Hiring Employees as a Sole Trader

If you’ve wondered if you can have employees as a sole trader, the answer is yes. There is also no specified limit on how many employees a sole trader can have in Australia before they must incorporate the company. 

That being said, entrepreneurs who employ someone as a sole trader (or intend to do so) should understand all the implications and legal requirements involved.

Read on for an overview of different types of employment, tax obligations, and general responsibilities. 

Types of employment contracts

This depends on your needs - e.g. whether you need someone to work for you for a short time only or on an ongoing basis.

The options include: 

Permanent, ongoing employment (full or part-time)

• You are responsible for withholding PAYG (Pay-As-You-Go) tax from a permanent worker’s pay
• You pay superannuation into their fund
• You must provide annual, personal and other paid leave.

Casual employment

These workers forgo certain paid leave entitlements in place of a higher wage rate. 

• You are still under the same obligations regarding PAYG tax and superannuation.

Fixed term contract

Workers on these contracts usually have the same entitlements as permanent workers, but they are employed for a specified time period only. 

Workers on a fixed-term contract are considered independent contractors and, therefore, technically not employees (see below for more details on this).  

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Paying your employees

Most types of work will be covered by an Award or Agreement, and you will need to research which ones apply. 

However, ensuring all workers are paid at least the minimum wage rate ($24.10 per hour in 2024/25) is essential. You must also provide employees with a payslip each time you pay them, which can be electronic.

You will need to report wage details to the ATO (Australian Tax Office) in every payroll cycle through Single Touch Payroll (STP). You can do this using STP-enabled software or a service provider.

Also read: Registering for GST as a Sole Trader

Tax obligations

PAYG withholding tax

As an employer, you must regularly report the relevant amount of Pay-As-You-Go (PAYG) withholding tax from an employee’s wage and remit it to the ATO. 

Payroll tax

A state-based tax paid by employers with a payroll above a certain threshold, depending on the state or territory. It applies to sole traders, as well as companies. 

However, if you are a small sole trader business, it’s unlikely you would have to pay this tax. 

Fringe Benefits Tax (FBT)

This is a tax levied on extra benefits provided to employees. An example is when you’d provide a company vehicle to the employee, where personal use of the car was permitted. 

You can find out more about car FBT in our overview article. 

Superannuation and insurance

As an employer, you must also pay the Superannuation Guarantee (SG) into a compliant fund for each employee in addition to wages. 

The SG rate for 2024-25 is 11.5% of salary (set to increase to 12% in 2025-26). 

Another obligation is Workers’ Compensation Insurance, which provides coverage in case of accidents and injuries at work. Even if you have only one employee, you must have this insurance. 

Hiring independent contractors 

Hiring independent contractors at an agreed-upon rate can remove a lot of bureaucracy and complexity from acquiring employees as a sole trader. Freelancers are often hired this way. 

Independent contractors are not employees and, as such, are responsible for their own PAYG tax, leave, and (usually) their superannuation. 

Note: Treating a worker who is essentially an employee (working regularly in an employer/employee relationship) as an independent contractor is illegal. Doing so could result in fines and penalties. 

Health and safety obligations

As an employer, you are obligated to provide a safe workplace for all workers in terms of the physical environment, social culture, and non-discrimination. If you don’t comply with the health and safety laws, infringement notices and penalties may apply. 

Other obligations

As well as the above, there are many other considerations when it comes to employing people. 

They may include recruitment costs, job descriptions, skills training, maintaining employee records, accounting for leave obligations, etc.

It’s important to thoroughly research what’s involved and speak to your accountant first. 

How a sole trader differs from a company

As a sole trader, you personally own the business assets, including any money you earn. This contrasts with a company structure in which the owner and the business are defined as separate entities, and business and personal assets are completely separate.

As a sole trader, you can take money out of the business as drawings at any time and use it as you wish. However, you cannot employ or pay yourself a wage.

The opposite is the case in a company. For example, even a director can be paid a wage in a company, but they cannot make any personal drawings as the money in the company account is not their own to spend. 

Why sole traders cannot hire themselves as employees

Sole traders cannot employ themselves mainly because they and their businesses are considered one and the same. In that sense, a sole trader already personally owns all the profits in their business - unlike in a company where the funds belong to the business itself. 

So, as a sole trader, all you need to do to access funds is withdraw them. However, make sure to allow for potential bills, including those from the tax office.

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