Can a Sole Trader Have Employees? Your Expert Guide to Hiring in Australia

Yes, absolutely. As a sole trader, hiring employees is a common—and exciting—next step for a growing business.

But the moment you hire your first person, your entire world changes. You transition from simply running your own show to becoming a legal employer, and that switch comes with a whole new set of rules and responsibilities under Australian law.

Yes, Sole Traders Can Hire Employees, But Your Role Changes Instantly

The idea that a "sole" trader must work alone is one of the biggest myths in Australian business. The term simply means you are the sole owner of the business—it has no bearing on being the only person doing the work.

Bringing on staff is a classic sign that your business is thriving and you need more hands on deck to meet demand.

Many sole traders we work with hit this point. For instance, a landscaper on the Northern Beaches who hires a labourer to take on more jobs, or a graphic designer in Ashfield who brings on an assistant to manage client administration. It’s a fantastic milestone, but it also places a significant layer of legal and financial duties squarely on your shoulders.

The Shift From Operator To Employer

It's tempting to think, "Great, I'll just pay someone to help out." But it's not that simple. Your business structure as a sole trader doesn't change, but your role gets an immediate and serious upgrade.

Suddenly, you're not just responsible for your own income and tax. You're managing someone else’s livelihood, and the Australian government takes that very seriously.

As a sole trader, you remain personally liable for everything the business does—including any mistakes made as an employer. This makes it absolutely critical to get your new obligations right from day one.

So, what does this actually look like? Taking that step from a one-person band to a boss completely transforms your day-to-day responsibilities.

Let's break down how your world shifts with a simple comparison.

How Your Responsibilities Shift From Solo Operator To Employer

As you can see, the list of mandatory duties expands significantly.

Key New Responsibilities

When you put someone on the payroll, you’re instantly responsible for several critical tasks. These aren’t optional; they're legal requirements.

• PAYG Withholding: This is non-negotiable. You must withhold the correct amount of tax from your employee's wages each pay run and report it to the Australian Taxation Office (ATO).
• Superannuation: You must pay the Superannuation Guarantee (currently 11%) on top of their wages into their nominated super fund. Get this wrong, and the penalties are severe.
• Workers' Compensation: Before your new employee starts their first shift, you must have a valid workers' compensation insurance policy. It's mandatory in every state and territory to cover your team in case of a workplace injury.
• Fair Work Compliance: You must adhere to the rules set by the Fair Work Ombudsman, which includes the 11 National Employment Standards (NES) and any specific Modern Award that applies to your industry. These govern everything from minimum pay rates to leave entitlements.

Figuring out if you can hire employees is the easy part. The real work is in mastering these new duties. The ATO’s guide on hiring your first worker is an essential starting point for understanding the specifics.

Understanding Your Core Employer Obligations

Making the leap from working for yourself to paying someone else is a massive step. It's exciting, but it also means you're suddenly responsible for a lot more than just your own tax. You're now handling someone else's financial and legal entitlements.

These obligations are non-negotiable. Getting them right from day one is the key to keeping your business compliant and avoiding serious penalties from the Australian Taxation Office (ATO).

Think of these duties as the essential pillars of being a good employer. They ensure your team is paid correctly, their retirement is provided for, and they’re protected if anything goes wrong on the job. Let’s break down exactly what this means for you.

PAYG Withholding: The Tax Man’s Cut

One of your first new jobs as a boss is to become a tax collector for the ATO. It sounds daunting, but it’s a standard process called Pay As You Go (PAYG) withholding. All it means is you must calculate and set aside the correct amount of income tax from your employee's wages before you pay them.

This money isn't yours; you're simply holding it for your employee before sending it directly to the ATO. The amount you withhold depends on how much they earn and the details they provide on their Tax File Number declaration form. The ATO provides detailed tax tables to help you get the calculation spot on.

This isn't optional. Failing to withhold PAYG—or getting the amount wrong—can bring on significant penalties. It's a fundamental part of the Australian tax system that helps employees meet their tax obligations throughout the year.

The Superannuation Guarantee: Securing Their Future

On top of their regular wages, you’re legally required to contribute to your employee's retirement savings. This is called the Superannuation Guarantee (SG). At a minimum, you must pay a set percentage of their earnings into their nominated super fund every quarter.

