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?
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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Can a sole trader hire another self-employed person?
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.
How does a sole trader take on staff?
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.
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!
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.
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!