Can a Sole Trader Employ Staff? A Guide to Hiring
Running a business doesn’t have to mean doing every job yourself. A sole trader can employ permanent, part-time or temporary staff without forming a limited company. Your legal structure describes who owns the business and accepts responsibility for it; it doesn’t prevent you from building a team.
Employees or contractors?
You have two main options when it comes to taking on staff: you can choose to employ others or engage freelancers or other self-employed people and treat their invoice as a business cost. Employment status depends on how the relationship works in practice, not simply on the label in the contract.
A person who controls how and when they work, serves several clients and carries financial risk is usually self-employed and can be employed by you as a freelancer or contractor. Someone working regular hours under your direction, who is expected to comply with the hours you set and your policies, should be treated as an employee. Misclassification can lead to incorrect tax payments, penalties and employment-rights claims – so check the position before work begins.
Budget for the full cost
Salary is only one part of the cost of recruitment. Your budget may also need to cover employer National Insurance contributions, workplace pension contributions, holiday and sick pay, employers’ liability insurance, equipment, software and training. Compare the complete cost with the value and capacity the appointment should add, then reflect it in your cash-flow forecast.
Qualifying staff costs can normally be deducted when calculating taxable business profits. These may include wages, employer National Insurance and pension contributions, provided they’re incurred wholly and exclusively for business purposes and recorded in your Self Assessment or Making Tax Digital records.
Recruit fairly and check eligibility
Set a salary that meets the applicable National Minimum Wage or National Living Wage and is competitive for the role, skills and location. Your job advertisement and selection process must comply with discrimination and data-protection law.
Before employment starts, carry out the prescribed right-to-work check and retain the required evidence. Some positions may also justify or legally require a criminal-record check.
Complete the employer essentials
Register with HMRC as an employer before the first payday, even if you’re operating as a sole trader rather than a company. You’ll receive a PAYE reference and must operate payroll, calculate deductions and report pay to HMRC. Payroll can be managed internally with software or outsourced to an accountant or payroll provider.
Most employers must also obtain employers’ liability insurance from an authorised insurer, usually providing cover of at least £5 million. Limited exemptions exist, including in some businesses employing only close family members, so confirm whether one applies rather than assuming.
Employees and workers must receive the principal written statement of employment particulars on their first day. It should cover matters such as pay, hours, workplace, holiday, probation and notice. Further required information can follow within two months.
Finally, assess your workplace-pension duties. Eligible staff generally need to be enrolled, contributions paid and regulatory declarations completed.
Hiring your first employee is a significant step, but your sole-trader status is no barrier. Careful budgeting, worker classification and timely administration allow you to expand without creating avoidable tax, legal or payroll problems.
If you need advice on recruiting staff and the related financial and tax obligations, speak to a reputable accountant today.
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