The Full Guide To Employing Someone As a Sole Trader In The UK

Being a sole trader has a wealth of benefits, including being easy to set up, having less red tape to deal with, and of course, being your own boss. It’s why it’s such a popular choice for small and starting out businesses. 

However, if you’re ready to grow and need an extra pair of hands to run the show, there’s a misconception that you have to transform into a limited company to hire, which just isn’t true.

Employing someone as a sole trader is entirely possible in the UK  – and in this guide, we’ll give you all the information you need to make sure the whole process goes as smoothly as possible.

Can sole traders employ staff?

Sole traders can absolutely employ staff. 

Some people assume being a sole trader means that you need to be solely on your own, which isn’t true. A sole trader means that your business is owned and operated by you, but it doesn’t mean that you have to work alone. 

In terms of legal company structures, being a sole trader means that you are trading as yourself, and therefore, there’s no separation between you and your company. Thus, you are liable for anything that might go wrong with your business. Limited companies on the other hand, are their own legal entities. That means that any debt belongs to the company, not to you. 

Both company structures have the same access to employing staff and follow the same process:

• Firstly, you need to register as an employer with the HMRC
• Then, you need to register for PAYE to start paying your employees’ salaries

We’ll go into the details later below, but at its core, that’s all there is to it. The only restrictions are that you cannot employ yourself, and you cannot hire for a partner or director role. This is because these roles simply don’t exist within a sole tradership, as you are solely responsible for owning and operating the business.

If you want to employ a partner or a director, or if you want to pay yourself using PAYE, you’ll need to change the structure of your company to a limited company or a partnership.

7 steps for successfully employing staff as a sole trader 

To make the hiring and employment process go as smoothly as possible, we’ve rounded up this 7-step checklist for employing someone as a sole trader.

1. Assess your wage budget 

If you’re going to hire an employee, there’s a pretty big factor that you need to consider: their wage. 

As the employer, you can make the decisions here about how much they deserve to be paid, keeping in mind your own company budgets and expected income. As long as you’re paying at least the National Minimum Wage, this power will remain with you. 

Minimum age rates change every April. As of April 2024, the current hourly rates for the National Minimum Wage are: 

*Note, the apprentice rate only applies if they are under 19 or in their first year of apprenticeship. Once the first year has been completed, they will be entitled to the National Minimum Wage for their age group.

2. Check your employee can legally work in the UK 

Someone’s right to work in the UK depends on their immigration status. People will have the right to work in the UK if they: 

• Are British or Irish citizens
• Have pre-settled or settled status from the EU Settlement Scheme (or are waiting on a decision from this application)
• Have a family permit from the EU Settlement Scheme
• Have indefinite leave to enter or remain in the UK
• Have the right of abode in the UK

When employing staff as a sole trader, you need to check this information carefully and make sure that your employee has the right documentation. In some cases, people might have a temporary right to work called limited leave, which will explain how much time is left on a visa and might even have restrictions on the type of work someone can do.

3. See if you need a DBS check 

A Disclosure and Barring Service (DBS) check is basically a criminal record check, formally known as a CRB check. This is needed in certain roles and industries to protect vulnerable people, such as in healthcare or childcare. 

If you need to carry out criminal records checks, you must have a policy on employing ex-offenders and show it to any applicant who asks for it.

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4. Get employment insurance 

Once you become an employer, you must take out an employer’s liability insurance policy. This insurance protects you if an employee becomes ill or injured because of their work, and must cover you to the value of £5 million from an authorised insurer. 

Every day that you employ someone without this policy, you can be fined an extra £2,500.

Not sure what other insurance policies you may need? Check out our guide to what insurance you need as a sole trader. 

5. Send employment details or a contract

Although formal contracts aren’t always required, you do need to send details of the job and the duties to your employee. 

If they are going to be working for you for more than a month, you also need to provide a written statement of employment. 

