Can a Sole Trader Have Employees in Australia? (Complete Guide)

If you’re running a business as a sole trader, you may be asking:

• Can a sole trader have employees?
• As a sole trader, can I employ someone legally?
• What are my tax and payroll obligations if I hire staff?

The short answer is yes — a sole trader can employ people in Australia.
However, the responsibilities, costs, and compliance requirements are often misunderstood.

This guide explains everything you need to know, so you can hire staff confidently and stay compliant.

Can a Sole Trader Have Employees in Australia?

Yes. A sole trader is legally allowed to employ staff under Australian law.

Being a sole trader simply means:

• You operate the business as an individual
• You are personally responsible for the business
• There is no separate legal entity (unlike a company)

It does not prevent you from hiring employees.

Many Australian businesses — including tradies, consultants, café owners, freelancers, and online sellers — operate as sole traders with employees.

What Does It Mean to Employ Someone as a Sole Trader?

When you employ staff as a sole trader:

• You become the legal employer
• You are personally responsible for all employment obligations

This includes:

• Paying wages
• Paying reminders and penalties if something is missed
• Meeting all Fair Work and ATO requirements

Unlike a company, there is no legal separation between you and the business — which makes compliance especially important.

Sole Trader Employees vs Contractors (Critical Difference)

Before hiring, it’s essential to understand the difference between employees and contractors.

Employees

You must:

• Pay wages or salary
• Withhold PAYG tax
• Pay superannuation
• Provide entitlements under Fair Work
• Issue payslips
• Report via Single Touch Payroll (STP)

Contractors

You generally:

• Pay an agreed fee
• Don’t withhold PAYG (in most cases)
• May still need to pay super in certain situations

⚠️ Misclassifying workers is one of the most common mistakes sole traders make and can lead to ATO penalties and back payments.

What Do You Need to Do Before Hiring Staff as a Sole Trader?

Before you employ someone, you must complete these steps:

1. Register for PAYG Withholding

You must be registered with the ATO to withhold tax from employee wages.

2. Set Up Payroll Correctly

You need a payroll system that:

• Calculates tax accurately
• Pays super
• Generates payslips
• Reports wages to the ATO via STP

Hiring your first employee as a sole trader also means setting up compliant payroll and reporting systems. Many business owners use professional payroll services to avoid mistakes with PAYG, Single Touch Payroll, and Fair Work requirements.

3. Pay Superannuation

You must pay super (currently 11%) for eligible employees.

4. Take Out Workers Compensation Insurance

This is compulsory in all Australian states, regardless of business size.

5. Follow Fair Work Rules

You must:

• Pay correct award wages
• Provide entitlements
• Keep accurate employment records

Can a Sole Trader Employ Casual or Part-Time Staff?

Yes. Sole traders can hire:

• Casual employees
• Part-time employees
• Full-time employees

Each type has different obligations around:

• Pay rates
• Leave
• Penalty rates

This is where many sole traders accidentally underpay staff.

How Much Does It Cost to Employ Someone as a Sole Trader?

Employing staff costs more than just wages.

Typical costs include:

• Wages or salary
• Superannuation
• Payroll software or services
• Insurance
• Leave entitlements
• Accounting and compliance support

💡 A realistic estimate: employment costs are usually 20–30% higher than base wages.

Risks of Hiring Employees as a Sole Trader

While legal, employing staff as a sole trader comes with higher personal risk.

Because there’s no legal separation:

• You are personally liable for:
  
  • Employment disputes
  • Unpaid super
  • Tax debts
  • Fair Work penalties

This is one reason many growing businesses move away from the sole trader structure.

Should You Stay a Sole Trader or Switch to a Company Before Hiring?

This depends on:

• Your income
• Business risk
• Growth plans
• Number of employees

Staying a Sole Trader May Work If:

• You’re hiring one or two staff
• Risk is relatively low
• Cash flow is predictable

Switching to a Company May Be Better If:

• You plan to hire multiple employees
• You want asset protection
• You want greater tax planning flexibility

If you’re planning to hire more staff or reduce personal risk, getting expert business structure advice can help you decide whether to remain a sole trader or register a company before expanding.

Can a Sole Trader Hire Family Members?

Yes, but strict rules apply.

You must:

• Pay market rates
• Pay super (where applicable)
• Keep proper records
• Follow payroll and Fair Work requirements

Family arrangements are closely monitored by the ATO.

Common Mistakes Sole Traders Make When Hiring Staff

• Paying cash-in-hand
• Not registering for PAYG
• Missing super payments
• Incorrect award rates
• No payroll records
• Treating employees as contractors

These mistakes often result in audits, penalties, and back payments.

Do You Need an Accountant When Hiring Employees as a Sole Trader?

You’re not legally required to use an accountant — but it’s strongly recommended.

An accountant helps you:

• Set up payroll correctly
• Avoid Fair Work penalties
• Stay ATO compliant
• Manage cash flow
• Decide if your structure is still right

Final Thoughts: Can a Sole Trader Employ People?

Yes — sole traders can legally employ staff in Australia.

But hiring employees means:

• More responsibility
• Higher compliance requirements
• Increased personal risk

Getting the setup right from the start can save thousands in penalties and stress.

Need Help Hiring Staff as a Sole Trader?

At Accountants Direct, we help sole traders:

• Set up payroll correctly
• Stay compliant with ATO and Fair Work
• Manage bookkeeping and accounting for sole traders
• Decide when it’s time to change structure