Can a Sole Trader Employ Staff in the UK? 2026/27 Rules

Yes. A sole trader can legally employ staff in the UK.

Being self-employed does not mean you have to run the business alone. A sole trader can hire full-time employees, part-time workers, apprentices and other staff as the business grows. Government guidance specifically confirms that sole traders can employ people.

However, the moment you become an employer, additional responsibilities arise.

You may need to register for PAYE, operate payroll, deduct Income Tax and National Insurance, pay employer National Insurance, provide workplace pensions, check the employee’s right to work, comply with minimum wage rules and meet employment-law obligations.

The business can remain a sole trader business. You do not need to form a limited company simply because you want to hire your first employee.

This guide explains how employing staff works for sole traders in 2026/27.

Table of Contents

Can a Sole Trader Employ Someone?

Yes. A sole trader can employ one person or multiple employees while continuing to operate as a sole trader.

You remain self-employed as the business owner, while the people you hire can be employees or workers depending on their working arrangements.

The important distinction is that a sole trader does not become a company by hiring staff.

You remain personally responsible for the business and its obligations because a sole trader business does not have a separate legal identity from its owner. GOV.UK describes this as unlimited liability.

That means employment costs and liabilities ultimately sit with you as the business owner.

Do You Need to Become a Limited Company Before Employing Staff?

No.

You can employ staff without setting up a limited company.

For example, a sole trader plumber could employ:

An apprentice plumber.
An administrator.
A bookkeeper.
A qualified tradesperson.
A part-time assistant.

The business could still trade as a sole trader.

A limited company may become worth considering later because of liability, tax planning, investment or growth requirements, but hiring an employee alone does not require incorporation.

What Changes When a Sole Trader Becomes an Employer?

Your Self Assessment obligations continue, but you also take on employer responsibilities.

These can include:

Checking whether the individual is genuinely an employee, worker or self-employed contractor.
Checking their right to work in the UK.
Agreeing pay that meets National Minimum Wage requirements.
Registering with HMRC as an employer where required.
Setting up payroll.
Deducting PAYE Income Tax and employee National Insurance.
Paying employer National Insurance.
Reporting payroll information to HMRC.
Considering workplace pension automatic enrolment.
Providing employment terms and statutory rights.
Obtaining Employers’ Liability insurance where required.
Managing health and safety responsibilities.

Hiring one employee therefore creates more administration than simply paying someone from the business bank account.

Do Sole Traders Have to Register for PAYE?

Most sole traders taking on regularly paid employees will need to consider PAYE.

PAYE — Pay As You Earn — is HMRC’s system for collecting Income Tax and National Insurance from employment.

HMRC says employers must register for PAYE where relevant conditions apply, including where an employee is paid at or above certain thresholds, receives benefits or has another job or pension.

You should normally register as an employer before the first payday. HMRC says you cannot normally register more than two months before you start paying employees.

Once registered, HMRC provides an employer PAYE reference.

You then use payroll software to calculate deductions and report employee payments.

What Is the PAYE Process for a Sole Trader Employer?

When running payroll, you usually need to:

Calculate gross pay

Start with salary, hourly wages, overtime, bonuses or other taxable employment payments.

Calculate deductions

Payroll software can calculate:

PAYE Income Tax.
Employee National Insurance.
Workplace pension contributions.
Student loan deductions where applicable.
Other authorised deductions.

Calculate employer costs

These can include:

Employer National Insurance.
Employer pension contributions.
Statutory payments.
Benefits.
Payroll costs.

Submit payroll information

HMRC generally requires a Full Payment Submission (FPS) on or before the employee’s payday.

This is known as Real Time Information, or RTI.

What Are the Employer National Insurance Rates for 2026/27?

Employer National Insurance is one of the biggest additional costs to consider when hiring.

For 2026/27, the standard employer Class 1 National Insurance rate is generally 15% on earnings above the Secondary Threshold.

The annual Secondary Threshold is £5,000, equivalent to £96 per week or £417 per month.

