Can You Employ Someone as a Sole Trader?

Are you a sole trader who is looking to take your business to the next level? The future starts somewhere and employing someone

If your workload is increasing and you think you need an extra pair of hands then employing somebody is the next logical step.

But many people worry that it will affect their sole trader status. So, we’re here to answer all of the frequently asked questions about employing someone as a sole trader. 

Do I have to form a limited company to employ people?

The short (and sweet!) answer is absolutely not.

There is no need to form a limited company in order to employ people. You can have employees and remain as a sole trader, as long as you follow government guidance on UK employment.

The phrase sole trader simply means that you are trading under your own name, not a company. You are essentially still operating a business, and therefore can employ somebody on a permeant, part time or freelance basis.

Taking on a new employee provides guidance

Whilst the business structures of a sole trader and limited company are completely different, the process of employing staff is fairly similar.

You will need to start by registering yourself as an employer with HMRC and get yourself set up on PAYE registration. This must be done before the first salary payment is made. In order to register for PAYE, you need to fill out all of your business details in this online form and then wait five working days. Setting up on PAYE is an important step as it allows you to deduct your employee’s National insurance and income tax which will be automatically paid directly to HMRC.

When you take on another employer, it’s also recommended to hire a qualified account to help you keep on top of your payroll and accounts. Having a solid accounting system will help you keep your books in order and will be extremely important for your business come your tax return.

How much should I pay?

Employing somebody, especially for the first time, is an exciting but also daunting experience. Essentially, you will be paying a second wage, so you need to make sure that your money adds up and that you can definitely afford to pay someone else each month.

The government has set out a series of hourly minimum pay rates that as a business owner, you must comply with. The minimum wage for employees over the age of 25 is currently at £8.72, which applies to both full and part time staff.

This rate does decrease for younger employees and those considered as an apprentice.

You must ensure that you are paying your staff at least the minimum wage for their age bracket, unless you will be subject to heavy fines and strong action taken against your business.

What insurance do I need?

If you have made the decision to employ somebody else to work for you, then you will be legally required to have employers’ liability cover.

This cover protects your business from any injury claims made against your workplace from an employee. Regardless of your industry, it is a legal requirement for all employers to have this cover as soon as they take on another member of staff.

What else should I consider?

After you have made the decision to take on a new member of staff to help your business grow there are a number of other factors that you should consider.  Before hiring any new employer, you need to check that they are legally permitted to work in the UK.  As a business owner, you will be responsible for submitting new potential employees for security checks, subject to working with sensitive equipment, and checking their current employment status.  


UK Government Advice on Employing Someone:

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