Can Sole Traders Have Employees? [Rules Explained]

You might think being a sole trader means you have to do everything yourself. After all, the word ‘sole’ suggests you’re flying solo, right?

But then again, your workload says otherwise.

Maybe your client list is growing faster than you can handle, or you’re spending more time on admin than the work you love.

It’s a good problem to have, but it can leave you stuck between excitement and confusion: ‘Can sole traders have employees?’

Read on to see what you need to set up as an employer if you want to have an extra pair of hands.

What does sole trader mean, and does it prevent hiring?

As a sole trader in the UK, there is no legal separation between you and your business. Whatever your business owns, owes, or earns is legally yours, and vice versa.

You don’t register at Companies House. Instead, you register as self-employed with HMRC and report your profits via Self Assessment.

Because of this structure, you tend to enjoy simplicity: fewer formalities and lower ongoing corporate compliance, compared to a limited company.

This simplicity is one of the reasons the sole trader structure remains very popular. For many, it's an ideal way to start or test a business without heavy administrative overhead.

Debunking the myth: 'Sole' means 'You must work alone'

A very common misunderstanding is that 'sole trader' implies you must carry out all the work yourself. In other words, some people assume hiring staff is off-limits under this structure.

But in practice, 'sole trader' refers only to the ownership and structure of the business, not to how many people can work for it.

In fact, many sole traders eventually bring in help precisely because of workload, client demand, or growth.

Under what circumstances can sole traders have employees?

Despite the name, being a sole trader doesn’t legally bar you from hiring employees.

As long as you comply with all employer obligations, such as tax, payroll, contracts, insurance, etc., you can hire as many employees as your finances and capacity allow.

There is also no statutory cap on how many employees a sole trader may have.

However, while you can hire others, you can’t be an employee of your own business in the sole trader structure.

In other words, you can’t pay yourself a salary as though you were an employee, but you derive income via business profits.

Let’s check your employer obligations in more detail.

1. Employer legal obligations

Before you can officially pay your first employee, you’ll need to get a few things sorted with HMRC.

Step 1: Register as a sole trader (if you haven’t already)

Head to the HMRC website and create a Government Gateway account (if you don’t have one yet).

Then, register for Self Assessment as a sole trader.

You’ll need to provide details, such as your National Insurance number, business name and address, when you started trading, and what kind of work you do.

Within about 10 days, HMRC will send you a Unique Taxpayer Reference (UTR) by post.

They’ll also send an activation code separately, which you’ll use to activate your online account. Once that’s done, you’ll be able to submit tax returns online.

✨Good to know:

From April 2026, HRMC will require digital record-keeping and quarterly updates from the self-employed earning over £50,000.

Here at ANNA, we can automatically calculate your self-employment income using transactions from your ANNA business account.

We’re fully integrated with HMRCS’s systems, so your return is submitted safely and reliably.

Step 2. Register as an employer with HMRC

Next, it’s time to register as an employer. This is what officially allows you to hire and pay staff.

You’ll need to do this before your first employee’s payday.

Log into your Government Gateway account and use the ‘Register as an Employer’ option.

HMRC will ask for details such as:

• Your business type (sole trader)
• How many people you plan to employ
• The start date for PAYE
• Your expected first payday
• Your National Insurance number.

Once that’s done:

• HMRC will send you two letters: one with your PAYE reference and Accounts Office reference (usually within five working days), and another with an activation code for PAYE Online (within about 10 days).
• Use that activation code to enrol for PAYE Online, which lets you run payroll and submit PAYE reports electronically.

If you prefer not to register online, you can also call HMRC or complete the CWF1 form: they’ll process it and send you everything you need by post.

📢 If you aren’t starting self-employment within 28 days, you can’t register yet.

2. What rights do you need to give your employees as a tole Trader?

Once you take on staff as a sole trader, that comes with a few legal responsibilities.

Here’s what you need to know.

Pay the right wage

You must pay your employees at least the National Minimum Wage or National Living Wage, depending on their age and employment status.

The rates are updated every April, so make sure you’re using the latest figures.

2. Give them written terms

If someone’s working for you for more than a month, they’re entitled to a written statement of employment particulars.

This is basically the employment contract. It should set out things like pay, hours, holidays, and notice periods.

3. Keep the workplace safe and fair

You’re responsible for making sure your workplace is safe and free from discrimination. That means following health and safety rules and treating everyone fairly, regardless of age, gender, race, disability, or any other protected characteristic.

4. Check they can legally work in the UK

Before anyone starts, you need to carry out right-to-work checks: checking passports or visas to confirm they’re legally allowed to work in the UK.

5. Give paid holidays

Every employee is entitled to at least 28 days of paid holiday a year, which includes bank holidays.

If someone works part-time, their entitlement is prorated based on how many days or hours they work.

6. Offer statutory sick pay

If an employee has been with you for at least 26 weeks and meets the eligibility criteria, you must pay Statutory Sick Pay (SSP) when they’re off work due to illness.

7. Support family leave

Employees who are expecting a child, adopting, or sharing parental responsibilities are entitled to maternity, paternity, adoption, or shared parental leave and pay.

Make sure you’re familiar with the eligibility rules and pay rates.

