The study from the Federation of Small Businesses (FSB) found less than a quarter of small firms don't have any employees on the minimum wage, down from 27% in 2012.
Most small business owners will look to increase wages where they can afford to do so, and share the benefits of growth where possible, the study of more than 2,300 FSB members found.
However, not all firms are in a position to absorb the costs of pay rises. Those in traditionally low paid sectors such as retail or hospitality, or where recovery has not fully taken hold, "are still struggling", the study showed.
FSB chairman John Allan said as confidence is returning after a period of wage restraint, small business owners are looking to pass on any extra profits to their employees.
"Our findings also show that small businesses are already playing their part in the economic recovery by employing more staff and paying them more where possible," said Allan.
"Small businesses are competing for good quality staff in the labour market and pay and benefits are a big part of this.
"However, even with the beginnings of an economic recovery, small businesses in some sectors still face rising business rates and utility bills. This means that not all firms are in a position to raise salaries and policymakers therefore need to be prudent when legislating on pay."
The FSB also found that just under half of its members pay their staff at or above the living wage. However, despite the FSB stating the living wage to be an "aspirational goal" it should "not be imposed on business".
It said any legislation to do so will only "reduce competition" and "harm the smallest employers".
Allan said: "Any future Government will want to explore other ways to enable firms to pay more. This should start by coming up with a long-term enterprise policy to help create the optimal environment to do business and boost economic growth.
"Our education and skills system has to be better linked to the needs of the business community. This in turn will help small firms create jobs and further boost salaries."