If you’re self-employed you may wonder if it’s possible for sole traders to employ people. The short answer is that they can.
It’s quite rare for sole traders to employ people but if you’re considering doing so, then there are a few things you need to know.
How can sole traders employ people?
There may be a time when someone who is self-employed has an increase in workload. Or they may need to hire others to help them deliver a big project.
If that’s you, then it is exciting but it may well feel daunting. It is possible take on someone as a freelancer or contractor to help you. And you don’t need to set up a limited company to do so.
Be aware that that freelancers are for short periods and they simply invoice you for their work. But if your project is longer term, say three or six months, then you should be treating the person as a contractor or sub-contractor. If it’s longer they will be employees.
Either way, it is perfectly legal and acceptable to hire support if you are a sole trader.
How to hire people
When sole traders employ people, it can be daunting. But it’s very similar to how a limited company employs someone.
You will need to complete some steps that are quite similar to those limited companies must follow. The steps below are only required if you are taking someone on for longer term projects.
- First, you must register with HMRC
- Register for PAYE. Employers are given a PAYE reference number from HMRC.
HMRC require information from you when you register as an employer. This includes:
- Company name
- Company email address
- Your Unique Taxpayer Reference (UTR)
- The address of your business
- The date the first payment will be given to the employee
- Total number of employees
If you’re using another sole trader on an ad-hoc freelance basis, it’s acceptable for them to simply send you an invoice and you do not need to follow these steps.
Setting up a payroll and pension scheme
As a new employer, you will need to make arrangements to ensure employees are paid on time. You will also need to provide an appropriate workplace pension scheme if employees are eligible for auto-enrolment. Your accountant can help you with this if you are unsure about payroll.
Checks before you employ people
Before you decide to take on a freelancer or employee, it is advisable to carry out some checks. Work out whether your cash flow can cover the costs. Remember, you are committing to paying wages and contributions (such as National Insurance and pension payments) throughout their employment. If you’re not sure about what you will need to pay, use a free tax calculator or speak to your accountant.
The takeaway
As a sole trader, you can employ people – whether that’s as a freelancer, contractor or employee. But get all the facts and do your sums, as you will be held responsible if payments aren’t made or you don’t pay the taxes and other contributions of employees. Taking on a freelancer ad-hoc is simpler, as they invoice you for the agreed sum or hours worked.
If you need more advice, then you can contact our team today.
