If you think a sole trader can hire employees, the reply is yes, but it is not pretty straightforward. Here we shall discuss the question in detail and seek answers related to employment law, limited companies, and freelancers.
Yes, sole traders can employ people, and they don’t need to establish a limited company for that. Though the name sole trader means working individually, the legal definition of the term is different.
A sole trader is a person who is doing business but has not established a separate legal structure for operation, such as a partnership or limited company.
So, sole traders can have staff members to work for them, either as employees or freelancers.
Sole traders are self-employed; hence they can only employ others and not themselves. You cannot work as an employee in your business.
This is where a limited company differs. It is an individual legal entity in its right. So, a company can provide an employment contract with its directors. But, a sole trader cannot do it. The business and the person are the same here. Thus, they cannot have an employment contract here.
Though you cannot be an employee of your business, it doesn’t mean you cannot hire staff. There are several ways to hire employees for specific purposes or general office assistance.
The usual process of establishing yourself as an employer is the same for a sole trader compared to limited companies. First and foremost, you should enrol as an employer with HMRC (HM Revenue and Customs). The registration for PAYE usually happens before the first salary payment, but it should take over two months before the first payout.
The sole trader should register for PAYE by filling out the following details:
After the employer has registered, the HMRC allots the PAYE and Accounts Office Reference Number. It may take around 4-5 business days. You should fill out the reference number while enrolling for PAYE online.
A sole trader should establish if someone working them is a freelancer, contractor, worker or employee. Evaluation of the extent of employment law obligation is critical. Here are several work statuses to be considered:
A member is classified as a worker if these things apply:
Though workers are not employees, they are entitled to some employment law rights, such as:
Employees work for employers under a contract. But, they can also be classified as employees without an employment contract if these attributes apply:
Employees have employment rights same as workers and also receive:
If a person is not a worker or an employee, you can address them as freelancers or self-employed contractors. A sole trader also falls in this category.
So, a sole trader can contract with other self-employed people without any legal obligations involved, other than health, safety, and discrimination regulations.
It is essential to keep in mind that HMRC can sometimes consider a person self-employed for tax purposes, even when they enjoy a different position in the employment regulation.
If the above mentioned considerations stand true, they are not considered employees for tax reasons and don’t receive payment through PAYE.
Opposite to the conditions mentioned above concerning PAYE, a person is self-employed if these conditions apply:
So, the answer to can a sole trader have employees is yes. They have all the rights to have employees, considering the abovementioned aspects and following the regulations. However, if you think that your business has grown financially, you can expand as a limited company and enjoy better benefits of hiring employees, workers, freelancers and contractors for you.
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