Can a sole trader employ staff in the UK?

Understanding the question: sole trader and employing staff

A lot of people assume that becoming a sole trader means working alone forever. The name sounds like it: “sole” suggests one person, and “trader” suggests a single individual doing business. In practice, that’s not how it works. In the UK, a sole trader can absolutely employ staff. You can hire employees, pay them through PAYE, and run a team while still remaining a sole trader. The key point is that “sole trader” describes the legal structure of the business (you as an individual carrying on a trade), not the number of people who work in it.

That said, employing staff changes your responsibilities significantly. You become an employer, with legal duties to HMRC, to your employees, and to various regulatory bodies depending on your sector. You also take on practical commitments: payroll, contracts, insurance, workplace policies, and making sure you’re paying and treating people lawfully. So the short answer is “yes,” but the better answer is “yes, and here’s what you need to do to get it right.”

What it means to be a sole trader in the UK

A sole trader is a self-employed individual who owns and runs their business as the same legal person. There’s no separate legal entity like a limited company. You keep business profits after tax, you declare income and expenses through Self Assessment, and you have more direct control and generally fewer formation formalities than a company.

The “same legal person” point is important. It means you personally sign contracts, you personally owe debts, and you personally have liability for most things connected to the business. That does not prevent you hiring staff; it simply means the employment relationship is between you (as an individual trading under a business name) and the employee.

Many UK businesses start as sole traders because it’s simple: you can begin trading quickly, test a market, and keep administration relatively light. As demand grows, the next step is often to bring in help. Sometimes that’s informal, like a freelancer. Other times it becomes a formal employment relationship with regular hours, ongoing work, and employer control. If you decide you need employees, the structure can remain the same: you can still trade as a sole trader and be an employer at the same time.

Employees, workers, and self-employed contractors: knowing what you’re hiring

Before you hire anyone, you need to understand the difference between an employee, a worker, and a self-employed contractor. These labels are not just paperwork. The reality of the working arrangement matters, and misclassifying someone can lead to tax issues and employment claims.

An employee typically has an employment contract, works regularly, is expected to do the work personally, is under a higher degree of control by the employer, and receives employment rights such as unfair dismissal protection (after qualifying service), redundancy rights, and statutory leave.

A worker is a broader category. Workers generally have rights like the National Minimum Wage, paid holiday, and protection from unlawful deductions, but not the full set of employee rights. Many casual staff and some gig-style roles fall here depending on facts.

A self-employed contractor runs their own business, usually invoices you, can sometimes send a substitute, has more control over how and when they work, and bears more financial risk. Contractors don’t get employment rights like paid holiday or redundancy from you, though they may have protections in other areas and their status can be challenged if the arrangement is employee-like.

If you want someone to work set hours, under your direction, doing tasks that are central to your business, and you want continuity, that often points to employment. If you want a specialist for a defined project with their own tools and processes, that often points to contracting. Getting this right is the foundation for everything that follows: payroll, tax, and legal duties depend on status.

Yes, a sole trader can employ staff: the legal reality

There is no rule in UK law that says sole traders must work alone. A sole trader can hire one person or many people. You can have part-time staff, full-time staff, seasonal staff, apprentices, and casual staff. You can also hire family members, provided the arrangement is genuine, paid appropriately, and documented properly.

When you employ someone, you take on the same core employer responsibilities that any employer takes on, whether they are a sole trader, a partnership, or a limited company. The difference is mostly about how the business is structured and how liabilities fall. For a sole trader, liabilities and obligations attach directly to you. That makes compliance and insurance particularly important because problems do not stop at the business boundary; they can become personal.

Registering as an employer: PAYE and HMRC basics

If you pay employees, you will usually need to run a PAYE (Pay As You Earn) scheme. PAYE is the system through which Income Tax and National Insurance contributions are deducted from employees’ pay and paid to HMRC. As an employer, you may also need to pay employer National Insurance contributions depending on earnings levels and allowances.

Registering as an employer is a practical step, not a complicated legal transformation. You remain a sole trader, but you become an employer in HMRC’s eyes. Once registered, you’ll have employer references and you’ll submit payroll information to HMRC. Most employers use payroll software or a payroll bureau because payroll involves regular reporting and correct calculation of deductions.

