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Can a sole trader have employees?

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.

Are sole traders permitted to work as employers?

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.

Can a sole trader have employees?

Can a sole trader work as an employee in their business?

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.

  • Employing workers with the help of traditional PAYE system.
  • Recruiting independent contractors and freelancers.
  • Hiring workers temporarily or on part-time contracts.

Steps to set up as an employer

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:

  • Sole trader name.
  • Official address.
  • Official contact number.
  • National Insurance Number.
  • Nature of business.
  • Number of employees you will hire in the present tax year.
  • If any payments are made beforehand to the workers.
  • Unique taxpayer reference.
  • Name of the business.
  • Information about the occupational pension scheme.

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.

PAYE Online helps a sole trader with:

  • Sending payroll reports.
  • Displaying the outstanding balance to HMRC.
  • Filing any penalties.
  • Accessing tax codes and information about employees.
  • Receiving notifications from HMRC.

Employment regulations for sole traders

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:

Workers

A member is classified as a worker if these things apply:

  • The person is under a contract to do a task or service in exchange for money.
  • The person cannot subcontract the task.
  • The person attends the workplace.
  • The work has to work as per the contract duration.
  • The person doesn’t contract with the employer as a client or customer.

Though workers are not employees, they are entitled to some employment law rights, such as:

  • Minimum Wage.
  • Security against unlawful wage deductions.
  • Minimum paid holidays.
  • A minimum amount of rest breaks.
  • Maternity, paternity and parental pay.
  • Security from whistleblowing.

Employees

Employees work for employers under a contract. But, they can also be classified as employees without an employment contract if these attributes apply:

  • They should regularly work, unless on leave
  • They should work for a minimum number of hours weekly/ monthly and are paid for the hours worked.
  • A manager supervises their work.
  • They cannot subcontract their work.
  • NICs and income taxes are subtracted from their wages through PAYE.
  • They get yearly paid leave.
  • They are entitled to paternity, maternity and adoption pay.
  • They can get Statutory Sick Pay.
  • They can be a part of the pension scheme of the business.
  • They have to work at a particular place.
  • They get tools and materials to do their work.
  • The contract has words like employer and employee mentioned.
  • They only work for your business.

Employees have employment rights same as workers and also receive:

  • Statutory Sick Pay
  • Statutory Redundancy Pay
  • Security against partial dismissal
  • Notice period before terminating the job
  • Maternity, paternity and parental leave

Self-employed contractors and freelancers

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.

  • They manage their business.
  • They decide the business to be done, where, when, and how.
  • They can subcontract out their responsibilities.
  • They can rectify any unacceptable work without paying for any additional time.
  • They work on a fixed price method and not on an hourly basis.
  • They can work for other clients.
  • They offer their raw materials, machinery, and tools to do the job.

Opposite to the conditions mentioned above concerning PAYE, a person is self-employed if these conditions apply:

  • They offer quotes and bids to acquire projects.
  • They do not work under anyone’s supervision.
  • They submit invoices for the completed work.
  • They handle their yearly tax returns.
  • They are not eligible for vacation or sick pay.
  • They work under a contract with terms like a self-employed, independent contractor, or consultant.

Wrapping Up

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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