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Can You Employ People as a Sole Trader? A Comprehensive Guide

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Being a sole trader often comes with the misconception that you have to be a one-man army. However, that’s far from the truth. This article aims to dispel myths and provide a detailed guide on how sole traders can employ staff.

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What is a Sole Trader?

Before diving into the employment aspect, let’s clarify what a sole trader is. Essentially, it’s an individual running a business as themselves, bearing all the financial responsibilities.

Do You Need to Form a Limited Company to Employ People?

One of the most pressing questions sole traders have is whether they need to transition into a limited company to employ staff. The answer is no. Being a sole trader doesn’t restrict you from expanding your workforce.

Types of Employment: Permanent, Part-Time, or Freelance?

As a sole trader, you have the flexibility to employ people on various terms. Whether it’s permanent, part-time, or freelance, you can choose what suits your business model best.

Can a Sole Trader Hire Another Self-Employed Person?

Absolutely, yes! Sole traders can engage other self-employed individuals on an ad hoc basis. These freelancers can invoice you for their time, which becomes an allowable business expense.

The Complexity of Contractor/Subcontractor Relationships

If you’re thinking of hiring self-employed individuals regularly, be cautious. A frequent engagement might blur the lines and create a contractor/subcontractor relationship, which has its own set of rules and regulations.

Taking the Plunge: How to Hire Your First Employee

Hiring your first employee can be intimidating, but the process is generally the same, irrespective of your business structure. From defining the role to conducting interviews, each step is crucial.

Financial Considerations: Can You Afford an Employee?

Before you post that job ad, take a moment to consider the financial implications. You’re not just committing to a salary but also additional costs like National Insurance and pension contributions.

Legal Requirements: Right to Work and Discrimination Laws

Ensure that your potential employee has the legal right to work in your jurisdiction. Also, be aware of laws around discrimination and data protection during the hiring process.

Insurance: A Non-Negotiable Aspect

Every employer is required to have employers’ liability insurance from an authorized insurer, covering at least £5 million. Failure to do so can result in hefty fines.

Contracts and Written Statements

Once you’ve selected your employee, you’ll need to provide a formal job offer in writing, complete with a full job description and terms and conditions of their employment.

Registering as an Employer and Setting Up Payroll

Before the first payday, you’ll need to register as an employer with the relevant tax authorities – happy to help. You’ll receive an Employer Reference number, which is essential for tax and National Insurance contributions.

Workplace Pension Scheme: Your New Responsibility

As a new employer, you’re also responsible for setting up a workplace pension scheme if your employees are eligible for auto-enrolment. This can either be managed in-house or outsourced to professionals.

Can You Employ People as a Sole Trader – Conclusion

Being a sole trader doesn’t mean you have to go it alone. From hiring freelancers to taking on permanent staff, there are various ways to grow your team. Understanding the legal and financial responsibilities is crucial, but once you’ve got that down, the sky’s the limit for your business expansion.