Can a Sole Trader Employ Staff in the UK?

/Published:31st July 2025/inRunning a business, Self Employed
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Yes, a sole trader can employ staff in the UK and it’s more common than many people realise. While sole traders often operate alone, there’s no legal barrier preventing them from building a team. Whether you run a small café, offer plumbing services, or freelance in digital marketing, you may find yourself needing an extra pair of hands as your business grows.

This post goes some way to explaining everything you need to know about employing staff as a sole trader, including legal requirements, payroll obligations, and tips for hiring your first employee in 2025 and beyond.

What Is a Sole Trader?

A sole trader is the simplest and most common type of business structure in the UK. As a sole trader, you operate the business in your own name, and you are personally responsible for the profits, debts, and legal obligations of the business.

Contrary to popular belief, you don’t need to form a limited company to hire employees. Sole traders can legally employ staff, just like any other business structure. However, once you decide to take on employees, you must comply with UK employment law and fulfil all the same responsibilities that apply to limited companies including registering as an employer with HMRC.

Whether you’re bringing on a full-time assistant, a part-time admin, or casual help, you’ll need to follow proper payroll, tax, and legal procedures.

Quick fact: As of 2025, over 3.1 million sole traders operate in the UK and many successfully grow their businesses by hiring staff.

Learn more about sole trader registration on GOV.UK

Can a Sole Trader Employ Staff Legally?

Yes absolutely. Sole traders in the UK can legally employ staff, just like any other business. There is no legal limit on how many people you can hire, provided you meet your obligations as an employer.

Once your business grows beyond what you can handle alone, you can expand your team by hiring:

  • Full-time or part-time employees
  • Apprentices (often supported by government schemes)
  • Freelancers or contractors (note: IR35 rules may apply in some cases)
  • Temporary or seasonal staff (e.g. for busy periods or holiday cover)

The key isn’t your business structure it’s how you comply with your responsibilities as an employer under UK law. As a sole trader, you must:

  • Register as an employer with HMRC
  • Set up and run a compliant PAYE payroll system
  • Provide a written statement of employment
  • Check the right to work in the UK for all employees
  • Ensure you meet minimum wage, pension, and holiday pay requirements

Tip: Even if you only hire someone for a few hours a week, you must still follow the correct employment procedures.

Register as an employer with HMRC – GOV.UK

What Are My Legal Responsibilities as an Employer?

If you are a sole trader and plan to hire staff, you are required to follow the same employment laws as any other UK business. Below is a breakdown of your key responsibilities:

Register as an Employer with HMRC

You must register with HMRC before you pay your first employee. This applies even if you employ only one person or pay them occasionally.

  • You can register online using HMRC’s Employer Registration service: gov.uk/register-employer
  • Registration can take up to five working days, so it’s best to do it early.

Set Up a Payroll System

You’ll need to operate PAYE (Pay As You Earn) and report employee pay and deductions in real time to HMRC using RTI (Real Time Information).
Payroll software can handle this for you and produce payslips. Common options include:

Alternatively, you can outsource your payroll to an accountant.

Check Your Employee’s Right to Work in the UK

You must confirm that every employee has the legal right to work in the UK.

  • Use the government’s official guidance: gov.uk/legal-right-work-uk
  • Keep a record of the checks you carry out, including copies of any documents.

Provide a Written Statement of Employment

Employees must receive a written statement of employment on or before their first day. This should include:

  • Job title and duties
  • Start date and hours of work
  • Pay and holiday entitlement
  • Notice period and other key terms

You can find free templates on the ACAS website: acas.org.uk/employment-contracts

Pay at Least the National Minimum Wage

You are legally required to pay the national minimum wage based on your employee’s age. From April 2025, the rates are:

  • £11.44 per hour for workers aged 21 and over
  • £8.60 per hour for workers aged 18 to 20
  • £6.40 per hour for workers aged 16 to 17

For the most current figures, check gov.uk/national-minimum-wage-rates

Provide a Workplace Pension (Auto-Enrolment)

If your employee is:

  • Aged between 22 and state pension age
  • Earning more than £10,000 per year
  • Working in the UK

Then you must enrol them into a workplace pension scheme and contribute at least 3% of qualifying earnings.
You can find more information at thepensionsregulator.gov.uk

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What About Contractors and Freelancers?

As a sole trader, you might choose to bring in help from independent contractors or freelancers rather than hiring employees. In these cases, PAYE and other employer obligations may not apply but it’s essential to understand the distinction between employment and self-employment.

When You Don’t Need PAYE

If the individual you hire is genuinely self-employed and working under a contract for services (rather than a contract of employment), you typically do not need to:

  • Operate PAYE
  • Provide paid holidays or statutory benefits
  • Enrol them in a workplace pension

They are responsible for their own tax and National Insurance via Self Assessment.

