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Being a sole trader doesn’t mean you have to do everything by yourself, and you can take on employees to help you run your business as it grows. In this article we answer some of the most frequently asked questions sole traders have about becoming an employer, and go over what steps to take next.
 

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

Can a sole trader hire another self-employed person?

How does a sole trader take on staff?

It’s a very common question, but the good news is that you can employ people and remain a sole trader. There’s no need to set up a limited company if you don’t want to. While sole traders operate the business on their own, that doesn’t mean they have to work alone. The term sole trader just means that you are trading as yourself, under your own name (our guide explains operating as a sole trader in more detail!).

You can choose to employ people on a permanent, part-time or freelance basis, whatever suits you best.
 

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Normally, yes! As long as this only happens infrequently on an ad hoc basis, then you can hire other people as you need them and they can invoice you for their time just like any other business might (which will be an allowable expense for your business).

It gets a bit more complicated if this were to be a daily occurrence (because it would be more like a contractor/subcontractor relationship), but if you need to hire in additional support from time-to-time, this is usually absolutely fine.

Taking on a new employee for the first time can seem like a daunting experience, but the process is pretty much the same whatever your business structure might be.

How much will you pay them?

Depending on their age, you’ll normally need to pay your new employee at least the National Minimum Wage.

Can you afford to employ them?

Taking on a member of staff means that you’re committing to pay their wages (plus any employer contributions such as National Insurance and pension payments) for the duration of their employment.

It’s worth taking some time to work out the cost of employing someone, and then consider whether the value they bring to the business is greater. And of course, factor this into your cash flow planning!

How will you advertise the role?

You might get a local recruiter on the case, or simply create an ad on one of the many job sites available. You’ll need to make sure that your listing includes enough information to attract the best candidates, and that the way you recruit is fair and inclusive. There are laws around discrimination and data protection throughout the hiring process.

Do they have the legal right to work in the UK?

You’ll need to check that your potential new employee has the right to work in the UK. The process for this depends on the documents that they have available.

Getting insurance

Every employer must have employers’ liability insurance from an authorised insurer, with a policy which covers you for at least £5 million. Having the correct insurance is a big deal, and you can be fined £2,500 every day you are not properly insured. Ouch!

Have you prepared a contract or written statement of employment?

You’ll need to make a formal job offer in writing, and include the full job description along with the terms and conditions of their employment. Anyone that you’re taking on for longer than 1 month will need a written statement of employment.

Register as an employer

You’ll need to register as an employer with HMRC before the first payday, which you can do up to 4 weeks in advance. HMRC will send out your Employer Reference number (also known as a PAYE reference), which you’ll need to make submissions to HMRC telling them about your employees’ wages.

This is so that you can deduct income tax and National Insurance from the wages of eligible employees, and pay it on to HMRC on their behalf. Our PAYE guide explains this process is more detail!

Setting up payroll and a workplace pension scheme

As a brand-new employer it will be your responsibility to make arrangements for employees to be paid correctly and on time, as well as providing an appropriate workplace pension scheme if your employees are eligible for auto-enrolment. You can do this by setting up payroll yourself, or you can outsource it to someone else, such as your accountant.

It’s best to do this as soon as you can, so nothing is forgotten or neglected while you prepare to train your new employee!

Learn more about our accounting services for sole traders. Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Suzanne Goodier-Dodson

I'm a Payroll Manager with a degree in Mathematics, responsible for overseeing every aspect of payroll for our clients. In my spare time, I love to travel and going to gigs. Read my Staff Spotlight.

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Basil
Basil
14th March 2023 3:21 pm

Very helpful! What if you just hire a freelancer from a platform like upwork for as long as you need? Do you still have to include them in your taxes?

Elizabeth Hughes
Admin
Elizabeth Hughes
16th March 2023 1:41 pm
Reply to  Basil

Hi Basil

Thanks so much for your message. Using a freelancer is a bit different, because you’re not actually employing them in the traditional sense. This means you can simply pay their invoices as normal, and then claim tax relief against the expense.

I hope that this makes sense, but please do let us know if we there’s anything at all we can do to help.

Best wishes

Elizabeth

Richard O'Keeffe
Richard O'Keeffe
6th May 2023 11:55 am

Elizabeth this is so helpful!
I’m a some trader but need to attend a major trade show. As such I’ll likely need a paid helper just for that one day. If they invoice me I can just pay it and note it as a deductible expense and then carry on my business as just myself? Then if I attend the next year and need a helper or two for that one day I can do the same?
Thanks
Rich

Elizabeth Hughes
Admin
Elizabeth Hughes
17th May 2023 8:40 am

Hi Richard,

Thanks for your kind words! Yes, based on this scenario you can hire someone else for the day, and they can invoice you for their time just like any other business might (which will be an allowable expense for your business). It would be a bit more complicated if this were to be a daily occurrence (because it would be more like a contractor/subcontractor relationship), but adhoc events like this are usually absolutely fine.

Best wishes

Elizabeth

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