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.

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Are there any rules about who a sole trader can employ? 

Generally speaking, as long as the person you’re employing has a right to work in the UK, you can employ whoever you want, in almost any role that you want. 

However, there is one exception for sole traders – you can’t employ someone 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, you’ll need to change the structure of your company to a limited company or a partnership.

7 steps for 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. 

As of April 2022, these are the current hourly rates for the National Minimum Wage 

*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.

4. Get employment insurance 

Once you become an employer, you must take out an employer’s liability insurance policy. This insurance is to protect 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 required (more on this later), you do need to send details of the job and the duties to your employee. 

You also need to provide a written statement of employment if they’re going to work for you for more than a month. 

6. Register as an employer 

Make sure that 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 need to make sure 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 £10,000 a year;
• 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 from their salary 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’d always 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. 

Do you need to use an employment contract?

Formal employment contracts aren’t always a necessity when employing someone as a sole trader. However, they are recommended. 

The only requirement is that you provide details of employment and the roles. If you are employing someone for longer than a month, you need to provide a written statement of employment. 

Employment contracts can be a big plus as they save your business from any disputes or legal trouble if something happens to your employee. 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 down the line. This is especially important for sole traders because you will be personally responsible for any debts or compensation that happens because of potential employment disputes. 

Can you employ yourself as a sole trader?

No, you cannot employ yourself as a sole trader. This means that you also cannot pay yourself a salary through PAYE as a sole trader, even if you’re paying other employees through this system. 

This is due to the legal classification of a sole trader. Because the company isn’t its own legal entity, it cannot hire you. But you, as an employer, can hire others. 

If you want to move to a more secure salaried income, you might want to consider transitioning your company from a sole tradership to a limited company. 

Is it better to employ someone as a limited company?

Generally speaking, the process of employing someone as a sole trader is relatively the same 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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