A hiring board on a plain red background. A hiring board on a plain red background.

Can a Sole Proprietor Have Employees in Canada: 4 Important Things to Know

There are various types of companies. For instance, Limited Liability Companies, Public Companies, Private Companies and so on.

Setting up a sole proprietor firm in Canada is one of the most straightforward and affordable forms among other forms of corporations. Sole proprietorships promote self-employment. You may wonder, “Can a sole proprietor have employees?” The answer is Yes.

You read it right, though under sole proprietorship, there is a single owner who is personally in charge of the sole proprietor firm. But you can still employ other people for the smooth functioning of the firm. My research tells me that in 2019, Canada had 1.23 million employer businesses in Canada out of which 1.2million were small businesses.

Furthermore, the liabilities, roles and responsibilities, and functioning shall be discussed further in the post.

1. The Basics of Being Your Own Boss

Can a Sole Proprietor Have Employees in Canada
Image by Barely Devi/Pixabay

A sole proprietor is a person who establishes a sole proprietorship firm. There is no difference between the firm and the sole trader in the eyes of the law. Hence, a sole trader is personally liable for all aspects of the firm.

There is also no distinction between individual assets and firm assets. Additionally, the sole proprietor pays personal income tax whenever the sole proprietorship’s firm earns a profit.

Additionally, sole owners are responsible for the administration, management, and operations of the firm. It is the sole proprietor who controls every aspect of the firm. Thus, making him liable for every action taken by the firm.

A sole proprietor is employed all by himself; he is his own boss. These business owners are known as sole proprietors and are called sole traders.

2. Sole Proprietorship Firm

Sole Trader Business Structure Explained Simply

A sole proprietorship firm is an unincorporated business with only one owner. Furthermore, these types of firms are free from complexities and cost-effective to establish as the interference of the government is significantly less.

Additionally, a sole proprietorship firm can also convert itself into other forms of Company. This conversion can be done by following the laws that have been laid down.

Other names for Sole Proprietorship are:

  • Individual Entrepreneurship
  • Sole Traders
  • Individual Proprietorship

Let us understand better with the following example:

Any local grocery store, medical shop, electrical shop, local clothes shop, or any other small-scale firm are a few examples of sole proprietorship firms.

A few of the advantages of Sole Proprietorship firms are:

  • Easy to incorporate
  • Can enjoy full profit
  • Fewer rules and regulations
  • You’re the boss
  • Low start-up costs
  • Maximum privacy.

There are a few drawbacks related to owning a Sole Proprietorship firm. For instance, unlimited liability means no distinction between the firm and owner. Hence, the owner is directly liable for any debts that the firm has.

A few additional drawbacks are:

  • Limited capital-raising capacity
  • Difficulty in expanding business
  • Difficulty in managing daily chores
  • No Personal Time

3. Growing Solo Ventures: Navigating the Option of Hiring Employees

Image by Mohamed Hassan/Pixabay/Copyright 2018
Image by Mohamed Hassan/Pixabay/Copyright 2018

Despite not being a formal corporate organization or a limited company, a sole trader business can still employ employees. In the eyes of the law, the owner and the business are the same. Thus, they are allowed to have as many employees as required. There are a few rules laid by the concerned authority that must be followed.

Let us understand the requirements to hire employees in a sole proprietorship firm:

3.1. Social Insurance Number (SIN)

If any person, whether permanent resident or temporary resident, wishes to work in Canada, must acquire SIN.

SIN is also required if a person wishes to receive benefits and services from the government through various programs. Hence, a sole proprietor must first obtain SIN within 3 days of employing any person.

3.2. Payroll Account Number

There are payroll deductions such as:

  • Employee Insurance Premiums
  • Canada Pension Plan Contributions
  • National Insurance and
  • Personal Income Tax

Hence, it is the responsibility of the sole trader to manage the staff payroll. Additionally, he is required to gather information on the new employees, open payroll account numbers, and calculate and remit the deductions as per law. Also, maintaining proper records is a must.

3.3. Filling Information Return

A sole proprietor is required to file an information return in form T4. In this slip, he shall specify salary, wages, tips, bonuses, vacation pay, and any other remuneration paid to the employee.

3.4. Workplace Safety and Insurance Board (WSIB)

Employers are required to register with WSIB within 10 days of employing employees. This is to safeguard the interest of employees from any workplace injury or illness.

3.5. Additional Requirements

Do Sole Proprietors Need an EIN? 📇

Employer Identification Number (EIN): Before giving employment, the employer is required to acquire the employee’s EIN.

Register as an Employer: Sole proprietors are required to register themselves as employers with the concerned authority.

Recordkeeping: It is the employer’s responsibility to maintain the employees’ records. The recordkeeping system should be diligently updated with all required information.

Gather Information: It is important that before hiring any employee, the sole trader gathers all the required documentation to safeguard its interest in the future. These documents serve as proof that employment was done per the law, such as a signed offer letter and bank account details.

