The easiest way to set up a business is as a sole trader and many people prefer to remain a sole trader instead of setting up a limited company. While there are many benefits to operating through a limited company, not all self-employed individuals want to switch straight away.
As their business grows, they may want to take on staff – many aren’t aware they can do this. As contractor accountants, we can help you hire employees while remaining a sole trader.
Can I Remain a Sole Trader?
This is one of the most commonly asked questions for self-employed individuals, so you’ll be pleased to know that the answer is yes. You don’t have to set up a company when you’re not ready and can continue operating as a sole trader while also hiring staff.
After all, being a sole trader means you run your business by yourself and that you’re trading under your name, that doesn’t mean you must always work alone.
It can be challenging to suddenly have to consider other people when you’re used to handle accounting for yourself only, but Gorilla Accounting is on hand to help. We’ve been sole trader accountants for a long time and can assist in your business’ growth.
We can handle admin for you, be it taking care of National Insurance contributions or advising when to pay employment taxes.
The first thing you need to know about hiring staff is that you have to collect income tax and National Insurance contributions from your employees and pay them to HMRC. This is true whether you’re a sole trader or the director of your own company and means using the PAYE payroll scheme.
You’ll have to register as an employer with HMRC when hiring staff or subcontractors. If you own a company and are its employee, then you must register as well. You also have to register before the first payday and, considering it may take up to five days to receive your employer PAYE number, it’s crucial you do it on time.
You can’t register more than two months in advance, however, so it’s something to keep in mind.
What to Consider When Hiring Staff?
There are many things to consider if you’re thinking about hiring an employee for your sole trader business. They must have the legal right to work with the UK, for a start, so make sure of this before going ahead with any other background checks.
Sometimes, you have to apply for a DBS check, which is necessary if you work with vulnerable people or in healthcare, for example. You will also need employers’ liability insurance, which will protect you against claims from employees.
If you need someone to work for you for more than one month, you need to give them a written statement of employment, more commonly known as a contract. This is mandatory, so make sure to write down all the details of the job, from conditions to perks so that everything is clear for both parties.
Another consideration you’ll need to make is salary. How much do you want to pay your employees? It’s crucial that you offer a suitable salary when you’re looking to fill a job vacancy, especially because it can help you attract the right people for your business.
This also means keeping the National Minimum Wage and National Living Wage in mind. For employees who are 25 years old or over, you have to pay them, at least, the National Living Wage, which is £8.72 for the tax year of 2020/21.
You must also enrol your employees in a pension scheme if:
They’re between 22 and 66 years old (66 is the current State Pension age, which will rise to 67 between 2026 and 2028).
They earn a minimum of £10,000 a year
They work in the UK
We’ve written a handy guide to hiring your first employee, so make sure to give it a read – or get in touch with us if you have any questions.
Setting Up a Limited Company
While you can hire staff when you’re a sole trader, it may be worth changing your operating structure to a limited company if you meet certain criteria. For example, once your business reaches a fair amount of turnover. It can be more tax-efficient to switch.
While this means paying corporate tax, you’re likely to be paying less overall. There are many intricacies to the UK tax system, but you don’t have to face it all by yourself.
Gorilla Accounting has been providing accounting for contractors for many years now and we have many experts on hand to help you. As a client, you get your own dedicated accountants as well and, if you contact us before 3pm, we guarantee a same-day reply to your urgent queries.