Yes, a sole trader can have employees. UK law places no cap on how many people a sole trader can hire, and nothing restricts employment to limited companies or partnerships. What changes when you take on staff is your personal exposure: because a sole trader and the business are the same legal person, every wage, tax deduction, pension contribution, and tribunal award lands on you directly. Get the setup right before the first payday and the arrangement works fine. Get it wrong and HMRC, an insurer, or an employee can come after your personal assets.
What Personal Liability Really Means Here
A limited company director sits behind a corporate shield. A sole trader does not. When you employ someone, you personally owe their pay, their tax withholdings, their pension contributions, and any damages a tribunal orders. If the business runs short, creditors and employees can pursue your savings, your home, and any other assets you own to settle what is due.
Payroll taxes carry the sharpest version of this risk. Income tax and National Insurance you deduct from an employee’s wages are held on trust for HMRC. Spend that money on something else and HMRC can come after you personally for the full amount plus penalties, and late payment penalties escalate the longer the debt sits. A company can fold and leave HMRC with an unpaid PAYE bill. A sole trader cannot.1GOV.UK. Late Payment Penalties for PAYE and National Insurance
None of this makes hiring a bad idea. It makes the preparation matter.
Are They Actually an Employee?
Before you set anything up, be honest about what the relationship is. You do not get to pick the label. HMRC looks at the reality of the arrangement, and if you treat someone as self-employed when they are functionally an employee, you can be pursued for backdated tax, National Insurance, and penalties for every pay period involved.
The main factors are who controls the work and how it is done, whether the worker can send a substitute, and whether they carry any financial risk. If you set the hours, provide the tools, and the person works only for you, they are almost certainly an employee whatever the contract says. HMRC’s free Check Employment Status for Tax tool gives you a determination you can rely on, provided you answer honestly.2GOV.UK. Check Employment Status for Tax
What You Need in Place Before the First Day
Employers’ Liability Insurance
You must hold employers’ liability insurance of at least £5 million before your first employee’s start date. The policy pays out if an employee is injured or made ill by their work. Operating without it costs £2,500 for every day you are uninsured.3GOV.UK. Employers’ Liability Insurance Confirm the policy names you as employer and hits the £5 million minimum, whether or not it is bundled with public liability.
Written Statement of Employment Particulars
Every employee must receive a written statement of their main terms on or before their first day. The deadline is strict. It must cover your name as employer, the job title, start date, pay rate and frequency, working hours and days, holiday entitlement, workplace location, any probation period and its conditions, and notice periods.4GOV.UK. Employment Contracts – Written Statement of Employment Particulars A wider statement covering pension details, collective agreements, and training requirements must follow within two months.
Right to Work Checks
You must verify your new hire has the legal right to work in the UK before they start. Check original documents against the government’s published list, keep copies, and record the date. Skip this and you face a civil penalty of up to £60,000 per illegal worker. Knowingly employing someone without the right to work is criminal: up to five years in prison and an unlimited fine.5GOV.UK. Employers Guide to Right to Work Checks – 26 June 2025
Payroll Details From the Employee
You need their National Insurance number and their P45 from a previous employer. The P45 gives you the tax code and the tax already paid this year. If they do not have one, they complete a starter checklist instead, which captures their tax situation and student loan status so you can apply the right deductions from the first payslip.6GOV.UK. Starter Checklist for PAYE
Registering as an Employer With HMRC
You register as an employer with HMRC before your first payday, and you cannot register more than two months in advance. The timing window is narrow.7GOV.UK. Register as an Employer Registration is online. HMRC then posts you an employer PAYE reference number and an Accounts Office reference number, which go on every payroll submission and every payment. Allow up to ten working days for the letter and set the start date so you have both numbers before you run payroll.
Running Payroll Under Real Time Information
Every time you pay an employee you must send HMRC a Full Payment Submission on or before the payday. That is the Real Time Information system, and the submission covers gross pay, tax deducted, and National Insurance for each person.8GOV.UK. Payroll Information to Report to HMRC
HMRC’s Basic PAYE Tool is free and handles submissions for employers with fewer than ten employees.9HM Revenue & Customs. PAYE5020 – Background – Real Time Information (RTI) – Submission Filing Methods Above that you need commercial payroll software or an accountant. Late submissions trigger automatic penalties of £100 a month for one to nine employees and £200 a month for ten to forty-nine. They stack.
Workplace Pension Auto-Enrolment
If your employee is aged between 22 and State Pension age and earns more than £10,000 a year, you must automatically enrol them into a qualifying workplace pension.10The Pensions Regulator. Earnings Thresholds The minimum employer contribution is 3% of qualifying earnings; the employee puts in at least 5% including tax relief.
Qualifying earnings are not total pay. Only the slice between £6,240 and £50,270 counts for the 2025/26 and 2026/27 tax years.11GOV.UK. Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2026/27 So on a £25,000 salary, your 3% is calculated on £18,760, not £25,000. Employees can opt out, but you cannot encourage them to, and anyone who opts out has to be re-enrolled roughly every three years. The Pensions Regulator issues escalating daily fines for non-compliance, starting at £50 a day for the smallest employers.
Pay, Holiday, and Sick Pay Floors
From April 2025 the National Living Wage is £12.21 an hour for workers aged 21 and over, with lower rates for younger workers and apprentices. Rates are reviewed each April. You must pay at least the applicable minimum whatever the contract says; underpayment brings HMRC enforcement and public naming.
Almost every employee gets 5.6 weeks of paid holiday a year, which is 28 days for someone on a five-day week. Bank holidays can count toward that 28, and part-timers get a pro-rata share.12GOV.UK. Holiday Entitlement Entitlement builds from day one, and you cannot pay it off in cash except when the employee leaves with unused days.
Statutory Sick Pay changes on 6 April 2026. The three-day waiting period disappears, so SSP is payable from the first full day of sickness. The lower earnings limit is scrapped, so all eligible employees qualify however little they earn. The rate becomes 80% of the employee’s average weekly earnings or the flat weekly rate, whichever is lower.13Business.gov.uk. Statutory Sick Pay Changes If you are hiring your first employee in 2026, these are the rules you will operate under from the start.
The Real Cost of an Employee
The salary is not the full number. Before committing to an offer, price in everything an employee costs on top of pay:
- Employer National Insurance at 13.8% on earnings above the secondary threshold. This is usually the biggest hidden line, adding roughly £1 for every £7 of salary above that threshold.
- Pension contributions of at least 3% of qualifying earnings.
- Employers’ liability insurance, typically several hundred pounds a year even for low-risk office work.
- Payroll administration if you use an accountant or bureau instead of HMRC’s free tool, usually £5 to £15 per employee per month.
- Paid holiday and sick pay, which are non-productive days you still pay for.
None of this is a reason not to hire. It is a reason to price your work so the salary you offer is actually sustainable once every obligation attached to it is running.