Small businesses are 'sleep walking' into a legal minefield by failing to wake up to new age discrimination regulations, a business lobby group has claimed.

The Forum of Private Business and its employment law partner, Mace & Jones have said companies must start preparing now for the new laws which come into force at the end of the year.

A recent study of 400 firms by insurance firm AXA has revealed that 40 per cent of small businesses are unaware of the forthcoming age discrimination legislation.

Of those who are aware of it, nearly half - 44 per cent - have so far failed to prepare themselves.

Moreover, research carried out for the Department of Work and Pensions found that, whilst almost half of the 2000 businesses surveyed monitored their workforce recruitment and pay in respect of age, only five per cent had taken any action as a result.

FPB employment law adviser Justin Beevor, a partner at Mace & Jones, said that ignorance of the new laws could have costly and time-consuming consequences.

"Small firms balancing tight budgets simply cannot afford to sleepwalk into such fundamental changes to employment law," he said.

"For example, one key change is that a person over retirement age will be permitted to take a case of unfair dismissal to an employment tribunal - which they can't do under the current rules.

"If the reason for dismissal is retirement the employer must follow a complicated procedure of notification and meetings, within a set timescale, otherwise the dismissal could become automatically unfair."

FPB's chief executive Nick Goulding urged firms to review their working practices "as a matter of priority" with just six months to go until new regulations come into effect in October.

"Small businesses need to take time to audit their employment policies and review pension schemes, retirement policies and healthcare arrangements as part of their overall planning and strategy, so they are prepared well ahead of the legal change," he said.