The most burdensome pieces of employment law faced by small businesses are statutory dismissal and grievance procedures, and parental, paternity and maternity leave/pay.
A study by the Federation of Small Businesses has revealed that 65% of nearly 3,000 small business employers or self-employed people put statutory grievance and dismissal procedures at the top of their list for "most problematic" legislation.
Just over half (52%) feared parental, paternity or maternity leave as the most problematic, followed swiftly by redundancy (34%).
Race and sex discrimination legislation received just 5% of the small employers' vote.
The FSB is calling for regulations to be reduced and simplified, after 50% of participants said the financial cost of complying with legislation caused most problems, while 30% were most affected by the time spent on administration to comply.
The report said: "The volume and complexity of regulations should be reduced and simplified. Depending on the sector, some regulations are more burdensome than others. It is the cumulative effect that is excessive."
Nearly one-third of small business owners (32%) said they don't take on new staff because of the complexity of employment law.
Alan Tyrrell, FSB employment chairman, told politics.co.uk: "The fact that so many small businesses are deciding not to employ people demonstrates that the burden of employment law is unacceptable."
The government is expected to scrap current dismissal and grievance law in April 2009, although no announcement has been made yet as to what will replace it.
Meanwhile additional maternity and additional paternity leave legislation is due to come into effect in April 2010.