Plenty of people start out as a sole trader working alone, then reach the point where they need a hand. The first question that usually comes up is a simple one: can a sole trader have employees? The answer is yes, and it is more common than you might think. Taking on staff does add a few responsibilities, though, so it helps to know what changes.
A sole trader can absolutely hire employees. Being a sole trader describes your business structure, not whether you can have staff. You remain personally responsible for the business, and you take on the usual obligations of an employer on top.
Once you take someone on, you need to handle a few things you did not have to as a one-person operation. The main ones are paying wages correctly, withholding tax, reporting to the ATO, and paying super.
As a sole trader, your own income is taxed through your individual tax return, and you pay tax on the profit the business makes. Sole trader tax does not change simply because you have hired someone, but you now also have to deal with your employees' tax.
When you pay staff, you withhold tax from their wages under PAYG withholding and send it to the ATO. You will need to register for PAYG withholding before your first pay run. The exact rates depend on each employee's circumstances, so it is worth checking the current ATO tax tables or asking your accountant rather than guessing.
Working out how to pay employees comes down to a few steps that repeat each pay cycle:
Single Touch Payroll, usually shortened to STP, is the system for reporting wages, tax and super to the ATO each time you pay staff. It is a requirement for employers, and payroll software handles the reporting for you in the background.
Superannuation for sole traders has two sides, and it is worth keeping them separate.
For yourself, as a sole trader you are not obliged to pay super into your own fund, because you are not technically an employee of the business. Many sole traders choose to contribute anyway to build up their retirement savings, but it is optional.
For your employees, super is not optional. You must pay the super guarantee on their behalf, on top of their wages, at the rate set by the ATO. That rate is set by the government and has risen in recent years, so check the current rate on the ATO website when you set up payroll. Super has to be paid to each employee's fund by the required deadlines, and getting this right matters, because late super can attract penalties.
None of this is difficult once it is set up, but doing it by memory each fortnight is where mistakes creep in. Sole trader accounting software that includes payroll takes care of the calculations, the STP reporting and the super, so you can pay your one or two staff correctly without it eating your week.
Easy Business App is built for exactly this size of business. Payroll starts at $14.95 a month for up to four employees, with STP and super handled for you. If you have just taken on your first staff member, see how simple it can be at easybusinessapp.com.