Can a Sole Proprietor Have Employees?

Sole proprietors don’t have to run the ship alone. Here’s what you need to know about hiring help for your small business.

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What does it mean to be a sole proprietor?

A sole proprietorship is the simplest structure when it comes to running a business. It’s not a legal entity – the term just refers to the person who owns the business and personally backs its debts. That means your business finances and liabilities are essentially your own.

Sole proprietors report all of their business income and expenses on the Schedule C of their personal IRS Form 1040 income tax return. Usually, sole proprietors run small business operations, but sometimes look to expand. That’s when hiring employees can help.

Can a sole proprietor hire employees?

Yes! Even though a sole proprietorship is not a separate business entity, business owners can still hire employees as long as they follow all the relevant labor and tax laws. As an employer, you’re responsible for all the bookkeeping.

Sole proprietors report their business income and expenses on their tax return, including the amount they pay their employees.

What you need to start hiring

Before you start hiring, make sure you’re prepared to carry out all our obligations as an employer. Here’s a simple checklist to help you on your way.

  • Employer Identification Numbers: If you’re planning to become an employer, you’ll need to register as one through the IRS and receive your Employer Identification Number, or EIN. You’ll use this unique number on your tax filings. State tax authorities may issue your business another identification number.
  • Licensing and Permits: As a sole proprietor, you probably know that you need to comply with state and local business licensing and permit laws. When it comes to hiring employees, make sure you know about any regulations, like local land use. You might need to relocate to a commercial zoning district to expand your operations.
  • Tax Obligations: As an employer, you’ll be responsible for having your employees fill out all the relevant paperwork, like the W-4, the I-9, and any insurance benefits like workers’ compensation. Once the new hire joins your team, make sure you’re withholding the proper amounts from their paychecks and filing all the appropriate tax forms on a timely basis.

What’s next?

If your small business is growing and you’re looking for a boost, get started with SmartBiz Advisor today to see if you’re Loan Ready! This free, online, educational tool will provide you with personalized insights and recommendations to help you strengthen your lending profile, even before you start your loan application with SmartBiz.

For more information on hiring and employee management, check out these posts on the SmartBiz Small Business Blog:


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.