THE vast majority of small firms around the UK are continuing to shun the use of controversial zero-hours contracts – despite soaring wage bills and huge rises in overheads such as business rates.

More than eight in ten small businesses (84 per cent) are choosing not to employ staff on contracts which do not guarantee hours, a survey by the Federation of Small Businesses (FSB) has found.

And the FSB said more than half of its members (60%) were already paying the current National Living Wage (NLW), of £7.83 per hour for over-25s before it was introduced in April. The wage was increased from £7.50 per hour.

The FSB, which canvassed 559 small business owners in May, declared its survey shows its members are adopting flexible and family-friendly policies which “can be found lacking” in large corporations.

But it warned that growing employment costs were hitting its members’ profitability and their ability to expand.

Among small firms which saw wage bills rise because of April’s increase in NLW, 70% said the higher cost is affecting their profitability and leading them to absorb costs. Four in ten (41%) said they were increasing prices in response, with one in three (30%) revealing that higher costs have led them to curtail their investment plans.

The FSB noted that the higher NLW is being felt acutely in certain sectors, with a significant majority of both retailers (60%) and accommodation and foodservice firms (71%) saying the new rate is putting upward pressure on wages. It observed that this year’s NLW increase has coincided with a hike in employer auto-enrolment contributions, rises in business rates, and a cut to the dividend allowance.

FSB national chairman Mike Cherry said: “The increase in the NLW which took place in April was in-line with our recommendations to the Low Pay Commission.

“However, with employment costs mounting– not least when it comes to pensions auto-enrolment and employer national insurance contributions – more support is needed for small firms. Small businesses in sectors with tight margins such as childcare, retail and hospitality in particular are struggling with rising costs.

“Given the current levels of economic uncertainty, the Government must ensure there is sufficient support for firms in these sectors. The Employment Allowance must be maintained. Equally, the Treasury must deliver on the promise of national insurance holidays for small businesses who hire those that are furthest from the labour market.

“What we do know is that small firms tend to be ahead of the curve – paying all staff at higher rates before they’re legally obliged to do so.”

Mr Cherry said that, in the few occasions where its members do adopt zero-hours contracts, “they’re creating arrangements that work for both employer and employee”.

“Small firms often play host to the kinds of supportive, flexible and family-centred working environments lacking in big corporates,” he added.

Meanwhile, the FSB wants the Government to do more to make apprenticeships more attractive to school leavers. Highlighting that number of apprentices has plunged since the Apprenticeship Levy came in, it wants the current Apprenticeship Minimum Wage rate of £3.70 per hour to be raised.

Declaring that 70% of small firms say school leavers are ill-prepared for the workforce, the FSB is urging policymakers to bring back compulsory work experience. Mr Cherry said: “Young people taking on apprenticeships should not be paid so little. If we want parity of esteem between academic and vocational routes, paying apprentices £25 a day is not helpful.”