Why You Must Check Employment Status

Misclassifying a worker can lead to unexpected tax liabilities and penalties. Even if someone calls themselves a freelancer, HMRC may still treat them as an employee if the working relationship suggests it.

To stay compliant, use HMRC’s Check Employment Status for Tax (CEST) tool: gov.uk/check-employment-status-for-tax

The tool will ask about:

  • How and when the work is done
  • Who provides the tools or equipment
  • Whether the individual is free to take other work
  • If there is a mutual obligation between both parties

Keep a copy of the results for your records, especially if HMRC ever reviews your employment practices.

Do Sole Traders Pay Employers’ National Insurance?

Yes. Sole traders who employ staff are responsible for paying Class 1 Employers’ National Insurance contributions just like any other employer.

For the 2025/26 tax year, the key thresholds are:

  • If your employee earns more than £125 per week, you must pay 15% Employers’ NIC on their earnings above that threshold.

These contributions are:

  • Separate from the employee’s own National Insurance
  • Reported and paid to HMRC through your PAYE payroll system under Real Time Information (RTI)

You’ll also be responsible for deducting and reporting the employee’s National Insurance and Income Tax from their wages.

Tip: Using HMRC-recognised payroll software can simplify the entire process and ensure you’re calculating contributions correctly.

You can find more details on Employer NIC thresholds and rates here: www.gov.uk/national-insurance-rates-letters

Insurance and Health & Safety

Employer’s Liability Insurance

By law, you must have Employer’s Liability Insurance of at least £5 million, even if you only employ one person. This covers you in case an employee is injured or falls ill due to work.

Health and Safety Obligations

As an employer, you’re legally required to provide a safe workplace. For most small sole trader operations, this means:

  • Carrying out a basic risk assessment
  • Keeping first aid kits on-site
  • Documenting health and safety policies (if you employ 5 or more)

More guidance is available on the Health and Safety Executive (HSE) website.

When Should a Sole Trader Hire Staff?

Knowing when to hire your first employee is a big step and often a sign that your business is growing. Here are key indicators that it might be the right time:

  • You’re consistently turning down work – Demand is outpacing your availability.
  • You’re working beyond your capacity – Long hours are affecting your health or productivity.
  • Your earnings have plateaued – You’ve hit a ceiling due to time constraints or workload limits.
  • You need specific expertise – Tasks like admin, marketing, social media, or bookkeeping are better handled by a specialist.
  • You want to scale up – Hiring can help expand your business without needing to form a limited company.

Bringing in help allows you to focus on revenue-generating work and business strategy, while delegating routine or time-consuming tasks to someone else.

Tip: Start with part-time or freelance support to test what your business needs most before committing to a full-time hire.

Tax Implications of Employing Staff as a Sole Trader

  • You can deduct employee wages and employers’ NI as business expenses on your Self Assessment return.
  • Payroll software costs, training, and pensions are also allowable deductions.
  • You’ll still pay Income Tax and Class 2/4 NICs on your profits, but employing staff can help increase efficiency and overall profitability.

Common Mistakes to Avoid

Hiring staff as a sole trader comes with legal and financial responsibilities. Avoid these common pitfalls:

  • Failing to register with HMRC before the first payday – You must register as an employer in advance to stay compliant.
  • Misclassifying employees as contractors – Using the wrong employment status can lead to backdated tax and National Insurance liabilities.
  • Not providing payslips or written contracts – Both are legal requirements, even for part-time or temporary staff.
  • Missing pension auto-enrolment duties – If eligible, your staff must be enrolled in a workplace pension and receive contributions.
  • Underpaying the minimum wage – Regularly check the latest government rates to avoid costly fines.
  • Forgetting to budget for employers’ NI and holiday pay – These can significantly affect your cash flow if overlooked.

Tip: Consider using professional payroll software or working with an accountant to handle PAYE, reporting, and pension obligations correctly from day one.

Key Takeaways

  • Sole traders in the UK can legally employ staff  including full-time, part-time, or casual workers.
  • You must register with HMRC, set up PAYE, and meet workplace pension requirements.
  • Employer responsibilities include NI, minimum wage, right to work checks, and insurance.
  • Hiring staff can be a smart move for sole traders looking to grow, scale, or reduce workload pressure.

How Accounting Wise Can Help Sole Traders

At Accounting Wise, we work with UK sole traders accounts across all industries to:

  • Register as an employer and stay compliant with HMRC
  • Set up and manage payroll using cloud-based software
  • Calculate correct tax deductions, pensions, and NI
  • Advise on when and how to hire staff to support your growth

Hiring your first employee is a big step, but you don’t have to do it alone. Whether you need one-off guidance or full payroll support, we’re here to help.

Get in touch with Accounting Wise today!

At Accounting Wise, we help sole traders manage payroll, stay compliant with HMRC, and make informed decisions as they grow.

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