Even if you only hire one part-time person, you may still need to operate PAYE if they earn above certain thresholds or have another job or pension that affects how they should be taxed. In some limited cases, you might not need to register if the pay is below certain thresholds and the person has no other job, but you must be confident and careful. Many sole traders prefer to register and run payroll correctly from day one to avoid mistakes.

As a rule of thumb, if you plan to pay someone regularly, you should assume you will need PAYE and confirm the details early. Doing it properly at the start saves stress later.

Right to work checks: what employers must do

In the UK, employers must check that employees have the legal right to work. This applies whether you are a sole trader or a large company. You need to carry out appropriate checks before employment begins and keep records of those checks. The process can involve examining original documents or using an online checking service depending on the individual’s status and documentation.

Right to work compliance is not just a formality. If you employ someone who does not have the right to work, you can face serious penalties. The good news is that the process is straightforward when done correctly: verify identity and work permission, keep copies, and follow the correct procedure for the person’s situation.

If you are hiring quickly, build right to work checks into your recruitment checklist. It’s easier than trying to retrofit compliance after someone has already started.

Employment contracts and written statements: what you need to provide

When you hire staff, you should put the terms in writing. In the UK, employees and workers are entitled to a written statement of employment particulars. This document sets out key information such as job title, pay, hours, place of work, holiday entitlement, and notice periods. It helps both sides understand what’s expected and it reduces the chance of misunderstandings turning into disputes.

A good contract (or written statement) is also a management tool. It clarifies working hours, overtime rules, probation periods, confidentiality, and what happens if the employee leaves. It can cover policies by reference, such as a disciplinary procedure or a sick pay policy. If you’re small and informal, it may feel tempting to skip paperwork. But employment disputes often arise from confusion rather than malice, and clear written terms are your best protection.

You do not have to create a 40-page document to be compliant. Many small businesses do fine with a clear, concise contract and a small handbook or set of policies. The point is clarity and legal minimums.

Pay rules: National Minimum Wage, payslips, and lawful deductions

Employing staff means you must pay at least the National Minimum Wage (or National Living Wage where applicable), and you must pay people correctly for the hours they work. This includes making sure you treat training time, travel time in certain contexts, and commission structures appropriately. Underpaying can happen accidentally if you miscalculate hours or deduct costs in a way that reduces pay below the legal minimum.

You also need to provide itemised payslips. Payslips show gross pay, deductions, and net pay, and they help employees understand what they received and why. If your payroll is outsourced, payslips are normally handled by the payroll provider, but you still remain responsible for making sure your processes are correct.

Be careful with deductions. Deductions from wages must usually be lawful and agreed. For example, deductions for cash shortages, uniforms, or damage need to be handled carefully and typically require clear agreement in the contract. Even then, there are limits and rules designed to protect employees from unfair deductions. The safest approach is to avoid informal deductions and instead handle issues through a clear process.

Working time, breaks, and holiday entitlement

UK working time rules cover maximum weekly working hours (unless opted out), rest breaks, daily and weekly rest, and paid annual leave. Even a small sole trader employer must comply. The practical implications can be surprisingly significant. For instance, if you hire someone part-time, they still accrue paid holiday, and it must be calculated accurately based on their working pattern.

Holiday can be a common area of confusion. Employees may ask to take leave at busy times, or you may need to manage requests fairly. Having a written holiday policy helps: it can state how to request leave, how much notice is required, whether you have “shutdown” periods, and how holiday is carried over.

If your business has irregular hours or seasonal peaks, you may need a system for recording hours and leave. This doesn’t have to be fancy; even a simple spreadsheet can work, provided it is accurate and consistently maintained.

Auto-enrolment pensions: your duties as a small employer

Employers in the UK have duties relating to workplace pensions, including auto-enrolment, depending on employees’ age and earnings. Even small employers must assess staff and take action where required. In some cases, you may need to enrol employees into a pension scheme and make contributions. In other cases, employees might have the right to opt in or join a scheme, and you must handle that correctly.

Pension compliance can feel daunting at first, but many payroll providers can help, and there are pension providers designed for small employers. The key is not to ignore it. You need to understand your staging and ongoing responsibilities, keep records, and ensure contributions are paid on time when applicable.

