Can a Sole Proprietorship Have Employees?

By Jeffry Olson, J.D.

Can a Sole Proprietorship Have Employees?

By Jeffry Olson, J.D.

A sole proprietorship may sound like a lone venture, but it can have employees. Even though this type of business structure is owned and operated by a single person, there are no other restrictions on the business itself, including the hiring of workers.

Smiling man sitting at a desk

Operating a Sole Proprietorship

A sole proprietorship operates like any other business. The term sole proprietorship is simply a description of the form of business—a business owned and managed by one person. There are no other restrictions on the business, including for employees. It is free to employ others to work in the business.

Commonly, owners operate their sole proprietorships under their personal name. However, they may use an assumed or fictitious name, also called a doing business as (DBA) name, by filing paperwork with the appropriate jurisdiction. Contacting an attorney may help you throughout this process.

Because states do not consider sole proprietorships and their owners as separate entities, the owner reports all income and losses to the business on his or her personal income taxes. Be advised, this means any liabilities incurred by the business are also the liabilities of the owner. If the business has workers, any money paid is a deductible business expense.

Employer Identification Number

Every business, including a sole proprietorship, that wishes to hire staff must first obtain an employer identification number (EIN). This involves registering with the Internal Revenue Service as an employer. The business can obtain an EIN immediately by applying online. Alternatively, a business can apply for an EIN by fax or mail.

The EIN acts as a Social Security number for the business. The business uses it for tax filings and other business purposes, such as opening a bank account. The business also registers separately with state tax authorities and possibly a state labor agency.

Employer Responsibilities

A sole proprietorship can hire an unlimited number of employees but must follow all laws—local, state, and federal—regarding those hires even though it is a small business. In addition to having an EIN for the business, the owner must have each worker fill out the appropriate employment forms.

After employment has begun, the sole proprietor must withhold all required employment taxes from the worker's wages and contribute appropriate employer taxes. The business must deposit taxes and file payroll reports as required by state and federal law. As the owner, the sole proprietor is not treated as an employee of the business. They must still pay self-employment taxes. Note, any worker healthcare costs are also a deductible business expense for the sole proprietor.

A sole proprietor may also hire a spouse or child. If the owner chooses to hire a child, he or she must follow all child labor laws. The spouse or child must also be a legitimate staffer.

While a sole proprietorship may hire employees, the business must follow all local, state, and federal laws regarding workers. Overall, it follows all of the same rules of any other business even though it only has one person as the owner and manager.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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