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Can a Lone Proprietor Hire Employees?

The term "sole trader" refers to somebody who does business but has not established a distinct legal structure through which they operate, such as a limited company or partnership.

By cheap accountantPublished 3 months ago 4 min read
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If you're asking whether a single proprietor can hire staff, the answer is yes, but it's not usual. This post will address this question as well as related topics such as employment law, contracts, freelancers, and limited companies.

Is it legal for sole proprietors to be employers?

Yes, solo proprietors can work as employers. To become an employer, you do not need to form a limited company. While the phrase "sole trader" implies that someone works on their own, this is not the legal meaning.

The term "sole trader" refers to somebody who does business but has not established a distinct legal structure through which they operate, such as a limited company or partnership.

Sole traders frequently employ people, either as freelancers or as employees.

Can sole proprietors work for themselves as employees?

A significant distinction between company directors and sole traders is that a company director can work for their own company. Sole traders are self-employed. They can hire others, but they cannot employ themselves.

The reason for this is that a limited company is considered an independent legal entity in and of itself. This means that a firm can have an employment contract with its own director (s). Sole proprietors cannot do this since they are the business, and they cannot establish an employment contract with themselves.

How can I become an employer?

The basic stages for becoming an employer are the same for single proprietors and limited enterprises. The first step is to register with HM Revenue and Customs as an employer (HMRC). PAYE registration should normally take place before the first salary payment, but no more than two months earlier.

PAYE Online The PAYE Online service from HMRC is used to:

Send payroll reports to HMRC, examine the amount of what is owed to HMRC, access tax codes and notices regarding one's employees, appeal any penalties, and receive HMRC alerts about late payments, among other things.

The PAYE Online login information must be entered into any payroll programme in order to submit reports to HMRC. However, other than costs and benefits returns, the PAYE Online service cannot be used to submit payroll reports.

Payroll processing without a PAYE reference

To process any wage payments prior to obtaining an employer PAYE reference number, it is necessary to:

  • Run payroll Submission of complete payment
  • HMRC should receive a late complete payment submission. Employment law for sole proprietors
  • A single trader must determine if someone working for them is an employee, a worker, or a self-employed contractor/freelancer.

Understanding the scope of one's employment law obligations requires determining this. Below, we shall look at the several forms of work status:

Workers

A member of staff is typically classified as a worker if the following conditions are met:

The individual has a contract to perform work or services in exchange for money or a benefit in kind; they are not generally allowed to subcontract the work; they are regularly required to attend a place of work; they are entitled to work for the duration of the contract; and they are not contracting with the 'employer' in the manner of a customer or client (e.g. via a limited company).

Despite not being classified as employees, workers have significant employment law rights, including:

  • National Minimum Wage (NMW) protection from illegal wage deductions
  • statutory minimum paid holiday level statutory minimum length of rest breaks
  • The Employment Equality Act of 2010 provides protection against unlawful discrimination (e.g. race, age, sex discrimination)
  • Whistleblower protection Statutory maternity, paternity, adoption, and shared parental pay (in certain cases)

Employees

Employees are bound by a labour contract. They can, nevertheless, be classified as employees in the absence of a contract of employment provided they meet the majority of the following criteria:

They are required to work regularly unless they are on leave (e.g., vacation leave); they are required to work a minimum number of hours per week/month; and they expect to be paid for any time worked; a manager or supervisor is in charge of their workload; and they are not permitted to subcontract any of their work.

National Insurance contributions (NICs) and income taxes are deducted from their wages at source (i.e. through PAYE) they are entitled to annual paid holiday leave they are entitled to contractual or Statutory Sick Pay (SSP) they are entitled to maternity or paternity pay they are entitled to join a pension scheme run by the company disciplinary and grievance procedures apply to them.

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