More than half of small businesses say they have reduced profitability or simply absorbed the costs of the new national living wage.
A June survey of more than 1,000 small businesses found that 59 per cent had swallowed the impact of the rise in minimum salary.
A further 35 per cent said they had increased prices, while one in four said they had cut staff hours.
The Federation of Small Businesses published the findings as part of their response to the Low Pay Commission's consultation on the new wage, which starts at £7.20.
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Chancellor George Osborne introduced the programme in 2015, mandating the LPC to set the rate of the new living wage on a course to reach 60 per cent of national median earnings by 2020.
However, the FSB has called for the commission to be given the ability to delay pay hikes if businesses begin to struggle.
Under current projections, the NLW will rise by £1.85 per hour over the next four years, reaching £9.05 by 2020.
FSB national chairman Mike Cherry said: “ Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins. This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit-decision’ economy.
“Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities.”
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This FSB figures follow findings from the Resolution Foundation in mid-July, which reported businesses were hiking prices, rather than cutting staff, in response to the living wage.