Can a Sole Trader Have Employees?

If you run your business as a sole trader and you’re thinking about hiring staff, a common question is whether you’re actually allowed to do so. The short answer is yes. A sole trader can legally have employees. There is no rule that prevents you from hiring staff simply because of your business structure.

A sole trader business can hire employees just like any other Australian employer, and there is no specific limit or legal cap on how many employees a sole trader can have. As a business owner operating as a sole trader, you can hire staff without needing to change your legal structure to a company.

However, while hiring is permitted, it’s important to understand what it means for your responsibilities, risk, and the long-term suitability of your business structure. A sole trader hiring employees must comply with all relevant employment laws, just like any other Australian employer.

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What does it mean to be a sole trader?

A sole trader is an individual who operates a business in their own name or under a registered trading name. From a legal perspective, the business and the individual are the same entity. This means there is no separation between you and the business you run.

As a sole trader, you are legally responsible and personally liable for all business debts and obligations, with no separation between your personal and business assets. All business income is reported on your personal tax return using your individual tax file number. The sole trader structure is popular because it’s simple to set up and manage, especially in the early stages of a business. But simplicity doesn't always mean it's the best option.

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Types of workers a sole trader can hire

As a sole trader, you have the flexibility to hire a range of workers to match the needs of your business. The most common options include full-time employees, part-time employees, casual employees, independent contractors, and those on a fixed term contract. Each type of worker comes with its own set of employer obligations and legal requirements. Learn more about hiring your first employee.

No matter which type of worker you hire, as a sole trader you are responsible for meeting all legal and compliance requirements, including workers compensation, superannuation, taxation, and other employer obligations. Choosing the right mix of workers can help your business remain agile while staying compliant with Australian employment laws.

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Employing staff as a sole trader

Before paying wages, a sole trader must register for PAYG withholding with the Australian Taxation Office (ATO) so the correct amount of tax can be withheld from employees’ pay and remitted to the ATO. Once an employee is hired, the sole trader is responsible for meeting all ongoing employment obligations, and they must be met on time.

This includes complying with workplace health and safety laws, anti-discrimination legislation, and the National Employment Standards (NES). New employees must be provided with the Fair Work Information Statement to inform them of their rights at work, and accurate employment records (including payslips) must be kept for at least seven years.

Sole traders are also required to pay superannuation for eligible employees at the current Superannuation Guarantee rate, which is 12% from 1 July 2025. Failing to meet superannuation obligations can result in penalties and interest charges. In addition, workers’ compensation insurance must be held, and a safe working environment must be maintained at all times.

Payroll reporting must be completed through Single Touch Payroll, and compliance with relevant awards and Fair Work requirements is monitored by the Fair Work Ombudsman.

If you're thinking about hiring a contractor to avoid certain compliance obligations (like superannuation or PAYG withholding), it’s important to distinguish between employees and independent contractors first. Contractors are not employees and are generally responsible for their own tax obligations and superannuation, provided the arrangement genuinely meets the legal definition of contracting. But there are scenarios where contractors are legally classed as employees.

From a compliance perspective, employing staff as a sole trader is permitted and not unusual. What often catches business owners off guard is not whether they can employ staff, but how responsibility and risk are treated under a sole trader structure. Unlike other business structures, all employment-related risk sits directly with the individual, not within a separate legal entity.

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Why hiring employees changes a business

Hiring your first employee isn't just a staffing decision. It’s often a turning point in how a business operates.

Hiring your first team member introduces new challenges in managing employees, including the need for a reliable payroll system and best practices for overseeing business transactions and compliance. Digital tools can help streamline the process of managing employees, ensuring you meet legal requirements and efficiently handle payroll and HR tasks.

Wages become a regular, ongoing commitment that must be met regardless of when customers pay you. Employment laws introduce new legal responsibilities. Workplace safety, award compliance, and employee entitlements all need to be actively managed. Recruitment costs can impact the financial stability of a sole trader business, and managing payroll, and HR compliance increases business complexity.

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Tax and cash-flow considerations

As your business grows and you take on staff, profits often increase as well. However, under a sole trader structure, all profits, referred to as business income, continue to be taxed at your personal marginal tax rate, no matter how large or consistent those profits become. All business income is reported on your personal income tax return, and you must withhold and submit the correct amount of tax from employees' wages to the ATO.