The current SG rate is 11% of an employee's ordinary time earnings, and this is legislated to gradually increase in the coming years. This rule applies to almost everyone—full-time, part-time, and casual staff. Forgetting to pay super or paying it late is a serious breach that can lead to the Superannuation Guarantee Charge, which includes penalties and interest that are not tax-deductible. The relevant legislation can be found in the Superannuation Guarantee (Administration) Act 1992.

For a deeper dive, review our expert guide on how to ensure timely super guarantee payments.

Workers’ Compensation Insurance: A Non-Negotiable Safety Net

The third pillar is Workers' Compensation Insurance. You absolutely must have a valid policy in place before your employee even walks through the door on their first day. This insurance is mandatory in every state and territory, and it protects both you and your team.

If an employee gets injured at work or becomes sick because of their job, this insurance covers their wages while they're unable to work, their medical bills, and any rehabilitation costs. Without it, you’d be personally liable for those costs, which could be financially devastating for a small business.

Practical Example: A sole trader carpenter in Belrose hires an apprentice. Before the apprentice starts, the carpenter must secure a workers' compensation policy through an approved insurer like iCare in NSW. If the apprentice injures their hand on site, this policy covers their medical expenses and lost wages, protecting the business from financial ruin.

Navigating Payroll and Fair Work Standards

Once you’ve sorted out tax and super, you step into the day-to-day reality of being an employer: running payroll and keeping up with Australian workplace laws. These aren't just administrative chores; they're legal duties that protect both your people and your business from serious penalties.

The good news? Modern software has made this a whole lot easier than it used to be. But first, you absolutely must understand the rulebook you’re playing by. This means getting your head around how you report payments to the ATO and the specific standards that apply to your line of work.

Single Touch Payroll Reporting

Remember the old days of filling out annual payment summaries? They're gone. Today, Single Touch Payroll (STP) is the only way to report your team's payroll information to the ATO.

Every single time you pay your staff, your STP-ready software sends a report to the tax office with all the details—wages paid, tax withheld, and super contributions. It's a real-time system that keeps the ATO in the loop and gives your employees a clear, up-to-date picture of their earnings in their myGov account. Using STP-compliant software is mandatory, so choosing the best payroll software for small business isn't just a convenience, it’s a critical decision that will save you a world of pain down the track.

Understanding Modern Awards

Think of a Modern Award as an industry-specific instruction manual. It’s a legal document that sets out the absolute minimums for pay rates, working hours, overtime, allowances, and other conditions for employees in a particular field. With over 100 different Awards out there, identifying the right one is crucial.

Getting the award wrong is one of the most common—and costly—mistakes a new employer can make. Paying someone under the wrong award can lead to significant back-pay claims and fines from the Fair Work Ombudsman.

Practical Example: A sole trader running a café in Ashfield hires a barista. They must classify this role under the Restaurant Industry Award [MA000119]. This award dictates the barista's minimum hourly wage for weekdays, weekends, and public holidays, as well as rules for breaks and overtime. The Fair Work website has a handy Find my award tool that can point you in the right direction.

The National Employment Standards

No matter which Award applies, every single employee in Australia is covered by a safety net known as the National Employment Standards (NES). These are ten minimum entitlements that are completely non-negotiable.

The NES provides a baseline for all workers, regardless of their industry or role. The ten standards are:

1. Maximum weekly hours: Capped at 38 hours a week, plus any reasonable additional hours.
2. Requests for flexible working arrangements: A right for certain employees to ask for changes to their work setup.
3. Parental leave: Includes maternity, paternity, and adoption leave.
4. Annual leave: Four weeks of paid leave per year (pro-rata for part-time).
5. Personal/carer's leave: For when they're sick or need to care for family, plus compassionate leave and unpaid family and domestic violence leave.
6. Community service leave: For things like jury duty or volunteer emergency work.
7. Long service leave: An entitlement after a long period of continuous service.
8. Public holidays: The right to a day off on public holidays, or to be paid extra if they work.
9. Notice of termination and redundancy pay: Minimum notice periods and redundancy payouts.
10. The Fair Work Information Statement: A document you must provide to every new employee upon commencement.

These standards are the bedrock of Australian employment law. For more detail on payroll reporting, our guide to Single Touch Payroll for you has you covered.

