Extra red tape regulations have cost UK companies £6bn since Labour came to power in 1997, according to the Institute of Directors.
The IoD attacks a string of new rules it believes have been too onerous at a time when companies have struggled to cope with the economic downturn, high taxes and problems for exporters due to the strong pound.
The most costly and time consuming new regulation has been the imposition of the national minimum wage in April 1999, which the IoD calculates has cost business £2.7bn. The second most expensive piece of legislation has been the Working Time Directive, which restricts the number of hours an employee can be forced to work, at an estimated cost to companies of £2.3bn.
Ruth Lea, head of policy at the IoD, said: "This country has to make a choice between a free and lightly regulated labour market, on the one hand, and intrusive and heavily regulated labour markets, high taxes economic stagnation and weak job creation on the other. There is no third way."
New legislation has also been very time consuming, the IoD found. Small companies have been particularly hard hit and have had to spend an average of six hours a week dealing with red tape. Some companies have had to take on extra staff in order to address all of the demands of the new regulations, the business body found.
Tim Yeo, the shadow trade secretary, condemned the amount of new legislation. He said: "While British business has been paying the £6bn a year extra cost of new regulation under this Government, business investment is at its lowest level since 1991. We have the largest trade deficit for over 300years, productivity is rising at half the rate as under the last Conservative government, and the manufacturing sector is shedding 2,000 jobs a week."
The IoD has raised concerns about the impact of the Working Time Directive on the ability of UK companies to compete with rivals.
The directive, which was part of last year's Employment Act, awarded more pay for men and women on maternity and paternity leave and introduced equal pay questionnaires as well as statutory procedures to deal with internal grievances.