JOBS could be at risk and fewer new employment opportunities created by small firms faced with the extra cost of the new National Living Wage from today, a business leader has warned.

Mike Cherry, Federation of Small Businesses chairman, says extra productivity needs to be achieved to enable many firms to afford the NLW.

In a separate report think tank the Social Market Foundation warns that employers need more clarity on the future of the National Living Wage te help them invest in measures to improve productivity and offset the cost of the new rate.

The FSB said SMEs in Yorkshire were among those most worried about the negative impact of the new pay rules, announced by Chancellor George Osborne in his 2015 Budget.

The FSB has urged its members to make sure they pay the new rate to avoid heavy penalties.

From today. companies must pay employees aged 25 and over a minimum wage of £7.20 an hour. The Government has set a target for the rate to rise to the equivalent of 60 per cent of average earnings by 2020 to around £9.15 per hour.

The FSB said, while more than half of small firms already pay their staff above the new rate and will not be affected, others will face a significant challenge and difficult choices in order to comply.

It found that 38 per cent of small employers expect the NLW to negatively impact their business, with more than half believing the projected £9 an hour rate would damage their operations.

Just over half of companies expecting the NLW to have a negative impact said they would put off hiring new staff and 50 per cent said they would raise their prices.

More than 40 per cent said they would reduce staff working hours, with 31 per cent expecting to cut staff numbers.

Mike Cherry said: "While it is easy to say everyone deserves a pay rise, the only way to deliver and sustain higher wages in the long run is to improve productivity, boost skills and drive business growth.

"Without the right type of productivity growth, there is a real risk that in many sectors higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, job losses."

The Social Market Foundation said that the Government’s twin target for the NLW rate risks creating uncertainty and potentially undermining business investment and its own objective of increased productivity and skills.

In January Silsden-based Ecology Building Society was accredited as a living wage employer by the Living Wage Foundation.