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Can a Sole Trader Employ Staff?

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Running a small business as a sole trader is an exciting challenge. But it can be quite stressful too! If you’re experiencing a lot of growth in your business as a sole trader, you might be contemplating the idea of employing staff to help you manage the workload. 

Hiring a team around you is a significant milestone that can propel your business to new heights. The big question many sole traders have, though, is whether they can employ staff in the first place. 

Do you have to set up a limited company to hire employees? And how do you go about managing the legal and tax responsibilities you’ll have as an employer? 

In today’s article, we'll explore the ins and outs of hiring employees as a sole trader in the UK - from what your legal responsibilities are to how you can make the process slightly easier for yourself and your new hires. 

What does it mean to be a sole trader? 

Firstly, let's clarify what it means to be a sole trader. In the UK, a sole trader is an individual who runs their own business as a self-employed person. 

As a sole trader, you're personally responsible for the business, including its profits and losses. This means that while sole traders have the flexibility to make decisions independently, they also shoulder full responsibility for any debts or liabilities incurred by the business.

Can a sole trader employ staff?

In short, yes. Sole traders can have employees as long as they remain the sole owner of the business. 

If you're a sole trader and you want to hire employees, you won't need to set up a limited company.

However, you'll need to register as an employer with HMRC and submit a PAYE registration form. We’ll cover the steps you need to take to do this in the next section. 

How to employ staff as a sole trader

  1. Register as an employer with HMRC 

First things first, when you hire employees as a sole trader, you'll need to register as an employer with HMRC and operate a Pay As You Earn (PAYE) scheme. This means deducting income tax and National Insurance contributions from your employees' wages and paying these amounts to HMRC on their behalf.

To start the process, you must register online with HMRC before the first payday. HMRC will then send you your employer PAYE reference number. 

Just a note on timings: it can take up to fifteen working days for your PAYE reference number to arrive, and you cannot register more than two months before you start paying your first employee.

  1. Create employment contracts for your staff

As an employer, you must provide your employees with a written employment contract that outlines their rights, responsibilities, and terms of employment. 

This contract should include details such as wages, working hours, holiday entitlement, and notice periods. This article sets out the 6 key terms that, as a sole trader, you can’t miss on your employment contracts.

  1. Pay the National Minimum Wage

As an employer, you're required to pay your employees at least the National Minimum Wage or the National Living Wage, depending on their age and circumstances. Failure to comply with minimum wage laws can result in severe penalties, so it’s crucial that your employees are paid appropriately, no matter how much or how little your small business earns.

  1. Remember to seek professional advice when you’re unsure

The importance of fulfilling your legal duties as an employer really can’t be overstated. If you’re new to hiring staff as a sole trader, we’d recommend consulting a professional accountant or tax adviser to help you iron out the details and get off to the best start possible with your new hires. 

When you use our new service for sole traders, CrunchONE, our experts will help you ensure you’re meeting all your legal obligations when hiring your first employees - from registering as an employer to learning to tax your staff properly. 

Practical considerations when employing staff as a sole trader

Beyond the legal requirements we just listed, there are a lot of practical considerations to take into account when hiring employees as a sole trader for the first time. 

Here are a few other things you’ll need to consider before hiring your first employee:

  1. The costs of employing staff

Hiring employees represents a significant financial commitment, so it's important to assess whether your business can afford the additional costs. Take into account factors such as salaries, employer National Insurance contributions, pension contributions, and any other employee benefits you plan to offer, to help work out whether it’s a feasible option for you.

  1. Recruitment and training

Recruiting and training new employees requires time, effort and resources. From advertising job vacancies to conducting interviews and providing on-the-job training, there are various steps involved in the hiring process. As a sole trader, you'll need to allocate sufficient time and resources to keep the recruitment and onboarding process smooth.

  1. Building a strong team culture

As a sole trader, your business is an extension of yourself, and hiring employees means inviting others to become part of your vision. Building a strong team culture based on trust, communication and mutual respect is crucial for fostering a positive working environment and driving success. It might be a good idea to create a new joiner handbook for those you’re inviting onboard. 

You’re ready to start preparing for your first hire

The good news is that yes, a sole trader can employ staff in the UK - and the process is relatively straightforward, especially when you have help from a professional tax adviser. 

However, it's essential to understand the legal requirements, implications and practical considerations involved in hiring employees. 

By complying with employment laws, planning carefully, and fostering a positive working environment, hiring employees as a sole trader can be an extremely exciting step in your business’ journey.

So, if you're considering taking the leap and hiring staff for your sole trader business, approach the process thoughtfully and strategically, and watch your business thrive.

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Esther Lowde
Freelance Content Consultant
Updated on
February 22, 2024

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