Even if you have only one employee, you must still assess them and comply with your duties as an employer.

Employer’s liability insurance: usually mandatory

If you employ staff, you will generally need employer’s liability insurance. This insurance helps cover claims if an employee is injured or becomes ill as a result of working for you. In many circumstances it is a legal requirement, and failing to have it can lead to penalties.

For a sole trader, employer’s liability insurance is particularly important because you do not have the separation that a limited company provides. If a serious incident leads to a claim, you want the right coverage in place. Many business insurance packages combine public liability with employer’s liability, but you should confirm what you actually have and what activities are covered.

Some family employment situations may have exemptions, but you should treat exemptions cautiously and make sure you understand the rules before relying on them. The safe approach is to assume you need cover when you employ someone, and arrange it before they start work.

Health and safety: proportionate, but not optional

Health and safety obligations apply to all employers, including sole traders with one employee. The law expects you to assess risks and manage them sensibly. What that looks like depends on your business. A sole trader running an office-based consultancy will have different risks compared to a sole trader running a bakery, a construction trade, or a care service.

In practical terms, you should carry out a risk assessment, put in place appropriate controls, provide training where needed, and make sure your workplace (or work site) is safe. If staff use equipment, you need to ensure it’s suitable and maintained. If staff handle hazardous substances, you need to manage those risks properly. If staff work alone or travel, you need to consider those risks too.

Health and safety is not just about avoiding enforcement. It is also about building a reliable operation. Staff who feel safe and supported are more likely to work well, and fewer incidents means fewer disruptions to your business.

Data protection and privacy: handling employee information properly

When you employ staff, you will handle personal data: addresses, bank details, National Insurance numbers, emergency contacts, sickness records, and sometimes more sensitive information. You need to handle this data responsibly, keep it secure, and only use it for legitimate purposes.

You should think about how you store employee records (paper, digital, or both), who has access, how long you keep records, and what you do when someone leaves. Even small businesses benefit from a simple privacy notice for employees that explains what data you collect and why.

If you use cloud systems for payroll or HR, you should understand what data those providers process and ensure you’re using reputable services with appropriate security measures.

Recruitment: avoiding discrimination and making fair decisions

Recruitment is more than picking the person you like most. UK equality law protects people from discrimination in hiring. That means you should avoid decisions based on protected characteristics and keep your recruitment criteria relevant to the job.

As a sole trader, you may be hiring in a hurry, perhaps from your local network or through recommendations. That’s normal, but you should still keep the process fair. Write down what you need: skills, experience, availability, and attitude. Ask consistent questions. Document decisions in a simple way. If you ever need to justify your hiring choices, a small paper trail can be extremely helpful.

Also consider whether you need references or background checks. For some roles, such as those involving work with vulnerable people or handling significant financial responsibilities, extra checks may be appropriate. In other roles, simple references may suffice.

Payroll options: DIY software vs outsourcing

Many sole traders choose one of two routes: run payroll themselves using payroll software, or outsource payroll to an accountant or payroll bureau. Both can work well. The best choice depends on how confident you are with administration, how many staff you have, and how much time you want to spend on payroll.

If you use software, you’ll need to set up employee details, calculate pay, submit reports, and keep records. Software can make this quite manageable, especially for a small number of employees, but you still need to understand what you’re doing so you can spot errors.

Outsourcing can reduce stress and help you stay compliant, but you still need to supply accurate information (hours, overtime, sick days) on time. Outsourcing is not “set and forget.” You remain responsible as the employer, even if someone else runs the numbers.

A sensible approach for many sole traders is to outsource in the early stage, then consider bringing payroll in-house later if it becomes economical. Others do the opposite: start in-house with one employee, then outsource as the team grows.

Sick pay, maternity, and other statutory payments

When you have employees, you may need to handle statutory payments. This can include statutory sick pay (where eligibility criteria are met), and statutory parental payments such as maternity, paternity, adoption, or shared parental pay. Eligibility and administration can be technical, and rules change over time.

The practical takeaway is that you should have a basic policy for sickness and absence, record absences accurately, and use payroll systems that can handle statutory calculations. For parental leave and pay, you should have a process for receiving notices, confirming entitlements, and planning staffing around absences.

