A sole trader is a person who owns a business exclusively. This business structure holds a variety of positives and negatives. For example, working as a sole trader means that you are entitled to keep all the profits of the business after tax but are also personally responsible for any losses.
If you’re considering setting up as a sole trader, you might be wondering whether or not you can hire employees. In this blog, we explore the issue of hiring staff as a sole trader, what sorts of insurance you might need, and other important legal and financial topics, including whether you can operate a sole trader and be employed at the same time.
Can a sole trader employ staff?
While sole traders often work alone, it’s possible to hire employees under this business structure. As you’ll need to make money available from your own income to pay for a second wage, it’s important to assess whether or not you can afford to pay employees.
Any employees at the school leaving age should be paid at least the National Minimum Wage, with any employees aged 25 or over being paid at least the National Living Wage. There are different minimum wages for workers between the ages of 18-20 and 21-24, as well as for apprentices, so it’s important to check that you’re offering a suitable wage before advertising a vacancy.
As well as making sure you provide appropriate levels of pay, there are a variety of other legal issues that you need to be aware of. For example, if the job lasts longer than a month, you will need to give the new employee a written statement of employment. You’ll need to alert HMRC too, and you can do this up to four weeks prior to taking on your new employee. You’ll be unable to pay your employee until HMRC has been notified.
Employees aged between 16 and 74 who are earning between £6,136 and £10,000 a year have a right to apply for a pension scheme, and employees aged over 22 who earn more than £10,000 a year will automatically be enrolled into a pension scheme. You as the employer will have to pay a minimum of one per cent of your employee’s qualifying earnings into a pension fund.
Can I register as a sole trader and be employed?
Earning two incomes is something that many people do in order to increase the amount of money they make each month. This is allowed as long as you have registered as self-employed with HMRC.
Notifying HMRC about your additional employment aside from your sole trader business isn’t required as they will know of your regular employment once you have been enrolled by your employer. However, that’s not to say there aren’t any tax implications from holding two jobs at once. When working as a sole trader, you will need to fill in an annual tax return, and if you’re holding regular employment alongside your sole trader business, your income from both jobs must be included.
If you’re both employed and self-employed at the same time, your National Insurance contributions will be affected. Being employed means that you will make Class 1 Employee’s National Insurance contributions, while if you make more than £6,365 in a year, you will instead make Class 2 National Insurance contributions and if you make more than £8,632 in a year, you will have to pay Class 4 National Insurance contributions. It could also be the case that you’ll get a second tax code, but this usually only applies to people who own a limited company.
Do I need public liability insurance as a sole trader?
Public liability insurance is often used by businesses as it covers the legal costs and compensation payments if members of the public – customers, suppliers or simply a passerby – sue because of injury or damage to their property. Operating as a sole trader without this type of cover could mean incurring significant costs that you may struggle to pay.
Having public liability insurance is not a legal requirement for businesses including sole traders, but if you interact with the general public, it is highly recommended. It’s also important to note that you may be required to have this type of financial protection under the terms of certain contracts. For example, it is common for local authorities and large corporations to require the freelancers and professionals they use to have public liability insurance in place.
What insurance do I need for my business?
As well as public liability insurance, there are various other forms of financial protection that may be important for sole traders. These include:
Employers’ liability cover:
This cover is a legal requirement as soon as you take on employees. It protects your business from employee claims of illness or injury caused by working conditions, and it is a legal requirement for all employers to have this cover regardless of industry.
Professional indemnity insurance:
Covering your business in the event of claims of poor professional advice, mistakes or negligence, professional indemnity insurance is a common option for consultancy companies, as a lot of the advice they give can be crucial in assisting other companies’ or individuals’ important decisions.
Cyber liability insurance:
For security around private employee information, client details, business administration, online finances and website protection, cyber liability insurance can be useful for any business that handles sensitive data that could be compromised by cyber crime.