Calculating The True Cost Of Your First Employee

Before you even think about posting that job ad, let's get one thing straight: an employee's salary is just the tip of the iceberg. The real cost of hiring is always higher, and if you only budget for the wage, you're setting yourself up for a nasty cash flow shock down the track.

Let's run through a real-world example to see how the numbers actually stack up.

Imagine you're a sole trader plumber based in Belrose on the Northern Beaches, and you've decided to hire a full-time admin assistant on a $70,000 annual salary. That figure is your starting point, not the finish line.

Breaking Down The On-Costs

On top of the base salary, you have several mandatory expenses known as "on-costs." Think of these as the legally required extras you must pay as an employer.

Here’s what you need to add to your calculations:

• Superannuation Guarantee: This is non-negotiable. You have to contribute 11% of their ordinary time earnings into their super fund.
• Workers' Compensation Insurance: Premiums vary by industry and state. For this example, let's use an indicative rate of 1.5% of their total wages.
• Payroll Tax: In NSW, you only start paying this once your total annual wage bill exceeds the $1.2 million threshold. We'll assume you're under that for now. If you're approaching that figure, check out our guide on how to calculate payroll taxes.

The Real-World Calculation

Let's apply these percentages to our $70,000 salary example.

See that? Your $70,000 employee is actually costing your business closer to $79,000 a year. And that's before you factor in other potential expenses like recruitment fees, a new laptop, uniforms, or subscriptions for payroll software.

This hidden cost jump is a huge reason why so many Australian businesses remain as one-person operations. As of June 2023, a massive 63.6% of all businesses were non-employing.

The question of whether a sole trader can have employees often comes down to this exact calculation. It's not about what the law allows—it's about what your cash flow can handle.

Knowing these numbers upfront is critical. It allows you to budget properly and make a clear-headed decision about whether hiring is genuinely the right move for your business right now.

Your Step-by-Step Checklist for Hiring Your First Employee

Taking that massive leap from a one-person show to someone’s boss is a huge deal. It’s about so much more than a handshake and a verbal agreement. To do it right—and keep yourself out of trouble—you need a solid game plan.

Think of it like a pre-flight checklist for your business. Skipping a step now can lead to serious turbulence down the track. This expert checklist will walk you through the essentials, step-by-step, so you can get all your legal and financial ducks in a row before your new team member walks through the door.

Stage 1: Laying the Legal Foundations

First things first, you need to get your business officially registered and insured as an employer. These aren't just suggestions; they're non-negotiable legal requirements.

1. Register for PAYG Withholding: Your very first move is to register with the Australian Taxation Office (ATO) for Pay As You Go (PAYG) withholding. This gives you the legal authority to withhold tax from your employee's pay. You can get this sorted through the ATO Business Portal.
2. Get Workers' Compensation Insurance: You absolutely must have a workers' compensation policy in place from day one. In NSW, that means getting cover through an approved insurer regulated by iCare. Do not let an employee start work until this is finalised.
3. Check for Other Registrations: Have a think about what’s next. If your total annual wages bill is set to grow, you might need to register for payroll tax once you cross the state threshold. It pays to look ahead.

Stage 2: Getting Your Systems in Place

With the legal stuff sorted, it's time to focus on the practical side of things. You need the right systems to manage payroll and employment conditions without a hitch.

• Choose STP-Compliant Payroll Software: Reporting through Single Touch Payroll (STP) isn't optional—it's mandatory. You'll need a payroll system that automatically sends wage, tax, and super info to the ATO every time you do a pay run. This is one of the most critical tools in your compliance toolkit.
• Find the Right Modern Award: You need to pinpoint the specific Modern Award that covers your industry and your employee's role. This document is the rulebook for their minimum pay rates, leave, and working conditions. The Fair Work Ombudsman’s website is your best friend here.

Stage 3: The Onboarding Process

Okay, you're almost there. Now it's time to make it official and bring your new team member on board properly.

In Australia, small businesses are the lifeblood of the economy, making up 97.2% of all businesses and employing over 5.1 million people. As a sole trader in Ashfield or on the Northern Beaches, nailing these details is what sets you up for growth. For instance, once your annual GST turnover hits $75,000, you must register for GST and report PAYG withholding on your Business Activity Statements (BAS)—a key tax duty.

