wage (NLW) is having an impact on small firms, with 64 per cent of those affected taking lower profits to cover additional costs.
Research by FSB found that 39 per cent have put up prices to cope with the latest increase to £7.50 per hour.
A further 24 per cent have cancelled or scaled down investment plans, while 22 per cent have reduced staff hours.
The NLW is currently projected to rise to £8.75 by 2020. FSB says any risk to the economy should be built into the next NLW increase scheduled for April 2018, and recommends it increases to no higher than £7.85.
FSB has also urged the Low Pay Commission to consider whether the Government’s 2020 NLW target may need to be delayed if the economy cannot bear the rapid pace of increases.