Employing as a Sole Trader

How to employ someone as a sole trader

Business is going well and you need another pair of hands to share the workload. But like many other people in your position, you might be wondering if sole traders can employ staff. And if so, how do you go about it?

The short answer is yes, sole traders can employ staff. However, as you’ve probably guessed, there are strict rules to follow and processes to set up. We’ll run through them in this simple guide…

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Can a sole trader employ staff?

We’re asked this a lot, as many sole traders think they’ll need to form a limited company to expand their team. This is usually down to confusion surrounding the term ‘sole trader’, which implies working alone.

In fact, being a sole trader just means that you own your entire business, which isn’t legally separate from you in the way that a limited company is. It has nothing to do with whether you can or can’t employ staff.

How to employ staff as a sole trader?

So now you know you can, what are the steps required to set yourself up as an employer, and be able to employ staff?

Registering as an employer

First, you must register as an employer with HMRC. Best practice is to do this before you make the hire, but as long as you register before the employee’s first payday, you’ll be fine.

When registered, you’ll be sent an Employer PAYE Reference Number (ERN). This helps HMRC identify your business. You’ll also need it to complete your end of year PAYE return.

Bear in mind, it can take up to five working days to receive this from HMRC and you can’t register more than 2 months before you start paying a new hire.

Decide who is going to run your payroll

You may feel comfortable running this yourself, but lots of sole traders choose to engage accountants to manage payroll. An accountant will keep employee records, provide payslips and can even make tax payments to HMRC for you, leaving you to make the payments to the employees, and focus on growing your business.

If you do decide to run payroll yourself, though, you will need to use payroll software to track everything, make the necessary submissions to HMRC, maintain records, update HMRC about new employees, calculate the tax deductions from employees’ salaries and pay this to the tax office, and also produce the payslips for the employees.

Organise a workplace pension

By law, every employer in the UK must set up a workplace pension and contribute to it, as part of something called ‘automatic enrolment’, this is unless an employee decides to opt-out.

The minimum auto-enrolment contribution is 8% of an employee’s qualifying earnings. As an employer, you’re required to contribute at least 3%, with employees obliged to pay at least 5% of their salary.

Again, an accountant can take charge of this or you can set it up and manage it yourself.

Employment rights for sole traders

If you employ someone under PAYE, they will be granted statutory employment rights such as; holiday pay, paid sick leave, pension contributions and maternity or paternity pay.

If you decide not to employ people and engage with another sole trader – a freelancer – to support you instead, then these self-employed workers don’t usually qualify for employment benefits while working with you and are usually responsible for their taxes affairs.

However, If you decide to go down this route, you must be confident in their true employment status. If HMRC was to investigate and find that the worker’s employment status reflected employment, not self-employment, your business would be liable for missing PAYE tax.

There have also been high profile gig economy cases, involving Uber amongst others, where self-employed workers have claimed employment rights from their client. Again, as the employer, this could have a financial impact on your business.

Find out more

So there you have it, sole traders can employ staff. And with the right processes in place, hiring an employee is much easier than you might imagine. For more information and to speak with one of our friendly experts, please: