Can Sole Traders Have Employees?

Can Sole Traders Have Employees?

author

James Rowland

Commercial Director James leads Account Management, Sales and Marketing at Neathouse Partners.

Date

09 March 2023

Updated

17 July 2024
4 min read
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Business owners who operate as sole traders may ask themselves, "Can I have employees?".

The answer is yes.

But you will need to update your status with HMRC by registering as an employer, following employment laws and regulations, including contributing to your workers' pension pots and considering additional workplace insurance cover such as employers liability insurance.

Read on to understand what you need to consider if you are a sole trader considering employing people to work for you. 

How To Register As An Employer

If you’re planning on taking on staff as a sole trader, the first thing to do is to register as an employer with HMRC.

To get started, you'll need your name and business address, as well as your unique taxpayer reference number and National Insurance number.

Additionally, details about the number of people that you intend to hire and any payments already made must be included.

You will also need to explain any expenses or benefits you want to offer over and above employee salaries along with the details of the employee pension scheme you will operate.

Once the registration is completed, HMRC will provide you with a unique Employer Reference Number.

Is It Better To Use Staff Or Freelancers?

If you're looking for an extra pair of hands, you can choose between hiring freelancers, taking on staff, or a combination of both.

  • Freelancers are often cheaper and easier to hire than full-time staff. Using freelancers gives you the flexibility of only paying for the work that gets done, making it a cost-effective option. and they can also provide a much-needed boost for short-term projects or during busy periods. By outsourcing work this way, you will be able to avoid the hassle of dealing with PAYE returns and tax deductions and won't need to provide additional benefits like holiday pay.
  • Taking on staff may be better in the long run as you will have more control over their work, and they are more likely to stay with you for longer which could provide stability for your growing business. Employing staff requires extra paperwork and administrative overhead compared to working with freelancers, as you will need to pay regular salaries and cover employment costs such as training, development and equipment needed.

Ultimately, the right option for you will depend on your business needs and financial position.

Taking On Staff As A Sole Trader

Taking On Staff As A Sole Trader 

If you opt to employ others to work for you, there are strict employment laws that you must follow including;

  • All employees should be paid at least the national minimum wage based on their age.
  • Paying employees for maternity, paternity and adoption leave at at least the statutory rate
  • Guaranteeing a Safe and Healthy Work Environment
  • Ensuring workers receive at least the minimum amount of rest breaks they are entitled too
  • Ensuring a Discrimination-free Environment for Employees

Understanding Employment Laws and Regulations

Once registered as an employer, it's important to understand the rules and regulations set by HMRC and also your legal obligations as an employer.

This includes minimum wage requirements, auto-enrollment pensions, deductions from salaries (including tax) and health and safety in the workplace.

Additionally, employers must have faith that their employees are legally allowed to work in the UK before they take them on - this can be done through Right To Work checks.

You may also need additional liability insurance to cover yourself against any claims made by employees.

This can include protection against any third-party claims, such as personal injury or damage to property.

Employer Health & Safety Responsibilities

When you become an employer, you are responsible for your employees’ health, safety and welfare at work.

You will need to make sure that any equipment used in their job is suitable and safe and that they receive adequate training for the tasks they’re asked to do.

Setting Up PAYE

You will also need to register with HMRC as an employer if you have staff working for you regularly.

This means keeping records of employee salaries, paying National Insurance contributions and dealing with PAYE (Pay As You Earn) deductions from their pay packets.

Eligibility To Work

It’s important to ensure that all workers employed by you are eligible to work in the UK.

You must abide by the laws and regulations in the country that you operate in, including those relating to minimum wage, paid holiday and sick pay entitlements.

Workplace Pension Schemes

As a sole trader business owner, you also need to consider whether you will provide workplace pension schemes for your employees.

The law requires all employers with staff aged between 22 and the state pension age to automatically enrol their eligible workers into a qualifying workplace pension scheme.

This means making contributions on behalf of your employee and yourself unless they choose to opt out of the scheme.

Workplace Insurance For Employers

Finally, you may want to consider taking out additional workplace insurance coverage.

This could include employers’ liability insurance, which covers the costs of any claims made by employees against their employer for injury or illness at work.

This can help protect your business if an employee makes a claim against you and helps to reduce any losses that may be incurred as a result.

Summary

If you are a sole trader and your business is growing to a point where you need help to meet the day-to-day demands for your services or products, then you are fully entitled to take on staff.

You can do this by working with freelancers or hiring employees.

You may decide that at the point you are taking on others, you want to change the status of your company to a limited company to offer more protection because as a sole trader, you are personally liable for any debts incurred.

Regardless of your company structure, if you are taking on employees, you must register as an employer and ensure you meet employment regulations that ensure your team are looked after in the right way.

Next Steps

If you are making the jump from working alone as a sole trader to taking on employees, you must understand your legal obligations and get the right advice.

Neathouse Partners offers outsourced HR and legal advice that can help you to ensure that all employment regulations are followed correctly to help ensure that your business runs smoothly.

If you would like support with managing and understanding your HR and employer responsibilities towards your employed or freelance workforce, please call 01244 893776 to talk to our friendly team.

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