Can a sole trader employ staff? What you need to know about PAYE and employer NI

Yes, a sole trader can employ staff. You do not need to form a limited company just to hire someone. But once you become an employer, you take on payroll, tax, National Insurance, pension, insurance, and employment law duties.

Registering as an employer

If you pay staff above the relevant PAYE thresholds, provide benefits, or meet other HMRC conditions, you usually need to register as an employer and run payroll. Registration gives you PAYE references so you can report pay and deductions to HMRC.

Running PAYE payroll

Payroll means calculating gross pay, Income Tax, employee National Insurance, employer National Insurance, pension deductions, and net pay. You report the figures to HMRC through Real Time Information, usually on or before payday. Most small employers use payroll software or an accountant rather than doing this manually.

Employer National Insurance at 15%

For 2025/26, the main employer Class 1 National Insurance rate is 15% above the relevant secondary threshold. This is a cost to the business, not a deduction from the employee's wages. You need to budget for it when deciding whether you can afford an employee.

If you are modelling your own personal tax at the same time, use the self-employed tax calculator and weekly tax set-aside calculator. They do not replace payroll software, but they help you keep your own Self Assessment cash flow separate.

Employment Allowance

Some employers can reduce employer National Insurance using Employment Allowance. Eligibility depends on your circumstances, connected businesses, and the type of work. Do not assume you qualify automatically; check the rules before building it into your budget.

Auto-enrolment pension duties

Employers must assess staff for workplace pension auto-enrolment. If an employee qualifies, you may need to enrol them, deduct employee contributions, pay employer contributions, and complete pension duties. The Pensions Regulator, not just HMRC, matters here.

Insurance and employment law

If you employ staff, you will usually need employers' liability insurance. You also need to think about written terms, holiday pay, minimum wage, working time, sick pay, health and safety, and right-to-work checks.

Employee vs subcontractor

Calling someone a subcontractor does not make them self-employed. HMRC and employment law look at the real relationship: control, substitution, financial risk, equipment, integration, and mutual obligations. If the person is really an employee, payroll duties can apply even if you planned to treat them as self-employed.

Before hiring, check the full cost

1. Gross wage or salary.
2. Employer National Insurance.
3. Employer pension contributions.
4. Payroll software or accountant fees.
5. Insurance, equipment, training, and holiday cover.

Official sources

Start with GOV.UK employer registration: Register as an employer. Employer rates and thresholds are here: Rates and thresholds for employers 2025 to 2026. Pension duties start here: Workplace pensions for employers.