Written Policies and Procedure: All types of organizations, whether small or big, formal or informal, should have written rules, regulations, and policies. These rules should be in compliance with the state law.

Hence, even a sole proprietorship firm should have policies written. The policy shall state employment status, pay structures, eligibility to receive benefits, equal employment opportunities, pay equity, and certain other notifications required by law.

4. Salary Payments to Employees

Well, sole proprietors pay employees in a manner that any big organization pays, meaning paying the gross amount after calculating deductions.

4.1. Gross Pay

Calculating Gross Pay includes wages, salaries, incentives, earnings, compensations, commissions, and paid vacations. Additionally, sole traders might provide the staff with a few taxable advantages like vehicle allowances or house allowances.

When you hire employees must take worker’s compensation insurance. After calculating all the deductions and employee benefits the amount payable is known as the employee’s net pay.

Image by Mary Pahlke/Pixabay/Copyright 2016
Image by Mary Pahlke/Pixabay/Copyright 2016

4.2. Deductions

The following deductions are to be made by the Sole Trader:

  • Federal income tax
  • The Canada Pension Plan contribution
  • Provincial and territorial income tax
  • Employment Insurance premium

Additionally, you can make deductions for any premiums or other benefits paid for on behalf of an employee. For instance, the amount paid for sickness, accident, disability, occupational pension scheme, health savings accounts, and income insurance plan is to be deducted.

4.3. Pay Period

It is the sole trader that decides the pay period for the employees. It is up to the sole trader to decide when to make the payments, it can either be paid each week or each month. Mostly, small businesses pay weekly or biweekly remuneration through direct deposit in the bank or via cheque.

4.4. Payroll Management

Furthermore, sole traders can manage payroll on their own as there are many payroll software designed to simplify the payment process. Or they can subcontract it or take the service of a third party to maintain bookkeeping and payrolls. It is important to note that any discrepancies in maintaining proper records can turn into costly penalties.

Sole Proprietor in Canada Q&A - Things to Know If You're Self-Employed

Key Takeaway

Hence, this article aims to answer the question: Can a sole proprietor have employees? It is a YES! You can have as many employees as the business requires to function efficiently.

Furthermore, when the business expands the most logical option to adopt is to upgrade the firm structure from a sole proprietorship to a Limited Liability Company (LLC). An LLC safeguards the interest of the owner and also draws a line between personal liability and company liability.


1. Is There Any Limit on Hiring the Number of Employees in a Sole Proprietorship Firm?

No, there are no such restrictions in employing employees. You can employ one or more employees as per your requirements. A sole trader shall be responsible for employed-related administration, recordkeeping, and tax obligations.

2. Can the Sole Proprietor Employ Himself/ Herself? If Yes, Can He Pay Himself a Salary?

Sole traders are not employees of the firm; rather, they own it. Hence they are not liable to get a salary, but they get remuneration through an owner’s draw from their business equity.

3. Can the Sole Proprietor Employ Any of the Family Members, Including His/ Her Spouse or Children?

Yes, a sole proprietor can hire a spouse/ children / any other family member as an employee of a sole proprietorship firm. However, he must follow all the rules and regulations in compliance with employee law laid down by the concerned authority.

Additionally, extra precautions must be taken when employing children, as the law related to employing minors is more strict.

4. Is There Any Particular Employment Law That a Sole Proprietor Should Follow?

There is no such separate law laid down for sole proprietorship firms. General rules are laid down for all types of businesses that need to be followed upon reaching the mentioned scenarios.

Similarly, there are various federal and state laws for safeguarding the rights of an employee which all businesses should abide by.

5. Can a Sole Proprietor Subcontract?

Yes, a sole proprietor can subcontract its work by contacting independent contractors. It’s quite challenging for an individual to handle everything single-handedly related to business. Hence, some portions can be outsourced. It is an ideal choice rather than hiring employees.

6. Can Sole Trader Have a Business Partner?

No, a sole trader cannot have any partner. In a sole proprietorship firm, only one single person can act in the capacity of the owner. If a person desires to have a business partner it should modify its business structure and change it into a Partnership Firm.

Last Updated on by Tahsina Javed


  • nazish

    Nazish is a member of ICSI (Institute of Company Secretaries of India) and also double graduate in Commerce and Law. Currently a full time mother and a homemaker trying to mark a difference through the power of pen. She is a voracious reader and has passion for writing. She has positive outlook towards life. She enjoys travelling and discovering new places.

  • Tahsina Javed

    Tahsina is a graduate and freelance content writer and editor. She has a penchant for crafting compelling content. An avid reader, Tahsina deeply appreciates the nuances of the English language and will leave no stone unturned when it comes to rectifying grammatical errors. She has previous experiences in content writing and editing, which has furnished her with various SEO techniques and plagiarism-free writing abilities, and is looking forward to putting her skills to good use.


    • Bachelor of Arts (B.A)
    • Honours in Sociology


    • Add-on Course in HTML and Web Design
    • Certified 'C2 Proficient' on the EF Standard English Test

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