In October, as part of the FPB's quarterly Referendum survey of members, 61% of respondents cited employment law as a ‘significant' barrier to growth, with 18% saying it is the main barrier. Further research, following the publication of the FPB's latest Employment Guide, shows that more than 90% of the FPB's members are concerned that regulation has increased over the past year. Significantly, 86% expect it to increase again over the next 12 months.

The FPB believes that the impact of the latest rise in unemployment – which has gone up by 8% to 1.82 million  –  will cause even more lasting damage to the economy unless the regulatory barriers to employing staff are significantly reduced for small firms.

"The latest quarterly figures confirm the alarming trend in job losses, which comes on the back of the fastest rise in unemployment for almost 20 years, which was reported in August," said the FPB's Chief Executive, Phil Orford. "The FPB has repeatedly warned the Government that introducing ever-increasing amounts of employment legislation would prove to be unsustainable, and the true impact on small firms has been revealed during this economic downturn. Employment laws are supposed to protect workers, but are in fact a major factor preventing entrepreneurs from taking on new staff."

For the smallest businesses with fewer employees, the pain of having to cut costs by reducing staff numbers is often greater. Many business owners are looking for alternatives to letting key members of staff go, but finding barriers in their way.

In the construction industry, FPB member Barnes and West, from Nottingham, wanted to maintain the services of a skilled employee but did not have the work to do so.  As a result they intended to make the employee temporarily unemployed, but the Jobcentre told the employee that he was not able to receive benefits because he had not been made permanently redundant.

"The construction industry as a whole is going through a very difficult period at the moment. The situation is changing on a daily basis, which make predictions very hard," said Commercial Manager Tony Barnes. "We are exploring every available option before making anybody redundant, so far we have reduced employees' working hours, or reduced the number of days they work to avoid redundancies."

Mr Barnes added: "In my opinion, the Government has done a good job in lowering interest rates. It needs to make sure it is keeping the money flowing – that is what everyone needs right now. My other concern is that the constant scare stories are not helping the industry in which I operate."

Other complaints about Jobcentres include preventing employers from requesting candidates with good written English skills, a request that falls foul of equal opportunities legislation.

More than 50 new regulations came into force on 1 October 2008, including an increase in the national minimum wage (NMW), additional maternity and adoption leave rights and regulations on occupational pension schemes.