Can a sole trader have employees? If you’re self-employed and looking for help with your workload, you may be asking yourself that question.
The short answer here is “yes.” But before you start drafting a job advert, there are some important things to consider. Being an employer comes with responsibilities, and it won’t be the right choice for all sole traders.
We’re going to take a look at what’s possible. And we’ll set out the factors to bear in mind before deciding how to proceed.
Can a sole trader have employees in the UK?
Let’s start with the key question: can a sole trader employ staff?
You might expect the answer to be “No.” After all, a sole trader sounds like a one-person band. But while that’s often the case in practice, that’s not what the term means legally.
A sole trader is simply a business that’s one and the same as the person who runs it. That’s different from, say, a limited company, where the company is a separate entity from its directors.
If you’re a sole trader, that means you count as self-employed. You don’t have a contract of employment for the work you do. And you couldn’t take action against the business for breaching your rights. (There’s not much point in suing yourself!)
But while you can’t formally employ yourself, that doesn’t mean you can’t hire anybody else.
Can a self-employed person employ someone?
So a self-employed person can employ others. And to do that, a sole trader has to go through the same steps as a limited company or other legal entity. That means registering as an employer with HMRC (His Majesty’s Revenue and Customs).
After registering, the sole trader will be given an Employer Reference Number, known as an ERN (or sometimes as an Employer PAYE Reference). That’s a unique number HMRC uses to identify the business and record employees’ tax and National Insurance contributions.
How many people can work for a sole trader?
How many employees can a sole trader have? In theory, there’s no limit. In practice, though, it’s rare to find sole traders employing many staff.
That’s because everything the sole trader does is the responsibility of one individual. All the requirements that apply to an employer apply personally to the sole trader. And if something goes wrong, the liability for that sits with one person.
With a limited company, on the other hand, responsibility can be shared between a number of directors. And the company structure places some limits on the legal liability of directors too.
Read more: Sole Trader vs Limited Company: All the Info
How do sole traders take on employees?
If you’re a sole trader who wants to employ staff, the first step is to register as an employer with HMRC.
You should do this before anyone is paid. If you don’t do it until afterward, you’ll need to send a “late full payment submission” to HMRC. And if you don’t have a valid reason for being late, you may be charged a penalty.
You can’t do it too far in advance, though, either. HMRC won’t allow you to register more than two months before you pay any staff.
If you’re a sole trader who already has an online account with HMRC, you’ll probably be able to register online by enrolling for PAYE. (PAYE means “Pay As You Earn”. It’s how HMRC collects tax and National Insurance contributions for employees directly from their employer.)
If you don’t already have an online account, it’s easy to set one up. You’ll need to wait up to 5 working days, though, to get your PAYE and Accounts Office references. And it can take up to 10 working days to get an activation code for your PAYE Online account.
What information do sole traders need to register as an employer?
The process is pretty simple, and HMRC provides guidance at every step. If you run into any problems with the online form, you can also contact the HMRC helpline.
You’ll need a number of pieces of information to register:
- Your name, or the name of your business if it’s different
- Your Unique Taxpayer Reference (you’ll get this when you register for Self Assessment)
- Your National Insurance number
- The business address and telephone number
- The nature of the business (for example, marketing or chemical engineering)
- The number of staff you’re planning to employ, and when you expect to pay them
- Information on any other benefits or expenses you plan to pay your employees alongside their salaries
- Information about the workplace pension you’re going to offer.
How do sole traders pay employees?
Once you’ve set up your PAYE scheme, you’ll need to decide how to pay your employees. That includes reporting your payroll records online to HMRC. (This is mandatory, although there are a handful of exceptions for people who can’t use computers.)
There are two basic options to handle this:
- Run the payroll yourself, or
- Pay someone else to do it for you.
Paying someone else obviously means more expense. But firms can offer light-touch or comprehensive services, and pretty much anything in between. So it’s possible to make your life easier while still keeping payroll costs manageable.
Note, though, that even if you pay someone else, you’re still legally responsible for making sure everything is done properly. That includes keeping accurate records of your employees.
What responsibilities do sole traders have for their employees?
Employers have a number of important responsibilities for their staff. These can carry significant costs too. It’s important to think through how you’ll manage those before deciding to employ people.
Some of the key costs to consider are:
- The National Minimum Wage — you’ll need to pay workers at least this amount (or the National Living Wage, if they’re over 23 years old)
- National Insurance contributions — you’ll need to pay an employer’s National Insurance contribution for each employee
- A workplace pension — you’ll need to set up a workplace pension scheme and pay in at least 3% of employees’ eligible earnings
- Sick pay — employees are entitled to Statutory Sick Pay
- Maternity and Paternity Allowances — eligible employees are entitled to Statutory Maternity and Paternity Pay and Leave.
In addition, you’ll need to think about how you’ll:
- Keep employees safe at work
- Make sure your workplace is accessible for any employees with disabilities
- Prevent discrimination in your workplace
- Protect employees’ personal information.
What other options are there to share out the workload?
An alternative to employing people yourself could be to engage freelancers or agency staff. Freelancers are self-employed, whilst for agency workers, it’s the agency that acts as the employer.
Taking this approach can have both advantages and disadvantages. On the plus side, all the employer responsibilities set out above will fall to someone else. That can reduce both the time and the money required to get the work you need done.
The main disadvantage is that you won’t have the same degree of control over how and when that work is done.
You can, and should, set out key requirements in the contract. But a freelancer will decide for themselves how they’ll meet those requirements. And they may also decide to sub-contract the work to someone else if their time is needed elsewhere.
Can a sole trader have employees? The bottom line
So can a sole trader have employees? Yes, they can. There’s nothing about the legal status of a sole trader that prevents them from hiring employees.
And getting set up to do so isn’t difficult. You can register online with HMRC, or talk through your registration on the phone. And there’s lots of information to support new employers in getting to grips with their role.
But being an employer does come with lots of additional responsibilities. Many of these carry costs in addition to staff salaries. And there are legal responsibilities too.
For sole traders, all these rest on the shoulders of one person. So think carefully before deciding whether becoming an employer is the right approach for you.
Also read:
A guide to becoming self-employed
Self-employed? What business insurance do you need?
Private Medical Insurance for the self-employed
Don’t let that side hustle cost you!