Sole Proprietors Can Hire Employees Legally

Many entrepreneurs start their businesses as sole proprietorships due to the simplicity and autonomy this structure offers. As your business grows, you might wonder, “Can a sole proprietor have employees?” The answer is yes! Sole proprietors can indeed hire employees, but there are important legal and tax considerations to keep in mind. This guide will walk you through the process of becoming an employer as a sole proprietor, from obtaining an EIN to setting up payroll and complying with tax regulations.

Understanding Sole Proprietorship and Employment

Yes! A sole proprietor can have employees as long as they are compliant with all appropriate tax and labor laws. There are two things a sole proprietor must do to hire employees: (1) register with the tax bureau and obtain an employer identification number (EIN) (2) register the business with their respective state tax office.

After this is completed a sole proprietor must comply with all tax requirements and pay all state and federal taxes for their employees. This includes employee income taxes, state and federal income taxes, and payroll taxes. Though this may seem tedious and costly, there are associated benefits. Sole proprietors are able to claim numerous tax credits and deductions that are not available to others.

Legal Requirements for Hiring as a Sole Proprietor

It depends. Local regulations may impact employees of a sole proprietor, but by obtaining the proper licenses and permits to operate their business, it is unlikely there are any limits placed on the number of employees the business can hire. However, local land use and zoning regulations may restrict the number of employees a business (not just sole proprietors) can have on the premises or parking options for employees.

Getting the Most Out of Your Sole Proprietorship

If you are a sole proprietor looking to hire employees to grow your business and save on taxes, Corvee Tax Planning Software can help to find strategies to fit your circumstances and maximize tax savings for your sole proprietorship. Get a demo today!