These situations can be stressful for a small business because one person’s absence can have a big operational impact. Planning and communication matter. Being supportive and organised is not only the lawful approach, it also helps retain staff and protect your reputation.

Managing performance and conduct: simple processes that protect you

Hiring staff is exciting, but it can also bring management challenges. When things go well, you get time back and your business grows. When things go badly, you can feel stuck, especially if you’ve never managed people before.

Having basic processes helps. Start with a probation period and clear expectations. Provide training and check-ins early. Keep notes of key conversations. If there is a problem with performance or conduct, address it promptly and fairly. Avoid “silent frustration” where issues build until you react emotionally. A calm, documented approach is best for everyone.

Even very small employers should have a basic disciplinary and grievance process. This doesn’t need to be complex. The idea is to have a fair way to handle issues and complaints. If you ever face a dispute, following a fair process can make a major difference to outcomes.

Costs of employing staff: what to budget for beyond wages

Many sole traders focus on the wage cost and forget the additional costs of employment. To avoid cash flow problems, it helps to build a fuller budget.

Costs can include employer National Insurance contributions, pension contributions (where applicable), employer’s liability insurance, payroll costs, recruitment costs, training time, equipment and uniforms, and paid holiday. You may also face costs for sickness absence, especially if you need to hire temporary cover or work overtime yourself.

Employment can still be an excellent investment, but you want to hire with your eyes open. A good rule is to estimate the “true cost” of an employee as higher than the wage alone. The exact figure varies, but planning for extra overhead can prevent unpleasant surprises.

When hiring staff might push you to consider incorporating

You do not need to become a limited company to employ staff. Plenty of sole traders employ people and stay as they are. However, hiring staff is often a moment when people start thinking about whether a limited company structure would suit them better.

The main reason is liability. As a sole trader, you are personally liable for business debts and many claims. Employing staff can increase exposure to risk: workplace accidents, employment disputes, and operational commitments. Some business owners prefer the limited company structure because it can provide limited liability (though not absolute protection in every scenario) and can sometimes feel more credible with larger clients or contracts.

Tax can also be a factor. Depending on profits and personal circumstances, a limited company can be more tax-efficient for some people. But it can also bring more administrative requirements and costs. The right decision depends on your business size, profit levels, risk profile, and preferences.

It’s perfectly sensible to start employing staff as a sole trader and only incorporate later if and when it makes sense. The important thing is to understand that employing staff does not force you to change structure. It’s a separate decision.

Hiring family members: what’s allowed and what to watch out for

Sole traders sometimes want to employ a spouse, partner, or other family members to help with the business. This can be legitimate and practical. If the family member does real work and is paid a reasonable wage for that work, there is nothing inherently wrong with employing them.

Where people get into trouble is when the arrangement is not genuine or not properly documented. Paying a family member for work they do not do, or paying an unreasonable amount for minimal work, can raise red flags. You should treat the arrangement like any other employment: clear job role, documented hours, proper payroll, and payment into their bank account.

Also consider the human side. Mixing family relationships with employment can create complications around boundaries, performance management, and expectations. Clear communication matters even more in a family arrangement, not less.

Taking on apprentices, interns, or casual help

Employment is not always a straightforward full-time hire. You might consider an apprentice to train someone up, a casual worker to cover busy periods, or a short-term intern to help with a project.

These options can be helpful, but they still come with obligations. Apprentices have specific rules and training requirements. Interns may be entitled to pay depending on the nature of the role. Casual workers still have rights, including holiday pay. Make sure you understand what you are offering and what it implies legally.

If flexibility is important to you, consider whether you want to hire on a part-time or fixed-term basis, or whether a genuine self-employed contractor arrangement is more suitable. The right approach depends on the work, the level of control you need, and how ongoing the need is.

Record keeping: what you should keep and why it matters

Good record keeping is one of the simplest ways to stay out of trouble as an employer. Records support payroll accuracy, help you respond to HMRC questions, and provide evidence if there is a dispute.

