Employing people as a sole trader

We take a look at the procedures around employing people as a sole trader.

The fastest way to start a business is as a sole trader. You can start trading straight away and have three months to tell HM Revenue and Customs (HMRC) of your self-employed status before you incur a fine.

It’s easy to start this process: you simply have to tell them you are paying tax through self assessment. You can find the self assessment form to register as a sole trader from here.

Can a sole trader employ staff?

Yes. Once you get going as a sole trader you can employ people just as you would do in a limited company, but you have to tell HMRC that you are doing so. The process of setting up as an employer is the same for sole traders as for limited companies:

Once registered for PAYE. HMRC will issue you with reference numbers allowing you to enrol for PAYE online. Payroll or small business accounting software will be your friend here. Much better than doing it by hand so worth the cost.

Remember that you’ll need to factor in employee benefits like sick pay, holiday pay and maternity/paternity pay. Enrol them in a pension too.

Will need employers’ liability insurance. Find out what insurance you need by reading Business insurance everything you need to know.

Make sure you judge salaries right too. the salary needs to be calculated to ensure that fair wages are met. Small businesses can deal with cost limitations by hiring an employee part-time or hiring someone on a fixed-term contract to determine the viability of the position. If they’re on shifts then you need to make sure that they’re paid at least the National Living Wage (or the National Minimum Wage if they’re under 23).

Check out Payscale, Glassdoor and Indeed to get a better idea of your industry’s standard for salary figure. A candidate’s salary expectations can be a steer too, especially if they have some experience in their field.

Ensure they have a legal right to work in the UK and there may be background or Disclosure Barring Service (DBS) checks involved depending on the role.

Read more over at Hiring your first employee as a small business.

The importance of contracts

A contract of employment should be made as soon as the job offer is accepted. This is not a ‘legal’ requirement, but it will will save you a lot of bother going forward. Remember, the key difference between being a sole trader and limited company is ‘liability’ – because you will be ‘personally’ responsible for any debts or compensation arising from any disputes.

The term ‘contract’ can be a bit misleading and is often misused as it doesn’t refer to a piece of paper – initially, it doesn’t have to be in writing. However, your employee is entitled to a written statement of the main terms of the contract within two months of starting work. This applies to employees who are working for you for more than a month.

You can get more information about employment contracts here and you can buy a standard written statement here.

Starting as a freelance? Make sure you are on top of your finances with one these accounting systems:


Related Topics


Leave a comment