Can A Sole Trader Have Employees?

We are regularly asked the question, “can a sole trader have full-time employees”? 

As a sole trader, you have complete control over your business, costs and expenses, time, and most especially, profits. But let’s dive in and explain what a sole trader is. 

What is a sole trader?

A sole trader is engaged in trade or business and is solely responsible for the success and failure of their business. This is not to be confused with the term self-employed, however, because a self-employed person can operate as a sole trader, a partner or a limited company. 

Operating as a sole trader means that you are self-employed and an exclusive owner of the business, and you are therefore personally responsible for all profits and losses the business makes. 

If you’re a sole trader, you’ll need to:

  • Record your business sales and expenses 
  • Produce and send a Self Assessment tax return annually to HMRC if your income exceeds a certain limit
  • Pay Income Tax on profits and Class 2 and Class 4 National Insurance

Are sole traders allowed to be employers?

Yes, you can be a sole trader and still hire people as employees. 

Sole traders with a growing business, or a sole trader looking to expand, will not be limited by hiring full employees. You will not need to set up a partnership or a company to start hiring people full-time.

What kind of employees can a sole trader hire?

As a sole trader, you can choose any kind of employee you want. Be it freelancers, part-timers, contract workers or full-time employees.

You can outsource some jobs, such as a bookkeeper or accountant, as it keeps you flexible and increases the time that you’re able to spend running and growing your business.

It’s important to note that if you do choose to hire employees as a sole trader, these employees will need to be given full employment rights. More on this later!

Can I be an employee of my own business?

The answer is, unfortunately, no. 

As a sole trader, you are not a separate legal entity from your business. You own the business under your name and are therefore considered self-employed.

When filing tax returns, you are filing a tax return under your name and your sole trader profits will be reported here. You are the owner and proprietor of the sole trade business and never an employee.

What to know when hiring employees

Now that you know that it’s possible for a sole trader to hire employees, it’s time to start a rundown of a few basics that you must remember when hiring an employee as a sole trader.

Employee benefits and costs to the employer

According to the UK Government, full-time and part-time employees can demand the following from you as an employer:

  1. Employment contract
  2. The statutory minimum level of paid holiday
  3. Payslip detailing pay and deductions, including National Insurance Contributions (NIC) and potentially pension contributions
  4. Statutory minimum length of rest breaks
  5. Statutory Sick Pay (SSP)
  6. Maternity and paternity leave and pay
  7. Employer Pension

Your employees are the most critical asset of your business. This is why so many companies do so much to keep their employees happy. A happy workforce often equals a happy business.

Their pay must always at least be at the National Minimum wage although you may choose to use the National Living Wage instead. You’ll also have to pay employer’s National Insurance on your employee’s pay whilst also ensuring that PAYE is deducted at source via payroll. This is where the services of a specialist accountant will really be useful as payroll can be a fiddly and time consuming task.

Register as an employer with HMRC and set up PAYE

Before putting your employees to work, make sure that you are a registered employer. It is preferable to register before hiring people but it should at the very least be before your employees’ first payday. HMRC stipulate that registering for PAYE can occur no more than 2 months before the first payment made from your payroll. 

What is PAYE? 

PAYE is a system set up by HMRC to collect employee income tax and National Insurance contributions. 

Registering through HMRC online services on the UK Government website, you notify HMRC that your business is required to start withholding PAYE because you’ve started to employ people as sole trader. 

To register for PAYE, you will need to provide HMRC with details such as:

  1. Sole trader name
  2. Unique Taxpayer Reference
  3. National Insurance number
  4. Official business address
  5. Official business phone number
  6. Nature of the business
  7. Expected employees to employ in the current tax year.

 

It takes at least five working days to get your PAYE reference number to be used to enrol for PAYE online. PAYE registration and PAYE online will help facilitate and send all your payroll reports to HMRC. By using the PAYE log in details to your HMRC recognised payroll software of choice, you’ll be able to input the necessary pay and deductions and will then be able to submit the necessary payroll reports to HMRC.

If you need to pay an employee before getting your PAYE reference number, you can do so. However, after running your payroll, you must store your full payment submission and send a late full payment submission to HMRC.

Understanding Pension Liabilities and Employer’s Liability

If you are employing staff for the first time, it is crucial to identify if they need a pension scheme. Under the Pensions Act 2008, every UK employer must put qualified staff into a workplace pension and pay it, also called automatic enrolment. It starts the moment a qualified employee begins work. 

Paying pension liabilities is part of your legal duties as an employer. At the same time, you must also obtain Employer’s Liability insurance which will help you pay compensation in the event of an employee  getting injured or sick whilst completing their duties.

Start hiring!

If you’re in a position to employee people for your sole trade business then that’s fantastic. Congratulations! We hope that this guide has proved useful. 

Our guide on how to set up a limited company may also be of use to you as your sole trade business may now be big enough to become a limited company!

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