For a standard employee:

Employer NI rule	2026/27
Secondary Threshold	£5,000 a year
Standard employer NIC rate	15%
Employee Primary Threshold	£12,570
Employee main NIC rate	8%
Employee NIC above £50,270	2%

Different National Insurance rules can apply to certain employees, including apprentices under 25, employees under 21 and qualifying veterans.

What Is the Employment Allowance for 2026/27?

Eligible businesses can reduce their employer National Insurance bill through the Employment Allowance.

For the 2026/27 tax year, the Employment Allowance is worth up to £10,500.

Many eligible sole traders employing staff can claim it.

This can make a significant difference to the cost of hiring, particularly for small employers.

For example, suppose your employer National Insurance liability for the year is £4,000.

If you qualify for Employment Allowance and have the full allowance available, the allowance could potentially reduce that employer NIC liability to zero.

Eligibility rules and exclusions apply, so the allowance should be checked rather than assumed automatically.

How Much Does It Cost a Sole Trader to Employ Someone?

The employee’s salary is only part of the cost.

Consider a worker earning £25,000 a year.

A simplified employer-cost calculation could look like this:

Cost	Approximate amount
Gross salary	£25,000
Employer NIC before Employment Allowance	£3,000
Minimum employer pension contribution*	£562.80
Approximate core employment cost	£28,562.80

*This pension example assumes a 3% employer contribution on qualifying earnings between £6,240 and £25,000.

It does not include:

Employers’ Liability insurance.
Payroll software or payroll services.
Training.
Equipment.
Holiday costs.
Sick leave costs.
Recruitment fees.
Bonuses or benefits.

If the business qualifies for Employment Allowance, part or all of the employer NIC shown above could potentially be offset.

Can Employee Wages Reduce a Sole Trader’s Taxable Profit?

Usually, yes.

Legitimate staff costs incurred for the purposes of the business can generally be deducted when calculating taxable sole trader profit.

HMRC lists allowable self-employed staff expenses including:

Employee salaries.
Bonuses.
Employer pension contributions.
Benefits.
Agency fees.
Subcontractor costs.
Employer National Insurance.
Relevant staff training.

Example

Suppose a sole trader has:

Business income: £100,000

Other allowable expenses: £25,000

Employee salary and qualifying staff costs: £30,000

The simplified profit calculation becomes:

£100,000 − £25,000 − £30,000 = £45,000

Income Tax and Class 4 National Insurance would then generally be based on the resulting taxable business profit after relevant adjustments.

Paying an employee therefore creates a genuine business cost rather than simply being treated as the owner’s personal spending.

Can a Sole Trader Pay Themselves a Salary?

No, not in the same way a limited company director can receive a salary.

A sole trader and the business are legally the same person.

Money taken from the business by the sole trader is generally treated as drawings, not wages.

Your drawings do not reduce taxable business profit.

For example, if your business makes £60,000 profit and you personally withdraw £35,000, your tax calculation does not normally fall to £35,000 merely because that was the amount you took out.

Employees are different because their legitimate employment costs can be business expenses.

What Is the National Minimum Wage in 2026/27?

Sole traders must follow the same minimum wage rules as other employers.

From 1 April 2026, the National Minimum Wage and National Living Wage rates are:

Worker	Minimum hourly rate
Age 21 and over	£12.71
Age 18 to 20	£10.85
Under 18	£8.00
Apprentice rate	£8.00

The apprentice rate applies to eligible apprentices who are under 19 or aged 19 or over and still in the first year of their apprenticeship.

Employers should review rates every April because National Minimum Wage rates normally change annually.

Does a Sole Trader Need to Provide a Workplace Pension?

Potentially, yes.

Automatic enrolment responsibilities apply to employers regardless of whether the business operates as a sole trader or limited company.

For 2026/27, the automatic enrolment earnings trigger remains £10,000 a year.

The qualifying earnings band is:

Lower level: £6,240
Upper level: £50,270

Eligible employees are generally automatically enrolled if they meet the relevant age, earnings and work criteria.

Under the standard qualifying-earnings method, minimum contributions are normally:

Employer: at least 3%

Total minimum contribution: 8%

The remaining minimum is normally made up through employee contributions and tax relief, depending on how the scheme operates.

The employer must choose a qualifying workplace pension scheme and make contributions on time.

