Three out of 10 small firms aim to hire new staff in the coming months, with just 7pc planning to cut numbers.
Business and labour costs are among the key issues for bosses who will be forced to let staff go, the Small Firms Association (SFA) said.
SFA director Patricia Callan warned Irish labour costs are still the 11th highest in Europe and 16pc above the EU average.
“In terms of hourly labour costs Ireland is 30.8pc ahead of our nearest competitor, the UK, putting us at a distinct competitive disadvantage,” she said.
The SFA’s latest jobs sentiment survey for the second half of the year showed a recruitment freeze will be enforced in the majority of firms, while some will offer permanent and temporary contracts.
The level of lay-offs and reduction in employee hours has slowed.
“There are sectors such as traded services and hospitality that are showing strong job growth, for other sectors job creation will be fragile and every step must be taken to ensure no additional taxes are placed on labour to ensure job retention and growth,” said Ms Callan.
On pay, 53pc of bosses expect their total pay bill to remain at its current level, while 45pc think it will increase.
The SFA called for the government to take action and tackle unemployment by slashing the lower rate of Employer PRSI to 4.25pc and reducing the marginal rate of tax.
“Labour costs have risen in recent times,” Ms Callan added. “This reflects the impact of Budget 2014 on employers, with increases in employers’ PRSI and health insurance.
“Some moderate wage growth will continue during the remainder of 2014,” the SFA leaders predicted.