Key records can include employment contracts, right to work checks, payroll reports, timesheets, holiday records, sickness records, pension communications, and notes of significant performance or disciplinary conversations. You also need to store data securely and only keep it as long as necessary for business and legal reasons.

You don’t need an elaborate HR system for one or two employees, but you do need a consistent method. A well-organised folder structure (digital and/or paper) and a simple routine can go a long way.

Common mistakes sole traders make when employing staff

Many mistakes come from trying to keep things “friendly” and informal. While a positive culture is great, employment still needs structure.

One common mistake is not registering properly for PAYE or not running payroll correctly. Another is misclassifying someone as self-employed when they are effectively an employee. Some sole traders forget to arrange employer’s liability insurance before the start date. Others fail to provide clear written terms, which can lead to disagreements about hours, overtime, and holiday.

Holiday pay and working hours are frequent pain points. If you don’t track hours and leave, it becomes hard to calculate entitlements and settle issues fairly. Finally, some sole traders delay addressing performance issues because they feel uncomfortable managing people. The result can be bigger problems later. Small, timely conversations are usually easier and kinder than letting issues drift.

A practical step-by-step checklist for employing your first staff member

If you’re a sole trader and you’re ready to hire, the process is manageable when broken into steps. Here is a practical sequence that works for many small businesses.

1) Define the role. List the tasks, hours, pay range, and skills needed. Decide if you need an employee, worker, or contractor.

2) Budget properly. Include wage, employer National Insurance, pensions where applicable, insurance, equipment, and payroll/admin costs.

3) Recruit fairly. Advertise or source candidates, interview consistently, and document your decision-making.

4) Do right to work checks. Complete checks before employment begins and keep records.

5) Set up payroll. Register as an employer where needed, choose payroll software or a payroll provider, and collect starter information.

6) Prepare the written terms. Issue a contract or written statement with key particulars and reference your policies.

7) Arrange employer’s liability insurance. Ensure it is in place before the employee starts and that it covers your business activities.

8) Plan onboarding and training. Prepare a simple induction: duties, workplace rules, health and safety, and expectations.

9) Track time and leave. Use a consistent method to record hours, overtime, and holidays.

10) Review regularly. Hold check-ins during probation, clarify goals, and address issues early.

Do you need an accountant or HR support as a sole trader employer?

You are not legally required to have an accountant or HR consultant, but many sole traders find that professional support pays for itself. Payroll and employment law have details that are easy to misunderstand, and the cost of fixing errors can be higher than the cost of getting set up properly.

Some people use an accountant for payroll and tax compliance, and rely on templates for contracts. Others use an HR consultant to set up contracts and basic policies, then manage day-to-day issues themselves. Some use both. Your choice depends on confidence and risk tolerance.

Even if you plan to do most things yourself, it can be helpful to get a professional to review your first contract, your payroll setup, and your insurance. Once the foundations are correct, ongoing administration becomes much easier.

What if you only need help occasionally?

If you only need help occasionally, you might not need to employ someone at all. Many sole traders use freelancers, subcontractors, or agencies for ad-hoc work. This can be useful for specialist tasks (like design, bookkeeping, or marketing) or for covering peaks in demand.

However, be careful: if the person works regularly for you, under your control, and looks like part of your business, they may be treated as an employee or worker in practice even if you call them a contractor. The safer route is to structure the relationship properly and seek advice if you’re unsure.

If you want flexibility but also want commitment, a part-time contract or a zero-hours style arrangement (where appropriate and used fairly) might be better than trying to fit an employment-shaped relationship into a contractor label.

Final thoughts: employing staff as a sole trader is normal and achievable

In the UK, a sole trader can employ staff, and many do. There is nothing contradictory about being a sole trader and having a team. The structure describes who owns the business, not whether you can hire employees.

The real question is whether you’re prepared for the responsibilities that come with being an employer. If you put the right building blocks in place—PAYE, written terms, insurance, basic policies, and good record keeping—employing staff can be one of the best steps you take. It can free you up to focus on higher-value work, improve service quality, and help your business grow beyond what one person can do alone.

Approach hiring with a practical plan, treat people fairly, and keep compliance as part of your routine rather than a last-minute panic. With that mindset, employing staff as a sole trader becomes not only possible, but a straightforward and positive part of building a sustainable business.