- A sole trader can employ staff and must operate PAYE, register as an employer with HMRC, and take on the full set of employer duties.
- A sole trader is personally liable for employment obligations because there’s no separate legal entity, which is the main reason hiring often prompts the incorporation question.
- Registering as an employer and running payroll for one person is genuinely doable yourself, but pensions, insurance and getting worker status right are where most people bring in help.
Yes, a sole trader can have employees. There’s no rule that says you must be a limited company to hire staff, and taking someone on doesn’t change your own status as a sole trader.
What it does mean is that you become an employer in HMRC’s eyes, which brings a clear set of legal duties. You’ll need to run PAYE, sort a workplace pension, take out insurance and give your employee their rights. Good sole trader accounting can carry most of that for you, but it’s worth knowing what you’re signing up for first.
The one thing to understand up front is that you, personally, carry these obligations. There’s no company sitting between you and them.
Can a sole trader employ someone? Yes, and here’s what changes
A sole trader can legally employ as many people as they want, and doing so has nothing to do with whether you incorporate. The business stays a sole trade; you simply add “employer” to your responsibilities.
The common misconception is that sole traders can’t run PAYE, or that you have to be a limited company to put someone on the books. Neither is true. HMRC lets sole traders register as employers and operate PAYE exactly like any other business.
What changes is the admin. From the moment you hire, you’re responsible for paying your employee correctly, deducting the right tax and National Insurance, and reporting it all to HMRC.
Sole trader, self-employed, employer: clearing up the terms
The confusion usually starts with the words themselves, so it’s worth pinning them down before we go further.
“Self-employed” describes how you work: for yourself, not under someone else’s employment. “Sole trader” is the legal structure of that self-employment, where you and the business are the same legal person. Neither term stops you employing other people.
“Employer” is a role you take on when you hire. You can be a self-employed sole trader and an employer at the same time. One describes your business, the other describes your relationship with the person you’ve hired.
Does being a sole trader limit how many people I can hire?
There’s no cap. A sole trader can employ one person or fifty, and the structure doesn’t force a change at any particular headcount.
In practice, though, more employees means more payroll, more pension admin and more personal exposure, which is often what nudges growing businesses to look at incorporating. That’s a commercial decision, not a legal requirement, and we’ll come back to it.
Registering as an employer with HMRC
Before your employee’s first payday, you need to register as an employer with HMRC and get a PAYE reference. You can usually do this online, and HMRC recommends registering before you first pay someone, though not more than two months in advance.
Once registered, HMRC issues your employer PAYE reference and accounts office reference. These are the numbers you’ll quote on every submission and payslip, so keep them safe. Our guide to registering as an employer and your PAYE reference walks through the mechanics.
There’s no charge from HMRC to register as an employer. It’s a free process you can complete yourself, and for a single hire it’s genuinely manageable without help.
Running payroll for your first employee
Every time you pay your employee, you have to run payroll and report it to HMRC under Real Time Information (RTI). That means submitting a Full Payment Submission on or before each payday, not at the end of the month or year.
Payroll covers three jobs each pay run:
- Calculating gross pay and deducting the right Income Tax and National Insurance through PAYE
- Producing a payslip for your employee, which is a legal right
- Reporting the figures to HMRC on or before payday and paying what’s due
You can do this with payroll software, and many sole traders with one employee do exactly that. If you’d rather not, we can run the payroll for you so the reporting and deadlines stay off your plate.
Set a recurring reminder for your PAYE payment date each month. HMRC charges penalties for late payments, and it's the easiest deadline to forget when you're busy running the business.
Employer’s National Insurance and the employment allowance
As an employer, you pay Class 1 employer’s National Insurance on top of your employee’s wages. For the 2026/27 tax year, that’s 15% on earnings above the secondary threshold of £5,000 a year, with no upper limit. Our guide to employer National Insurance breaks the calculation down.
The good news is the Employment Allowance. Eligible employers can reduce their employer’s NI bill by up to £10,500 a year, and the £100,000 eligibility cap was removed, so more small businesses now qualify.
What the employment allowance means for a first hire
For many sole traders taking on one employee, the Employment Allowance wipes out the employer’s NI bill entirely. On a single salary, 15% of earnings above £5,000 rarely comes close to £10,500.
You have to claim it; it isn’t applied automatically. You do that through your payroll software or your first Employer Payment Summary of the year. Full detail sits in our page on the employment allowance.
Workplace pensions apply to you too
Auto-enrolment catches sole traders as employers, and this is the duty people least expect. The day your first eligible employee starts is your “duties start date”, and your pension responsibilities begin there.
You must automatically enrol any employee who is aged between 22 and State Pension age and earns more than £10,000 a year into a qualifying workplace pension. The minimum total contribution is 8% of qualifying earnings (the band between £6,240 and £50,270 for 2026/27), of which at least 3% must come from you as the employer.
Employees below those thresholds can often still ask to opt in, and you may have to contribute if they do. You also have to write to your staff about their pension rights and complete a declaration of compliance with The Pensions Regulator. Skipping this isn’t an option; the Regulator can fine employers who ignore their duties.
Employer’s liability insurance
Once you employ someone, employer’s liability insurance is a legal requirement, not a nice-to-have. It covers claims from employees who are injured or made ill through their work.
The law requires at least £5 million of cover from an authorised insurer, though most policies offer £10 million as standard because the price difference is small. If you don’t hold valid cover, the Health and Safety Executive can fine you up to £2,500 for every day you’re uninsured.
There’s a narrow exemption for businesses that only employ close family members, but it’s worth checking your exact position rather than assuming it applies. For most sole traders taking on a non-family hire, the insurance is mandatory from day one.
