Can a sole trader have employees?

A common misconception is that sole traders must do everything by themselves. Because of this, many businesses may be asking: Can I employ someone as a sole trader?’

Any type of business owner – whether you’re a sole trader or a partnership – can take on employees to help run your business, so you’re not completely alone when it comes to supporting your company’s growth.

In this guide, we’ll explore whether sole traders can recruit workers and what some of the best ways to do so are. We’ll also offer advice on how best to hire new starters and what the main things are that you need to consider before bringing people into your company.

Can a sole trader have employees?

The short answer is yes. Any business owner, even sole traders, can hire employees. 

As a business owner, you can’t be an employee of your own business. However, if you’re feeling stretched and have noticed your business growing steadily, you may bring people on to help with the workload. 

The more important question is: when should a sole trader hire employees? Bringing new workers into your business involves many considerations, and you’ll need certain criteria met before you even think about hiring someone new. You’ll need to figure out what type of employees you want to hire and if you have taken the right steps to meet your responsibilities as an employer.

As a sole trader, some signs that you may be ready to hire an employee or two include:

• Repeatedly turning down work due to being over capacity
• Administrative tasks becoming too much to handle
• The company has stable cash flow and consistently strong revenue 
• You’re working excessive hours 
• Your business offering would be complemented by the addition of further skills that you may not have.

Hiring employees as a sole trader 

As a sole trader, you and your business are legally the same entity. This means you can't employ yourself or pay yourself through PAYE. However, you can employ other people, whether as permanent or temporary employees, or by hiring freelancers and contractors.

Some of the different ways you can hire professionals for your business are:

• Employing staff to your business on a full-time, part-time or fixed-term contract basis
• Hiring freelancers or independent contractors 
• Working with an agency to support your business
• Hiring an apprentice. 

Hiring an apprentice can be more cost-effective in some circumstances, as employers may be eligible for government support and apprentices are combining work with training. However, apprenticeships require more supervision and training support, so you must consider if that’s something you’d be able to provide.

If you need more tips on hiring someone for the first time, see our guide.

How to register as an employer for sole traders

When you’ve decided it’s time to bring on an extra pair of hands, you’ll need to sign up as an employer with HMRC. 

This works the same as it would for a limited company and is a vital step in hiring an employee. It also must be done before your first salary payments are due, but can’t be filled out more than two months in advance.

When you complete the online form, you’ll typically need to have the following information to hand:

• Your name or the name of the sole trader business 
• A Unique Tax Reference and National Insurance number
• A business address, phone number and nature of the business operation 
• An estimate of how many staff you’re going to hire and whether you have made any payment yet
• Details of any expenses or benefits you wish to pay alongside salaries 
• Information regarding whether you’re offering an occupational pension scheme. 

Employment law for sole traders

When you hire employees as a sole trader, you take on the same legal responsibilities as any other employer. Employment law applies regardless of the size of your business, so it's important to understand your obligations before taking on staff. Some of these responsibilities include:

• National Minimum Wage Employees must be paid at least the National Minimum Wage (school leaving age) or National Living Wage (aged 21 and over), depending on their age and employment status. 
• Working time and holiday entitlement Most workers are entitled to paid annual leave, rest breaks and limits on their working hours under the Working Time Regulations. 
• Protection from discrimination You must not discriminate against employees or job applicants based on protected characteristics, including age, disability, race, religion, sex or sexual orientation. 
• Family leave and pay Eligible employees may qualify for statutory maternity, paternity, adoption, shared parental and parental bereavement leave and pay. Learn more about maternity leave and pay.
• Health and safety at work You must provide a safe working environment and carry out appropriate risk assessments.
• Statutory Sick Pay (SSP) Eligible employees who are off work due to illness may be entitled to SSP.

Taking the time to understand your legal obligations can help you avoid costly mistakes and build a positive working relationship from day one.

What are some key points to remember when hiring as a sole trader?

If you still have questions about hiring employees as a sole trader, we've answered some of the most common ones below.

Can you claim an employee’s wages as a business expense?

As a sole trader, you can usually claim the cost of employing staff as an allowable business expense, reducing your taxable profits. This can include employees' wages and salaries, employer National Insurance contributions and employer pension contributions, provided the costs are wholly and exclusively for your business.

Can you hire a self-employed person?

Yes. As a sole trader, you can hire self-employed contractors or freelancers instead of employing staff for your business.

However, it's important that they're genuinely self-employed. Employment status is determined by the nature of the working relationship rather than what you call it or how often they work for you. If someone works under your control in much the same way as an employee, they may have employment rights and different tax rules could apply.

If you're unsure whether someone should be treated as an employee or a self-employed contractor, it's worth seeking legal advice before signing any contracts.

What insurance do you need?

Sole traders with employees must have employers’ liability insurance from an authorised insurer, with a policy which covers you for at least £5m. Having the correct insurance is vital, as you could be fined £2,500 for each day you’re not properly insured.

Should I stay as a sole trader or become a limited company?

The main difference between a limited company director and a sole trader is that a limited company is a separate legal entity from the business owner, whereas the director is an employee of the business. There are benefits and drawbacks to any type of business, so read our guide on how to choose the right business structure if you need more advice on choosing the correct one for you.

Becoming a Which? Trusted Trader 

A Which? Trusted Traders endorsement can increase your brand recognition and customer engagement, letting potential employees know you are a business they can trust. Join the scheme now and see how your business can flourish from trusted brand recognition and reliable reviews.

Please note: this article is intended as a general guide only and shouldn’t be taken as legal or professional advice. If you're unsure about your responsibilities as an employer, consider seeking advice from a qualified employment law professional or accountant.