ISME has expressed concern that the increase in the minimum wage planned by the Low Pay Commission for next year will be unaffordable for many small businesses.
The Low Pay Commission is expected to recommend to the Government that it increases the minimum wage next year by 12%.
This would be a rise of €1.40 an hour, bringing the rate from €11.30 to €12.70.
Last year, the Government announced plans to introduce a new national 'living wage' to replace the minimum wage by 2026.
This will be phased in over a four-year period starting this year and will be set at 60% of the hourly median wage.
In a statement today, the Irish SME Association said a 12.4% increase in the National Minimum Wage will increase the gross wage bill for an employee on the national minimum wage (NMW) by €3,153 a year.
It said that excludes the cost of the St Bridget's Day bank holiday introduced this year (€110) and the contingent cost of five days statutory sick pay (€550).
Auto-enrolment will add €386 in wage costs to an employee on the NMW, it added.
"This won't just impact workers on the NMW. The basic NMW rate works as a benchmark rate for most wages up to €30,000," ISME said.
"Unless that additional €3,000 can be recovered from customers through price increases, it will result in reduced hours or a higher productivity requirement from employees," the association pointed out.
It also said that for workers in sectors where the employer can not pass the cost on, this will mean that, at best, they will earn the same amount next year as they did in 2023.
This will severely impact high-wages services jobs including childcare, nursing homes, convenience retail, grooming and hospitality, it added.
Neil McDonnell, the chief executive of ISME, said the divergence in wage levels paid between the minority of those working in multinationals and the public service, and the majority working for small firms, is enormous.
"The Low Pay Commission's recommendation must reflect the ability of small employers to pay realistic, affordable rates of pay," Mr McDonnell said.
"While it is easy for unions and large multinational firms to say "just pay more," the evidence based reality is that wages in small firms have been rising faster than the average industrial wage and the NMW," he added.
The ISME CEO noted that Ireland has overtaken Denmark as the most expensive country for consumer prices in the EU.
"We need to tackle costs, rather than pass them on to consumers in higher service prices, if we are to address our cost of living," he stated.
