Almost two-thirds of small businesses in the UK would like to expand and take on more staff but rules surrounding dismissal, health and safety and sickness absence act as a deterrent.
That is according to research carried out by the British Chambers of Commerce, which surveyed more than 2,000 small businesses.
It also emerged that one in five companies had been threatened by an employment tribunal at some stage.
Small businesses are important for the UK economy, employing more than three million people in total and were defined as those with ten to 49 employees for the study.
The British Chambers of Commerce works with the government in order to shape policies which affect businesses and support those businesses which need it.
John Longworth, director general of the British Chambers of Commerce, said: “Dismissal rules are too complex, tribunal cases are endemic, and the vast majority of small firms are buying in extra external resource to ensure they are compliant with employment regulation.”