There is no ability to retain profits in the business at a lower company tax rate, so if the business income is above $190,000, the marginal tax rate would be 45% (plus 2% Medicare levy). This is significantly higher than the company tax rate of 30% (25% for Base Rate Entities).  

As your business income grows, you may become liable for payroll tax if your total wages exceed the state threshold, and you must ensure accurate reporting for both tax and super purposes. Employing staff increases your ongoing cash-flow commitments, particularly around payroll and superannuation contributions.

This combination can create pressure, especially in businesses with uneven income or longer payment cycles.

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Personal liability and risk exposure

When you employ staff, you take on new types of risk. As a sole trader, those risks do not sit with a separate business entity, they sit with you personally. Legally, there is no distinction between you and your business. If the business owes money, breaches an obligation, or faces a claim, it is you as an individual who is responsible.

This means your personal assets, like the family home, are exposed. If the business cannot meet its obligations, creditors or regulators can pursue you directly, rather than being limited to the assets of the business itself.

For example, if your business runs into cash-flow trouble and cannot pay outstanding employee entitlements, those debts do not stop at the business bank account. In a worst-case scenario, personal savings or other personal assets could be at risk. The same applies if the business faces penalties for unpaid superannuation or underpaid wages; liability attaches to you personally.

This exposure exists regardless of how careful or well-intentioned you are. It is a structural issue, not a behavioural one.

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Workplace health and safety obligations

When you employ staff, you also take on workplace health and safety responsibilities. As a sole trader, you are legally required to provide a safe working environment and to comply with all applicable workplace health and safety laws.

This includes identifying risks, putting appropriate safety measures in place, and ensuring employees are properly trained and supervised. If an employee is injured at work and it is found that safety obligations were not adequately met, responsibility rests with you personally.

For example, if you employ someone to work on a job site and they are injured because equipment was unsafe or procedures were not followed, any investigation, penalties, or legal claims attach directly to you as the business owner. There is no legal buffer between the incident and your personal position.

This is a key difference between operating as a sole trader and operating through a company structure. In a company, business risk is generally contained within the company itself (subject to guarantees and director obligations). As a sole trader, that separation does not exist. The legal and financial consequences of employing staff flow straight through to you.

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When structure becomes part of the conversation

Hiring employees is often a sign that a business has moved beyond its early, simple phase. It usually coincides with growth, higher turnover, more consistent income, ongoing overheads, or the need to service longer-term or larger contracts. At this point, the business is no longer just a solo operation built around one person’s time and effort.

There is no legal limit on how many employees a sole trader can have in Australia. However, managing multiple employees as a sole trader significantly increases complexity. Each employee brings additional obligations around wages, superannuation, payroll reporting, workplace health and safety, and Fair Work compliance, all of which sit with the individual business owner.

As staff numbers increase, so does exposure. Employment obligations apply to every employee, and any errors or shortfalls attach directly to the sole trader personally. The structure itself does not change to absorb that added risk or administrative burden.

At this stage, the question is no longer whether a sole trader can have employees. The more important question is whether the sole trader structure still suits the size, risk profile, and operational complexity of the business.

As profits grow and the business becomes more established, many sole traders begin to review whether their structure is still fit for purpose. This often leads to a conversation about moving to a company structure, such as a proprietary limited (Pty Ltd) company. A company can offer clearer separation between business activities and personal assets, and it may provide greater flexibility around tax planning and profit retention.

While there is no single profit threshold at which a change becomes “necessary”, increasing and more consistent profits, multiple employees, and ongoing contractual commitments are common signals that the business may have outgrown the sole trader structure. At that point, reviewing structure is less about compliance and more about ensuring the business is positioned to support its next stage of growth.

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We're here to help

If you’re considering hiring employees, or you already have staff, it’s worth making sure your business structure and payroll setup still support where your business is heading.

At Bonerath & Co., we work with sole traders to review whether their current structure remains appropriate as their business grows, and to ensure employee and payroll obligations are set up correctly from the start. We can help you understand your compliance requirements, assess your risk exposure, and talk through whether a structure review makes sense for your next stage of growth.

If you'd like to chat, please feel free to get in touch with us.

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