Can a Sole Proprietor Hire Employees? (Answer Inside) (2023)

Can a Sole Proprietor Hire Employees?

If you work on your own and need additional help, you may want to know the answer to the following question, “Can a sole proprietor hire employees?” The answer is “yes.” However, before you place ads for help, you need to contact a competent business attorney to help you with this inquiry.

Call to speak to us here: to get your hiring questions answered and learn how to set up your business so you can add to your staff.


Can a Sole Proprietor Hire Employees Immediately?

The following information is important to read if you want to fully answer your questions, “Can a sole proprietor hire employees immediately?” While you can hire employees, you will need to obtain an employer identification number (EIN) from the IRS. 

Once you have this number, you will need employer identifications to fill out tax forms. For example, an employee who works for a sole proprietor must give him or her a copy of their social security card and another form of identification – preferably a picture ID. This ID may be a driver’s license, travel card, passport, or state identification card. 

As an employer, you are responsible for withholding certain amounts from employee paychecks and for filing the proper tax forms by the deadline dates. If you hire employees, you also have to obtain workers’ compensation insurance.  

As you expand and grow, you may need to form a limited liability company or LLC. This is vitally important if you plan to hire employees. If an employee injures himself or herself on the job, you want to make sure you don’t get sued.

If you operate as a sole proprietor, you could lose a large volume of your personal assets. This cannot happen if you set up your business as a limited liability company (LLC). The person who sues you can only sue for an amount that is linked to your business assets.


Can a Sole Proprietor Hire Employees Who are Independent Contractors?

If you want to know, “Can a sole proprietor hire employees who are independent contractors?” the answer is “yes.” Hiring independent contractors can offer a business owner, especially a sole proprietor, with a more affordable payment option and plan. 

In fact, you will find, as a sole proprietor, that you will realize a number of attractive saving opportunities by choosing to contract with independent contractors (ICs). You often end up paying a number of costs for employees that you don’t have to pay for ICs. 


Expenses for Employees – What They Include

When you hire an employee, you may have to pay employee benefits or pay extra for office equipment and office space. Also, you will have to pay contributions on behalf of employees, such as the following:

  • A share of the employee’s Social Security or Medicare tax
  • Workers’ compensation insurance
  • State unemployment insurance

When you add the above employee-related expenses, you can easily pay as much as 30% more on costs when you don’t use the services of independent contractors.


Hiring Independent Contractors – Reviewing the Benefits

By choosing to hire independent contractors, you have more flexibility with staffing. You can easily hire employees or discontinue their services if they work as an IC. This can be quite beneficial if you must handle a fluctuating workload. 

As a sole proprietor, you can hire an IC for a specific task for a specific amount of time. You don’t have this type of latitude if you only hire payroll employees. Also, remember, that employees have a large number of rights under both state and federal law.

Therefore, you can avoid facing legal claims that have to do with these rights by hiring ICs. 


Employee Rights that Can Lead to a Lawsuit

Rights that can lead to lawsuits among employees, but not ICs, include the following:

  • The right to receive, at least, a minimum wage or overtime compensation. Overtime compensation, when paid to employees, must be paid at one-and-one-half times the regular hourly wage.
  • The right to receive protection against any form of employment discrimination, based on color, natural origin, gender, or religion. ICs are protected from race discrimination.
  • The right to establish a union.
  • The right to receive time off to bond with a new baby in the family or care for a family member who is sick.


Wrongful Termination

An employee can also sue you, if you work as a sole proprietor, for wrongful termination. This can do some real damage to you professionally and financially, as it may include giving up a personal piece of property. While an IC cannot bring this type of lawsuit against a sole proprietor, he or she may be able to dispute a termination, based on his or her IC contract.


Drawbacks of Hiring ICs

With that being said, you may have problems hiring ICs instead of employees. For example, you have more control over your workforce when you choose to employ people on your staff.

Employees are also more permanent than ICs, who may come and go when you arrange short-term projects. In addition, if an IC creates a work or design for you, you may not be able to use the expression without the IC’s permission.

Normally, the IRS likes to see workers who are classified as employees working for a company. Naturally, the more people who are categorized as employees, the more money the government receives in terms of insurance and tax money. It is also easier to keep track of employee incomes.


What Happens Next?

If you want to know, “Can a Sole Proprietor Hire Employees?” this can be done. You first need to get an employer identification number (EIN) to establish a business bank account and set up payroll or accounts payable system for employees as well as independent contractors.

Call to speak to us here: We can show you what you need to take out with respect to taxes, how to pay ICs, or how to protect yourself from liability. Give us a call today to see how you can expand your business and do so profitably.

If you feel that you need additional help, you can choose to hire regular employees or ICs. It just depends on the set-up of your business. We can support your efforts every step of the way.

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