Can a Sole Trader Employ Their Husband, Wife or Family Member?

Yes.

A sole trader can employ a spouse, partner or another family member where they genuinely work for the business.

The arrangement should be handled like a genuine employment relationship.

That can mean maintaining appropriate:

Payroll records.
Working hours.
Salary information.
Job responsibilities.
Pension records where applicable.
Employment documentation.

Qualifying staff wages and employment costs may be deductible where they are genuine business expenses.

Do not simply label personal payments to a family member as “wages” without a genuine employment arrangement.

Do You Need Employers’ Liability Insurance?

Usually, yes.

Once you become an employer, Employers’ Liability insurance is normally compulsory.

GOV.UK says employers generally need cover of at least £5 million from an authorised insurer.

The policy helps cover compensation where an employee becomes injured or ill because of their work.

There are limited exceptions, including certain situations where a sole trader employs only specified family members.

However, most sole traders hiring unrelated employees should arrange cover before employment begins.

Do You Need to Check an Employee’s Right to Work?

Yes.

Employers must make sure workers have the legal right to work in the UK.

Right-to-work checks should be completed before employment begins using the prescribed process. Updated Home Office guidance has applied since 1 October 2026.

Depending on the employee, the check may involve:

The Home Office online right-to-work service.
A share code.
Permitted identity documents.
The Employer Checking Service in specific situations.

Keep appropriate evidence of checks.

Hiring someone without carrying out the required checks can expose the employer to significant penalties.

Employee or Self-Employed Contractor: Why Does Status Matter?

One of the most common mistakes made by small businesses is calling someone “self-employed” simply to avoid payroll.

Employment status depends on the actual working relationship, not just what the contract says.

HMRC advises employers to assess whether a person is genuinely employed or self-employed. Getting the classification wrong can lead to additional tax, National Insurance, interest and penalties.

Factors can include:

Who controls when and how work is completed.
Whether the worker must perform the work personally.
Whether they take genuine financial risk.
Whether they provide their own equipment.
Whether they can work for other clients.
Whether they operate an independent business.

A contractor may invoice you, but that fact alone does not automatically make them self-employed.

Can a Sole Trader Hire Freelancers Instead of Employees?

Yes, provided the freelancer is genuinely self-employed.

Using independent contractors can suit projects requiring:

Specialist skills.
Short-term assistance.
Flexible capacity.
Project-based work.

However, a business should not use a “freelancer” label where the working arrangement is actually employment.

Employment status should be reviewed based on what happens in practice.

What Employment Rights Do Staff Have?

Employees and workers can have statutory rights regardless of whether their employer is a sole trader or a large company.

These can include rights relating to:

National Minimum Wage.
Paid annual leave.
Rest breaks.
Statutory family leave and pay where qualifying conditions are met.
Statutory Sick Pay where applicable.
Protection from unlawful discrimination.
Workplace pensions.
Payslips.
Written employment information.

Most workers are entitled to 5.6 weeks of paid statutory holiday each year, although the calculation can differ for part-time and irregular-hours workers.

In Great Britain, employers must also provide employees and workers with a principal written statement of employment particulars from the first day of employment.

What Health and Safety Responsibilities Does a Sole Trader Employer Have?

Hiring staff creates employer health and safety responsibilities.

You should assess workplace risks and take reasonable measures to protect employees.

Every business should have arrangements for managing health and safety.

If you employ five or more employees, your health and safety policy must be written down, and significant risk-assessment findings must also be recorded.

The precise requirements depend on your industry.

A construction business, restaurant or workshop will usually face different risks from a home-based digital business.

When Must Payroll Information Be Reported to HMRC?

Most employers need to send a Full Payment Submission before or on the employee’s payday.

The FPS records details including:

Employee pay.
Income Tax deductions.
National Insurance.
Other payroll deductions.

HMRC uses this information to maintain each employee’s tax record.

An Employer Payment Summary may also be required in circumstances such as claiming reductions or reporting periods in which no employees were paid.

When Does a Sole Trader Pay PAYE to HMRC?

If paying PAYE electronically, the normal deadline is the 22nd of the following tax month.

