Government proposals to overhaul UK workers' rights could backfire and damage small businesses.

The Forum of Private Business (FPB) believes small firms are "likely to suffer" because of plans to extend flexible working and full-time staff benefits to temporary and agency workers.

And the Essex Federation of Small Businesses (FSB) also warned that the Prime Minister's announcement could create an "employment nightmare" for small business owners.

Although more than 90 per cent of requests for flexible working have been granted, the planned extension of the rules to parents of older children will dramatically increase the number of qualifying employees, said Terry Taber, regional organiser for Essex FSB.

He pointed out that changes to the rules on agency workers would only add to the problems faced by employers looking to cover fragmented job posts.

An FSB spokesman said: "The very fact of their size makes it more difficult and more costly for small businesses to cope with new employment laws than it does for big companies.

"The cost of the current flexible working arrangements to businesses is estimated at over £22 million."

Prime Minister Gordon Brown insisted flexible working was "no obstacle" to business success. He also revealed the Government was to "explore extending the right of employees to request time off work, from parents with children who are aged under six (or under 18 if they are disabled), and employees who are carers to those with older children".

The controversial proposal to give temporary workers the same rates of pay, holiday entitlement and other benefits as permanent staff is a European Union directive.

The FPB stressed both plans would create "serious staffing problems" for many small businesses. It has called on the Government to preserve both flexibility of the current temporary labour market and the right of bosses to turn down requests from staff to work fewer hours, "based on sound business reasons".

Mr Taber said small businesses would be in an "impossible position".

He pointed out: "You can't have an extension of flexible working and at the same time clamp down on the means by which many small businesses cope with it, which is often through temporary workers.

"Bringing in a whole new set of complicated employment regulations for temporary workers on top of that could make the situation untenable for many small businesses."