The FPB is receiving reports from members that banks are tightening their lending facilities, and that costs, including utilities prices, are getting out of control. In addition, more than 50 new regulations came into force on 1 October 2008, including an increase in the minimum wage, additional maternity and adoption leave rights and regulations on occupational pension schemes.

"For the smallest businesses, particularly those with fewer than 10 employees, recruiting and retaining the right staff is one of the most important processes involved in successfully growing a business – relationships are more personal and, therefore, the disruption is greater when it comes to letting people go," said the FPB's Policy Representative, Matt Goodman. "Of course, small businesses are looking to control costs elsewhere. However, with the UK teetering on the brink of recession, it is inevitable that redundancies will take place. The FPB is urging business owners to follow the correct procedures in order to minimise the pain for both employees and businesses."

According to the Office for National Statistics (ONS), the number of people claiming unemployment benefit in August increased at the fastest rate for 16 years, reaching 904,900. The ONS recorded a total of 1.72 million people out of work – an increase of 81,000 from the previous quarter. However, in the three months to August, the number of jobs available decreased by 56,900 from the previous quarter, to 613,200.

Further evidence from the FPB suggests that smaller employers are looking reduce costs, including those related to employment. More than one in three calls (35%) received by the FPB's member helpline – which is a separate service to the legal advice line - were from members concerned about employment issues. More than 9% were specifically about redundancies.

FPB member John Hill, of Top Team UK Ltd, an industrial flooring contractor in Warrington, employs just five members of staff. However, because of the economic downturn, employment costs have become more of a problem.

"We guarantee our staff a minimum of 40 hours per week, and pay them regardless of whether we have the work or not," said Mr Hill. "However, we are currently experiencing the longest quiet period we've ever had. Although the commitment to paying our staff is very high, we're not getting a return on that at the moment. There are also other knock-on costs, such as office and warehouse rent and fuel costs. We are certainly feeling the pinch."

He added: "The relationship I have with my staff is very good - It's not unusual for me to speak to them individually two or three times per week about work or their personal circumstances. We have just lost one of our employees – representing 20% of our workforce – to a competitor.

"It is difficult to find people with the specialised skills that we require here. We didn't want to lose him, and he didn't want to go, but because of the downturn it is unfortunately cost-effective."

The FPB is advising its members to seek advice on matters of employment early. For example, as soon as a disciplinary problem becomes apparent. More than 28% of calls received by the helpline in September related to disciplinary and conduct issues, followed by employee absence, which comprised 8% of calls. However, some members have contacted the FPB's legal advice line only when the matter has progressed as far as a disciplinary hearing.

Help is also available from the FPB's new Employment Guide, which provides up-to-date information on each aspect of employment law, including advice on dealing with changes to the National Minimum Wage (NMW), maternity, paternity and adoption leave and holiday pay. For more information about the FPB, call 0845 1301722.