What your employee is entitled to
Hiring someone gives them a set of employment rights from the start, and these sit in employment law rather than tax. We’ll keep this factual, because employment law advice sits outside what an accountant should give.
Your employee is entitled to:
- A written statement of employment terms on or before their first day
- At least the National Minimum Wage or National Living Wage for their age
- Paid holiday, statutory sick pay and other statutory leave where they qualify
- A workplace pension if they meet the auto-enrolment criteria
- Protection from unlawful discrimination and unfair treatment
From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour. It’s £10.85 for 18 to 20 year olds and £8.00 for 16 to 17 year olds and apprentices.
Paying below these rates is illegal regardless of your business structure. For anything beyond the factual position, such as drafting contracts or handling disputes, speak to an employment law specialist. Our payroll and people FAQs cover the common questions we get.
The liability difference: why this is where people consider incorporating
Here’s the point that matters most, and it’s the honest reason hiring often raises the incorporation question. As a sole trader, you and your business are the same legal person, so every employment obligation and claim sits with you personally.
If an employee makes a claim, or a debt to HMRC builds up, your personal assets are exposed. A limited company, by contrast, is a separate legal entity, so employment liabilities generally sit with the company rather than the owner. That separation is the substantive difference, not the tax.
This is a genuine decision point, not a nudge. Plenty of sole traders employ staff for years without incorporating. But if you’re taking on people and the personal exposure worries you, it’s a fair reason to compare structures, which our guide on sole trader versus limited company tax helps you do.
Employee or contractor?
Before you hire, it’s worth being clear on whether you actually need an employee or a contractor, because the difference decides who carries the tax and rights obligations. Getting it wrong is expensive.
An employee works under your control, on your terms, and you run PAYE for them. A genuine contractor runs their own business, invoices you, and sorts their own tax. You can’t simply label someone a contractor to avoid employer duties; HMRC looks at the reality of the arrangement.
If you take on a contractor rather than an employee, the IR35 rules may come into play depending on how the work is structured. Our pages on employee or contractor? and IR35 explained set out where the line falls.
What an employee really costs
The salary is only part of what an employee costs you. On top of gross pay, you’re looking at employer’s NI, pension contributions, insurance and the time you spend administering it all.
For a rough sense of scale, a full-time employee typically costs meaningfully more than their headline salary once these add up, though the Employment Allowance and pension thresholds soften the NI and pension figures for a first hire. We’ve broken the numbers down properly in our guide to the true cost of employing someone, so budget from the total, not the salary line.
Can you handle this yourself?
For a single employee, a lot of this is genuinely self-servable, and it would be dishonest to pretend otherwise. Registering as an employer with HMRC is free and quick, and running payroll for one person with decent software is well within reach if you’re organised.
Where it stops being simple is the combination. You’re juggling RTI deadlines, pension assessment and re-enrolment, insurance, worker-status decisions and your own self-assessment on top. Any one of those is fine alone; together they eat time you’d rather spend on the business.
The honest test is this: if payroll and pensions are a monthly source of stress, or you’re unsure whether you’re getting worker status right, that’s the point to hand it over. Until then, doing it yourself is a perfectly reasonable choice.
How Sleek helps with employing staff as a sole trader
Becoming an employer adds a stack of duties to an already busy plate: PAYE, RTI, pensions, insurance and the deadlines that come with them. You don’t have to carry all of it yourself.
Sleek’s qualified, in-house accountants can register you as an employer, run your payroll and handle the pension side, so your first payday goes smoothly and stays compliant. And where you can genuinely do something yourself for free, we’ll tell you.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on employing staff as a sole trader
Can somebody be on PAYE if I’m a sole trader?
Yes. A sole trader can operate PAYE and put employees on the payroll exactly like any other employer. You register as an employer with HMRC, get a PAYE reference, and report pay and deductions under Real Time Information. Being a sole trader doesn’t stop you running PAYE; it just makes you personally responsible for it.
Do I need to register as an employer before I hire?
Yes. You should register as an employer with HMRC before your employee’s first payday, and HMRC recommends doing it up to two months beforehand. Registration is free and gives you the PAYE and accounts office references you’ll need for every submission. You can’t legally run payroll without being registered first.
Am I personally liable for my employees as a sole trader?
Yes. Because a sole trader and the business are one legal person, employment obligations and claims sit with you personally, and your own assets are exposed. A limited company separates the two, which is why the liability point is the strongest reason sole traders consider incorporating when they take on staff.
Should I become a limited company before hiring?
No, you don’t need to. A sole trader can employ people without incorporating, and many do for years. Incorporation can make sense for the liability protection and, sometimes, the tax position, but it’s a separate decision from hiring. Weigh it on the facts rather than assuming a first employee forces the change.
Can I pay someone as a contractor instead?
Sometimes, but only if the arrangement is genuinely one of self-employment. HMRC looks at the reality of the working relationship, not the label, so you can’t call someone a contractor purely to dodge employer duties. Get it wrong and you can owe back tax, National Insurance and penalties. Check worker status carefully before you decide.
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What insurance do I need to employ someone?
Employer’s liability insurance, and it’s a legal requirement once you have staff. You need at least £5 million of cover from an authorised insurer, and the Health and Safety Executive can fine you up to £2,500 for each day you’re uninsured. A narrow exemption exists for businesses employing only close family, but confirm it applies before relying on it.
Can I run payroll for one employee myself?
Yes. Payroll for a single employee is manageable with payroll software, and plenty of sole traders do it themselves. You’ll handle RTI submissions on or before each payday, produce payslips and pay HMRC on time. It becomes harder once pensions, insurance and worker-status questions stack up, which is the point many people hand it over.