8. Provide payslips

Every payday, give your employees a payslip showing their gross pay, deductions (tax and National Insurance), and take-home amount.

✨ Here at ANNA, we can help you automatically create payslips and file them directly to HMRC in just a few clicks.

9. Run PAYE correctly

You’ll need to operate PAYE (Pay As You Earn): The system for deducting Income Tax and National Insurance contributions from your employees’ wages and sending them to HMRC.

✨With ANNA, deductions like tax and National Insurance Contributions are calculated automatically, and you get a reminder of when you have to file your payroll.

10. Keep good records

Stay organised by keeping accurate employment records, including payroll details, working hours, holiday taken, and sick leave.

Did you know that ANNA’s Bookkeeping Score tool tells you how tidy your books really are and gives you quick, simple tasks, such as checking your expenses are in the right category.

As a result, your business can save money on taxes. The higher your score, the more cash you could keep in your pocket! 😎

11. Get employers’ liability insurance

Finally, you must have Employers’ Liability Insurance (with at least £5 million of cover). This protects you if an employee becomes ill or is injured because of their work.

3. What payroll obligations you must follow as a sole trader who hires

Besides registering as an employer with HMRC before the first payday to operate Pay As You Earn (PAYE) payroll, you’ll also need to:

1. Set up payroll: You’ll need a system to calculate wages correctly. You can use HMRC’s Basic PAYE Tools if your business is small, or accounting software, such as ANNA, which handles invoicing and expenses, and does your taxes, from a single account.

2. Deduct tax and National Insurance: You’re responsible for taking Income Tax and National Insurance contributions (NICs) from your employees’ wages. NICs start once earnings go over £242 per week, and rates vary: employees pay 12% or 2% depending on their earnings, and employers pay 13.8% on earnings over £175 per week.

3. Provide payslips: Every payday, give your employees a payslip that shows their gross pay, tax and NIC deductions, net pay, and any other deductions like student loans

4. Report to HMRC: Every payday, you need to send payroll information to HMRC through a Full Payment Submission (FPS) using your payroll software.

Pay HMRC: The tax and NICs you collect must be paid to HMRC either monthly or quarterly, by the 22nd of the following month.

5. Keep records, including pay, deductions, leave, and sickness records for at least three years.

Even as a sole trader, you’re expected to follow the same payroll and employment rules as limited companies.

That means accurate tax withholding, on-time reporting, respecting employee rights, and managing pensions properly.

✨ Our Payroll solution includes pension contributions for employees, while you get automated pension contribution calculations.

Can sole traders have employees checklist: Key employment rights & obligations for sole traders

✅ Before you hire:

Ensure you’re registered as a sole trader and have your UTR ready.

Set up a Government Gateway account and register as an employer with HMRC.

Plan your payroll start date and decide whether you’ll hire full-time, part-time, or use contractors.

✅ Payroll & pay:

• Pay at least the National Minimum or Living Wage:
• Operate PAYE correctly: Deduct Income Tax and National Insurance Contributions (15% employer NIC rate above £5,000 threshold).
• Provide payslips detailing gross pay, deductions, and net pay.
• Consider Employment Allowance: up to £10,500 relief on employer NIC.

✅ Employee rights & leave:

• Provide written terms of employment for jobs lasting more than one month.
• Offer paid holiday: minimum 28 days/year (pro-rated for part-time).
• Pay Statutory Sick Pay: £118.75/week (for eligible employees).
• Provide maternity, paternity, adoption, and shared parental leave/pay: £187.18/week or 90% of average weekly earnings.
• Ensure compliance with working time regulations (maximum hours, rest breaks).
• Respect trade union rights and protect staff from unfair treatment.

✅ Legal compliance & safety:

• Confirm all employees have the legal right to work in the UK.
• Maintain a safe, discrimination-free workplace — follow health & safety rules.
• Keep accurate employment records: payroll, leave, sick pay, and contracts.
• Enrol eligible employees into a workplace pension scheme and make contributions.
• Hold Employers’ Liability Insurance (minimum £5 million).

✅ Ongoing tasks:

• Update payroll for changes in wages, hours, or employment status.
• Monitor legislation updates, such as wage rates, NIC, statutory pay, and others.
• Review policies and contracts annually to ensure compliance.

How can you quickly and compliantly start hiring as a sole trader with ANNA?

ANNA is an all-in-one business account for money, invoicing, accounting, expenses, bookkeeping, and taxes that helps you efficiently run your business regardless of whether you are a sole trader or a limited company.

Here’s a glimpse of how we can help:

✨ Open a business account in under 10 minutes and get a single place for all invoices, taxes, business documents, and more.

✨ With our HMRC-recognised software, you can easily keep digital records and submit returns.

✨ Get automated VAT returns: We calculate your VAT Return based on your business activity. You just need to review and click to submit directly to HMRC.

✨ File your Income Tax Self Assessment that we calculate based on your transactions, while you can easily add dividends, capital gains, and pension contributions.

✨ Stay ahead of every tax deadline with automated reminders and built-in filing.

✨ Get your own personalised payment page with a link and QR code to simplify payment.

✨ Create pots to set aside money for taxes, future plans, or unexpected costs.

Join ANNA today to keep your payroll and employee admin simple and compliant.