However, employment contracts are always recommended for businesses to provide as they can prevent disputes or legal trouble if something happens to the employees. Setting out the exact terms and conditions of their employment, including any rules about leaving to direct competitors, will save your business a lot of hassle.

This is especially important for sole traders because you will be personally responsible for any debts or compensation due to potential employment disputes.

6. Register as an employer 

Ensure you inform HMRC of your new hire by registering as an employer on their website.

It can take up to five working days to receive a confirmation from HMRC, so make sure that you submit this application in good time. You can submit this up to 4 weeks before the first payment of your staff member is due, so we’d recommend getting it done in plenty of time. 

As well as registering as an employer, you must ensure that you’re registered to PAYE so your employees can get paid. Don’t worry, though; we’ve got your back in this payroll for dummies guide.

7. Check for automatic pension enrollment 

Every employer in the UK has to set up a workplace pension and contribute to it through automatic enrolment unless an employee opts out or isn’t eligible. 

Workers are eligible for automatic pension if they are:

• Classed as a worker
• Aged between 22 and state pension age
• Earn at least £520 a month (or £120 a week)
• Work in the UK

The minimum auto-enrolment contribution is 8% of an employee’s qualifying earnings. As an employer, you must contribute at least 3%, with employees obliged to pay at least 5% of their salary.

That means if an employee earns £1,500 a month, £75 will be automatically deducted from their wages. Then, the employer (you) will have to pay an additional £45 into this pot, bringing the total to £120 a month. 

This is the minimum amount. You can choose to go for a different pension contribution plan. We recommend discussing your options with an accountant for the best advice. Don’t have an accountant yet? See the best online accountants for your sole trader business here.

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Hiring an employee might not be the best answer

If you need more hands and help in your business, hiring an employee might seem like the logical solution. However, this does come with a lot of responsibility, so it’s worth looking at the options available before you hire. 

1. Use a freelancer or contractor instead 

Freelancers or contractors can be perfect solutions for sole traders as you get the extra help when needed, without having to hire (and pay!) someone full-time. Instead, you can just bring in trusted professionals as and when you need them. 

This is perfect for businesses that might need extra help for certain projects (such as a big client, or setting up a website) rather than year-round help. 
However, using freelancers does mean that you have less control over their schedule, and they can be more expensive to hire than paying a wage – especially if you use them a lot. In addition, when working with freelancers, you need to be mindful of IR35 payroll legislation to ensure they are not accidentally classed as employees.

2. Work with an agency 

Outsourcing work to agencies can be a good move for businesses, as it allows you to access a wider range of skills and talent than a single freelancer can handle. For example, if you worked with a marketing agency, they might have decided people in their team to specialise in each area of your marketing, including social media, advertising, your website, events, and more.  Rather than pay for a jack of all trades, you get multiple masters in each niche. 

However, agencies can be expensive. So it’s always worth weighing up the outcomes you want against the costs to see if they’re a worthwhile benefit. 

3. Make use of fixed-term contracts 

If you are set on hiring, one alternative to consider is hiring employees under fixed-term contracts rather than full-time employees. Fixed-term contracts (also known as temporary contracts) are employment contracts with pre-defined end dates. For example, they can be a contract to cover a specific project or time-based to last a few months, like how retailers often hire seasonal workers during the Christmas rush. 

Fixed-term contracts give you the benefits of having a dedicated employee, without the long-term cost commitment. You can dedicate a budget to cover wages during their contract, without having to increase ongoing operational costs. 

However, it is worth pointing out that you will follow the same hiring process for fixed-term employees (and be under the same legal obligations!). 

Are limited companies better for employers? 

Hiring someone as a sole trader is the same process as hiring someone as a limited company. However, the better protection and liability that comes from being a limited company could give you better protection as an employer if you are ever involved in any employment disputes. 

If you want to pay yourself through PAYE systems, or if you want to hire someone as a director, then you will have to change into a limited company as these capabilities aren’t possible as a sole trader.

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