A formal employment contract is your best protection. It sets clear expectations for both you and your employee on everything from the job role and pay to hours and policies. Getting this in writing now prevents a world of misunderstandings later.

Finally, pull together all the paperwork they'll need for their first day. This should include:

• A written employment contract.
• A Tax File Number (TFN) declaration form.
• A Superannuation Standard Choice form.
• The Fair Work Information Statement.

For a more in-depth walkthrough, this article on Hiring Your Very First Employee is a fantastic resource. Following a structured approach like this turns a daunting task into a manageable one, ensuring you start your journey as an employer on solid, compliant footing.

Ready to Hire? Don't Let Compliance Trip You Up

As we've walked through, the answer to "can a sole trader have employees" is a definite yes. But as you've probably gathered, it’s not as simple as just putting someone on the payroll. The compliance side of things can be a real minefield.

It's easy to make a small mistake with things like super payments, getting award rates right, or classifying an employee correctly. Unfortunately, even simple errors can lead to hefty penalties from the ATO. Their official employer guidelines are clear, and they don’t leave much room for error. You don't want a compliance headache to derail the excitement of growing your business.

As accountants who work with small businesses every day in Ashfield and across the Northern Beaches, we've seen it all. Our job is to ensure your payroll is set up correctly from day one, all your obligations are met, and your business is structured to handle this new stage of growth.

It all starts with a few foundational steps.

Think of it like this: getting registered, insured, and having solid contracts in place are the non-negotiable pillars for hiring your first employee the right way.

Here’s our most actionable piece of advice: don't go it alone. Let's have a chat. We can help you navigate the tricky bits of becoming an employer, giving you the peace of mind to get back to what you do best—running your business.

Common Questions We Hear About Hiring

Taking the leap from sole trader to employer is a big one, and it's natural to have a tonne of questions. We get it. Here are some of the most common queries we handle for business owners in Ashfield and across the Northern Beaches.

Do I Have to Pay Super for a Casual Employee?

Yes, almost certainly. The old rules have changed, and it's a trap many new employers fall into.

Under the current Superannuation Guarantee laws, you have to pay super for pretty much every employee—whether they're full-time, part-time, or casual—as long as they're over 18. The old minimum monthly earnings threshold is gone.

The only real exception is if your employee is under 18. In that case, you only need to pay super if they work more than 30 hours in a single week. Assuming casuals are automatically exempt from super is a very common and very expensive mistake.

What’s the Real Difference Between an Employee and a Contractor?

This is a critical distinction, and the ATO watches it like a hawk. Getting it wrong can land you in serious trouble.

Think of it like this: an employee works in your business and is part of your team. A contractor is running their own separate business that provides a service to your business.

It really boils down to a few key tests:

• Control: Who calls the shots? You generally direct an employee on how, where, and when they do their work. A contractor has a lot more freedom to manage their own process.
• Tools & Equipment: Do they use your gear or their own? Employees typically use tools you provide, whereas contractors bring their own.
• Financial Risk: Who wears the risk? A contractor has to quote for jobs, send invoices, and cover their own insurance. They're on the hook if something goes wrong financially.

Misclassifying an employee as a contractor just to avoid paying super or leave entitlements is a shortcut to disaster. You could be hit with massive penalties, including back-paying everything you owe, plus interest and fines. For the official breakdown, check out the ATO's guide on worker classification.

Can I Just Pay My Staff in Cash?

Let's be blunt: absolutely not.

Paying someone "cash in hand" to dodge your tax and super obligations isn't just a dodgy workaround; it's illegal. The ATO calls this the "shadow economy," and they have very sophisticated ways of finding businesses that do it.

Every dollar you pay an employee must go through a proper, STP-enabled payroll system. This is how you correctly withhold their tax (PAYG) and report everything to the tax office. If you don't, you're facing major penalties—and you can't even claim the wages as a tax deduction for your business. It's a lose-lose situation.

Navigating all the rules when you hire your first employee doesn't have to feel like you're walking through a minefield alone. At EndureGo Tax, we specialise in helping sole traders just like you make the transition to being confident, compliant employers.

If you’re based in Ashfield or the Northern Beaches, book a consultation today. Let’s make sure you get it right from day one. https://www.endurego.com.au