Can a Sole Proprietorship Have Employees?
Yes a sole proprietorship can absolutely hire employees. While the business is owned and operated by one individual, nothing in the law prevents a sole proprietor from expanding their team and employing others to help run the business.
Understanding What a Sole Proprietorship Is
A sole proprietorship is the simplest and most common business structure. It’s owned by one person who is personally responsible for all aspects of the business, including profits, debts, and legal obligations.
But being a sole proprietor doesn’t mean you have to do everything alone.
Can You Hire Employees as a Sole Proprietor in Canada?
Absolutely. As a Canadian sole proprietor, you can:
Hire employees for any role your business needs
Pay them a salary or hourly wage
Offer benefits or bonuses (optional)
Provide vacation pay and sick leave (required by law)
💡 Important: You do not pay yourself a salary you draw income directly from the business profits.
What You Need Before Hiring Employees in Canada
To legally hire staff in Canada, you must complete a few key steps:
✅ 1. Get a Business Number (BN) from the CRA
You must register for a Payroll Program Account with the Canada Revenue Agency (CRA) using your BN.
✅ 2. Understand Employer Payroll Obligations
You’ll be responsible for:
Deducting federal and provincial income tax
CPP (Canada Pension Plan) contributions
EI (Employment Insurance) premiums
Remitting all of these to the CRA on time
✅ 3. Provide Employment Standards
You must follow provincial employment laws, including:
Minimum wage
Vacation pay (usually 4% of earnings)
Overtime rules
Termination notice
Workplace safety and harassment policies
Each province may have slightly different standards:
Ontario: ESA
✅ 4. Keep Records & Issue T4 Slips
You must:
Track hours worked, wages, deductions
Issue T4 slips to employees by February 28 each year
Submit T4 Summary to the CRA
hould You Hire Employees or Contractors in Canada?
You can also hire independent contractors, but the CRA has strict rules. Misclassifying a contractor as an employee can lead to penalties and back taxes.
| Employees | Contractors |
|---|---|
| Covered by employment laws | Not covered by employment laws |
| Employer deducts taxes (CPP, EI, Income Tax) | Contractor files own taxes |
| Employer pays CPP & EI contributions | No employer deductions |
| Employer controls schedule and tasks | Contractor sets own hours/methods |
👉 Learn more: CRA: Employee vs. Self-Employed
Pros and Cons of Hiring Employees as a Sole Proprietor
✅ Pros
Grow your business capacity
Delegate operational tasks
Offer better customer service
Stay competitive by adding specialized skills
❌ Cons
Must register for payroll and remit taxes
Increased administrative burden
Must comply with employment standards
Potential legal risks if not managed properly
💼 Need Help Hiring Your First Employee?
We offer a free 15-minute consultation to help you register for payroll, understand CRA rules, and ensure you're compliant in your province.
📅 Book Your Free Consultation