Yes, as a sole trader in Australia, you can employ workers in your business, but you can’t employ yourself. As a sole trader, you are responsible for paying your worker’s salary. You are also responsible for your own salary and may choose to pay it into a fund for yourself to help save for your retirement.
When you operate your business as a sole trader, you are the only owner and you control and manage the business. Operating as a sole trader business means that your personal finances are connected to your business, and they’re protected in case of insolvency. A sole trader business is easier to set up, requires less reporting and costs less to maintain than a company.
However, just because you are a ‘sole’ trader does not necessarily mean that you have to go it alone. In Australia, Sole traders are allowed to hire employees. This is as long as they comply with the obligations of being an employer. There are so many obligations you are expected to adopt when you become an employer in Australia. Similarly, there are certain minimum standards you will need to comply with in respect of your workers. They include;
Conditions You Must Meet Before Hiring Employees as a Sole Trader
Table of Content
Entitlements of staff
As an employer, you are expected to remain informed on the different entitlements of each type of worker. Note that these include minimum wage, leave entitlements and notice periods for termination. For instance, if you hire full-time staff you will need to have an annual leave system in place.
In Australia, you are expected to contribute 9.5 percent of your workers ordinary time wage to their superannuation account. This is mandatory under the Super Guarantee system. You will also have to pay the superannuation at least four times a year by the quarterly due dates. Late payments will incur a fee.
You are also expected to take out personal and work insurance to protect both your customers and employees from the adverse effects of a workplace accident. If a workplace accident causes an injury or illness, the insurance is expected to protect your interests and help the injured party recover.
Workplace health and safety
You will be expected to comply with the Workplace Health and Safety regulations. This involves making assessments of and mitigating risks that may adversely impact your employees or customers.
Have it in mind there are citizenship requirements attached to employing staff in Australia. You are tasked with ensuring that your workers either are Australian citizens or permanent residents, or have a visa entitling them to work in Australia.
Benefits of a Sole Trader Business Structure in Australia
A sole trader business is a business structure in which the proprietor is responsible for the entire business, essentially you are the business. When tax time comes around, all business profits, income, etc. are counted together with your own personal, individual income. There are many benefits of a sole trader business, including:
- From a business perspective, you have more autonomy over business decisions than when it comes to a partnership or company structure.
- Business licences are often lower for sole traders than for companies.
- You can still employ staff but keep in mind that you need to have workers’ compensation insurance, make superannuation contributions and adhere to the awards and entitlements of casual, part time and full time staff.
- Any losses you make in the business can be offset against other income you earn such as your wages or income from an investment property.
- You don’t need a business bank account although you’ll be required to keep financial records for at least 5 years.
- It is easy to change to another business structure if you decide to operate as a partnership or if you get to the point in your growth where a company structure makes more sense.
- Simple and cheap to set up with the Australian Taxation Office (ATO) including no registration or annual administration fees.
- Fewer reporting requirements than a company meaning you just need to complete one tax return a year using your Tax File Number (TFN) if you are operating in your name or an Australian Business Number (ABN) if you are trading under a business name.
- You pay tax at the same rate as if you were an employee working for a company. This is typically only beneficial if you are making a nominal turnover (less than $100,000 as a general rule). Any more than this and you want to consider switching from a sole trader to a company structure to take advantage of the lower tax rates.
- You won’t need to pay payroll tax if you don’t employ anyone else in your business.
- It is a lot easier to declare your business expenses such as car and travel costs.
- Personal superannuation contribution tax reductions available.
- Small business CGT concessions (50 percent discount) and there is also a complete exemption if you run the business for at least 15 years (other conditions apply).
The Disadvantage of a Sole Trader Business Structure in Australia
Setting up a company in a sole trader business structure typically works for ventures that are small, not currently making a lot of turnover and have very little personal liability. Some of the disadvantages of a sole trader business structure include:
- There is unlimited liability, meaning your personal assets are at risk when things go wrong
- You are personally liable to pay tax on all income derived from the business and there is a little opportunity for tax planning
- Sole traders often try and pay a family member a wage for doing some kind of service such as administration work or bookkeeping to avoid paying tax on part of the income they derive from the business. However, they have to be an integral part of the business. You can’t just say they help out in the office a couple of days a week if there is no employment paperwork to back it up.
- Unlike a company, you can’t simply issue shares to raise capital to fund your next phase of business growth. Effectively, the only “capital” you can raise is debt from either your friends or family lending you money or by applying for a business loan with your bank.
- If you choose to operate your business under a name other than your own, you must register the business name with the Australian Securities and Investments Commission (ASIC). It is not a drawback in itself but it just means you are under more regulatory scrutiny.
- You can’t claim tax deductions on the money drawn from the business.
- You miss out on the advantages of collaborating and sharing ideas with a business partner.
- Unlike a company ownership structure, it is difficult to transfer business ownership to someone else after your death or in the event that you are forced to sell the business (due to illness or disability, for instance). You can specify your wishes in a Will but you can’t split the capital gain from the sale of the assets between family members. If there is a capital loss, the owner’s personal assets will be put at risk.
Indeed a sole trader is an individual running a business. It is the simplest and cheapest business structure. If you operate your business as a sole trader, you are the only owner, and you control and manage the business. This business structure gives the owner all the decision making power. They can also hire people if they want to. However, it is important to understand and remain compliant with your obligations as an employer.