Almost 70 per cent of small Irish companies say a statutory minimum wage would have a negative effect on their business, if the rate is set above current levels, a new survey has claimed. It also finds one in three small firms will let staff go if minimum wage laws are introduced. The survey, carried out by the Small Firms Association (SFA) found that 75 per cent of small firms pay less than £5 per hour, the rate being sought by ICTU and the Irish National Organisation of the Unemployed (INOU).

SFA director Mr Brendan Butler dismissed the calls for a £5 per hour minimum as a "ludicrous demand".

The survey, which is based on replies from 374 firms employing less than 50 people, found that almost half of the respondents said they would put their expansion plans on hold if the £5 rate was introduced. The SFA carried out the survey as part of its submission to the National Minimum Wage Commission.

Mr Butler said minimum wage legislation would "virtually guarantee' that employers would replace workers whose skills do not merit such wages, with those who do, "leaving then low skilled permanently locked out of such jobs".

The other outcome would be that employers who cannot increase prices will have to maintain overall payroll costs at existing levels. As minimum wage increased costs the employer would be forced to either reduce staff numbers or working hours.

Mr Butler said small business would create almost 51,000 new jobs this year and "the last thing we need is to put up obstacles against such employers".

He said the SFA was against exploitation and supports measures "that strike a balance between the needs of small businesses and its major asset - its employees."

He said the SFA was putting forward three suggestions, including targeting tax reform and those on low pay and a major attack on the black economy. He said the black economy was estimated to be costing about £6 billion a year and places legitimate employers at a huge competitive disadvantage.

Mr Butler added that there should be a major overall of the existing Joint Labour Committee (JLC) system to fully protect those workers in the most exposed sectors. The SFA survey found that only 8 per cent of those surveyed said their employees were covered by existing minimum wage legislation. "The JLC system operates in 13 of the most open sectors of the economy and 100,000 workers are supposedly protected under this legislation," he said. He said it was clear that the JLC mechanism which could make a major contribution to tackling low pay is currently ineffective.