For example, amounts relating to the tax month from 6 April to 5 May would normally need to reach HMRC by 22 May.

Employers paying by cheque normally face the 19th deadline.

Small employers whose average monthly PAYE payments are below £1,500 may be able to arrange quarterly payments instead.

Late payments can lead to interest or penalties.

Can Hiring an Employee Affect Making Tax Digital?

Hiring staff does not by itself determine whether Making Tax Digital for Income Tax applies.

MTD for Income Tax is primarily based on qualifying self-employment and property income.

However, once you employ staff, your business may operate two separate digital compliance processes:

Income Tax records

Your sole trader bookkeeping and MTD requirements where applicable.

PAYE payroll

Employee payroll reporting through Real Time Information.

Using compatible bookkeeping and payroll software can therefore become increasingly important as the business grows.

Does VAT Registration Change When You Employ Staff?

Hiring staff does not automatically make a business VAT registered.

VAT registration is primarily determined by VAT-taxable turnover.

However, hiring staff may allow the business to increase capacity, which can cause turnover to grow quickly.

A growing sole trader should therefore continue monitoring the VAT registration threshold alongside payroll obligations.

Employee wages themselves are not subject to VAT.

Can You Claim Employment Costs as Allowable Expenses?

Many legitimate employment costs can be deductible when calculating sole trader taxable profits.

These may include:

Salaries and wages.
Employer National Insurance.
Employer pension contributions.
Bonuses.
Relevant employee benefits.
Recruitment agency fees.
Relevant training.
Payroll costs.

HMRC specifically recognises these types of staff costs as potential allowable self-employed expenses.

Keep invoices, payroll reports and supporting records.

What Records Should a Sole Trader Employer Keep?

Good payroll records help support both HMRC compliance and employment-law obligations.

You should maintain appropriate records covering areas such as:

Employee personal details.
Pay and deductions.
Tax codes.
National Insurance categories.
PAYE submissions.
Pension contributions.
Holiday records.
Sick leave.
Employment agreements.
Right-to-work evidence.
Benefits and expenses.
Employer National Insurance.
Payments to HMRC.

Your payroll software or payroll provider should form part of this record-keeping process.

Common Mistakes Sole Traders Make When Employing Staff

Treating an employee as self-employed

Calling someone a contractor does not determine their legal or tax status.

Forgetting employer National Insurance

The salary agreed with an employee is not always the total employment cost.

Missing Employment Allowance

Eligible businesses may be able to reduce employer NIC by up to £10,500 for 2026/27.

Paying below minimum wage

Minimum wage rates apply regardless of how small your business is.

Ignoring workplace pensions

Even a business with one employee can have automatic enrolment duties.

Missing FPS deadlines

Payroll information normally needs to reach HMRC on or before payday.

Forgetting right-to-work checks

These should be completed before employment begins.

Assuming employee wages are personal drawings

Genuine staff wages are business costs. Your own sole trader withdrawals are not.

Ignoring insurance

Employers’ Liability insurance is normally required once you employ staff.

Step-by-Step: How Can a Sole Trader Employ Their First Member of Staff?

Step 1: Decide What Role You Need

Define the responsibilities, working hours, skills and expected salary.

Step 2: Decide the Correct Employment Status

Determine whether the person will genuinely be an employee, worker or self-employed contractor.

Step 3: Calculate the Full Cost

Budget for salary plus employer National Insurance, pensions, insurance, payroll, training and other costs.

Step 4: Check Minimum Wage Rules

Ensure the pay meets the appropriate age or apprentice rate.

Step 5: Complete Right-to-Work Checks

Carry out the appropriate check before employment starts.

Step 6: Register as an Employer

Step 7: Arrange Payroll

Use suitable payroll software or appoint an accountant or payroll provider.

Step 8: Set Up a Workplace Pension

Assess the employee for automatic enrolment and choose a qualifying pension scheme where required.

Step 9: Arrange Insurance

Obtain Employers’ Liability insurance where required.

Step 10: Provide Employment Documentation

Record pay, hours, holiday arrangements, responsibilities and other employment terms.

Step 11: Run Payroll and Submit the FPS

Report pay and deductions to HMRC on or before payday.

