Can a sole trader have employees?

One of the disadvantages of sole trader status is that you can’t be an employee of your own company – since, in effect, you are the business!

However, that doesn’t mean you can’t take on staff.

There are multiple different ways to hire professionals, whether you need a skilled craftsperson or general office support:

  • Employing staff through a conventional PAYE system
  • Hiring freelancers or independent contractors
  • Appointing workers on part-time or short-term contracts

If you’re wondering if a sole trader can have employees, the answer is yes – but you’ll need to ensure that you set up your payroll correctly before they can start working.

This article explains how to register employees in your own sole trader business.

Employment as a sole trader

The significant difference between a limited company director and a sole trader is that the director is a business employee. Since an incorporated company is a standalone legal entity, it can hire staff, including the managers that run it.

However, if you’re a sole trader, you cannot employ yourself.

The proprietor is the business, so there isn’t a way to differentiate and pay yourself through a PAYE system as a separate individual.

That said, you can take on as many team members as you need, provided you go through the employer registration process.

How to register as an employer for sole traders

If you’ve reached a point where you need an extra pair of hands, you can sign-up as an employer with HMRC.

This system works the same way for a limited company as a sole trader, and it’s essential to register before your first salary payments are due – but no more than two months in advance.

You will complete the application process online, and you’ll need to provide:

  • Your name, or the name of your sole trader business.
  • A unique taxpayer reference and National Insurance number.
  • The business address, phone number and nature of the company.
  • How many staff you expect to take on, and whether you’ve already made any payments.
  • Details of any expenses or benefits you wish to pay alongside salaries.
  • Information about whether you’re offering an occupational pension scheme.

If you don’t have all the puzzle pieces ready, it’s crucial to seek professional advice to ensure you can start employing staff.

Once the application is submitted, you’ll usually hear back from HMRC within about five working days, with your PAYE and Accounts Office reference codes.

Freelancers vs employees

Many start-up sole traders decide to take on freelancers initially – these contractors will issue invoices for work completed at an agreed rate.

The benefit here is that you won’t be responsible for filing PAYE returns, deducting tax and National Insurance, or providing benefits such as holiday pay.

However, you can choose to outsource to a provider who will manage the monthly payroll process on your behalf.

Employment law for sole trader businesses

If you do decide to take on staff, you’ll need to be aware of UK employment law and ensure you’re compliant with regulations such as:

  • Paying at least the national minimum wage
  • Protecting staff from discrimination
  • Statutory pay for maternity, paternity, and adoption leave
  • Minimum rest breaks and paid holiday

Just like raising finances for a new start-up, it’s vital to understand the level of responsibility you’re taking on, as you would when looking at things like crowdfunding advantages and disadvantages.

However, if you’d prefer to employ staff rather than use self-employed contractors, there’s no reason you can’t do so as a sole trader business.

For more information about registering as an employer or ensuring your company can keep up with the obligations of employing workers, give the Harper James Solicitors team a call and learn more from the best startup lawyers in the UK.

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