The Small Firms Association has said most of its members cannot afford to pay the so-called Living Wage.
A Living Wage Forum is taking place in Dublin today to discuss the government-backed idea.
Under the proposal, employers would agree to pay staff a minimum of €11.50 per hour.
That is the rate seen as the minimum to allow people a decent standard of living.
In the UK, firms taking part are reporting higher productivity and less absenteeism among staff.
But small businesses here say the proposal will not work.
“It’s building wage pressures and wage demands for workers in an economy that cannot have broad sweeping wage increases just yet,” Head of Small Firms Association Patricia Callan said.
“Certainly we all want to get back to a situation where we have a reasonable level of inflation, but our survey shows only 40% of companies this year will be able to pay increases and that’s in the region of 2%. A massive jump from €8.65 to €11.50 would be simply impossible for them,” she said.