Step 12: Review Your Costs Regularly

Monitor wages, employer NIC, pension contributions and cash flow as the business grows.

Should a Sole Trader Employ Staff or Use a Contractor?

The answer depends on what your business needs.

An employee may make more sense where:

You need regular working hours.
The role is ongoing.
You control how the work is performed.
The person forms part of your core team.

A genuine contractor may make more sense where:

The work is project-based.
Specialist expertise is needed temporarily.
The contractor independently controls how services are delivered.
They operate a genuine business of their own.

Do not choose employment status only because one option appears cheaper for tax.

Should You Become a Limited Company After Hiring Staff?

Not necessarily.

A sole trader can build a substantial business with employees.

However, growth can make it sensible to review the structure because a sole trader has unlimited personal liability.

Incorporation may become worth considering where:

The business employs several people.
Commercial liabilities are increasing.
Profits are growing.
You want additional investors.
You want clearer separation between personal and business finances.
Customers or suppliers prefer dealing with a limited company.

The correct choice should consider tax, liability, administration and long-term commercial plans together.

How Can Accfirm Help Sole Traders Employ Staff?

Employing your first member of staff is an important stage in business growth, but payroll errors can quickly create HMRC problems.

Accfirm service can support sole traders with:

PAYE registration.
Payroll processing.
Employer National Insurance calculations.
Employment Allowance claims where eligible.
Workplace pension payroll calculations.
RTI submissions.
PAYE payment planning.
Bookkeeping.
Self Assessment.
Business structure reviews.

Working with experienced sole trader accountants can help you understand both the cost of employing staff and the effect those costs have on your business profits and tax position.

Frequently Asked Questions

Can a sole trader legally employ staff?

Yes. UK government guidance confirms that a sole trader can hire employees while continuing to operate as a sole trader.

Does a sole trader need a limited company to employ someone?

No. You can register as an employer and operate payroll while remaining self-employed.

Does a sole trader pay employer National Insurance?

Usually, yes, where the employee earns above the relevant employer National Insurance threshold. The standard 2026/27 employer rate is 15% above the £5,000 annual Secondary Threshold, although special categories and reliefs can apply.

What is the Employment Allowance for 2026/27?

Eligible employers can reduce their employer National Insurance liability by up to £10,500 during 2026/27.

Can a sole trader claim employee wages as an expense?

Genuine employee salaries, employer National Insurance, employer pension contributions and certain other staff costs can generally be allowable business expenses.

Can a sole trader employ their spouse?

Yes, provided there is a genuine working arrangement and relevant payroll and employment requirements are followed.

Can a sole trader hire an apprentice?

Yes. Apprentices can be employed by sole traders, although specific apprenticeship, minimum wage, funding and training requirements can apply.

Do sole traders have to provide a pension for employees?

Eligible workers may need to be automatically enrolled into a workplace pension. For 2026/27, the automatic enrolment earnings trigger remains £10,000, with qualifying earnings generally between £6,240 and £50,270.

Does employing staff affect Self Assessment?

The sole trader still files Self Assessment. Qualifying staff costs can reduce taxable business profit, while PAYE payroll is handled separately.

Can I employ someone without running payroll?

Only in limited circumstances. Most regularly paid employees will require PAYE consideration and payroll records. Check the employee’s pay and circumstances before deciding that PAYE registration is unnecessary.

Final Thoughts: Can a Sole Trader Employ Staff?

Yes. A sole trader can employ staff without becoming a limited company.

The main challenge is not whether you are allowed to hire someone. It is making sure you meet the responsibilities that come with becoming an employer.

For 2026/27, that means understanding PAYE, the 15% standard employer National Insurance rate, the £5,000 Secondary Threshold, the £10,500 Employment Allowance, National Minimum Wage rules, workplace pensions and payroll reporting requirements.

Plan the full cost before making your first hire.

A £25,000 salary does not necessarily cost the business only £25,000 once National Insurance, pensions, insurance and other employment costs are considered.

At the same time, legitimate staff costs can generally reduce your taxable sole trader profit.

Can a Sole Trader Employ Staff? UK Guide for 2026/27