In a letter to Ed Balls, Secretary of State for Children, Schools and Families, the UK's biggest business organisation said the Independent Safeguarding Authority scheme could dramatically reduce the number of work experience placements, which are a valuable way of bridging young people's transition from the classroom to the workplace.
The ISA will conduct enhanced checks through the Criminal Records Bureau and give individuals a seal of approval for supervising work experience pupils at a cost of £64 each.
The scheme requires the person supervising the work experience pupil to register, but this could be many different individuals during the course of the placement, depending on how the scheme is run.
The FSB believes the cost and administration burdens involved would prevent many small businesses from offering work experience.
The FSB's East Sussex regional chairman Peter Archer said, "The government is pumping money into entrepreneurship schemes and the skills agenda and is constantly talking about getting employers involved in schools. This new scheme totally contradicts those efforts.
"Work experience placements enable schoolchildren to appreciate how business operate, the range of opportunities available and the skills required.
"They are absolutely vital in ensuring young people get an early understanding of the world of work.
"Our fear is that fewer and fewer employers will be willing to offer work experience placements once this scheme is introduced.
"The intentions of the scheme are of course absolutely sound, but there must be a way of protecting young people who may be at risk without diminishing the opportunities of thousands of school pupils every year."