Can a sole proprietor have employees?
Checked November 10, 2026From the IRS and the Small Business Administration
Short answer
Yes. A sole proprietor can have employees without forming a limited liability company (LLC) or a corporation: the IRS lists the employer tax returns, Forms 941 and 940, and Form W-2 among the forms a sole proprietor may need to file.
A sole proprietor with employees needs an Employer Identification Number (EIN), which is free from the IRS, and then follows the same steps as any employer, including Form I-9 within 3 business days and a new hire report to the state within 20 days.
The Small Business Administration (SBA) says a sole proprietor can be held personally liable for the debts and obligations of the business, while an LLC protects its owner from personal liability in most instances.
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What does a sole proprietor need before hiring?
Get an Employer Identification Number (EIN)
Free
The IRS says you need an Employer Identification Number (EIN) if you have employees, and a sole proprietor is no exception. It’s a federal tax ID number for the business. The IRS issues it free, and says applying online takes minutes.
Withhold, deposit and file as an employer
The IRS’s page for sole proprietors lists what an employer files. Form 941, the employer’s quarterly federal tax return, covers Social Security and Medicare taxes and the income tax you withhold. Form W-2 goes to each employee, with Form W-3 to the Social Security Administration. Form 940 is the annual return for federal unemployment tax.
Keep the owner’s taxes on the owner’s return
The owner’s own taxes stay on the individual return. The same IRS page lists Schedule C with Form 1040 for the owner’s income tax, Schedule SE for self-employment tax and Form 1040-ES for estimated tax.
From there the steps are the same for every employer: state payroll tax accounts, Form W-4, Form I-9 within 3 business days of the first day of work, and a new hire report to the state within 20 days. How to hire your first employee has all nine in order, with each state’s deadline.
What changes if you form an LLC?
A limited liability company (LLC) is a business entity created under state law. The table sets one with a single owner beside a sole proprietorship, on the points that matter to an employer.
| Topic | Sole proprietorship | LLC with one owner |
|---|---|---|
| Hiring employees | Allowed. The IRS lists the employer tax returns among a sole proprietor’s forms. | Allowed. The IRS says an LLC needs an Employer Identification Number (EIN) if it has any employees. |
| Tax ID for payroll taxes | An Employer Identification Number (EIN), which the IRS says you need once you have employees. | The LLC’s own Employer Identification Number (EIN). The IRS requires a single-member LLC to report and pay employment taxes under its own name and EIN. |
| Personal liability | The SBA says your business assets and liabilities aren’t separate from your personal ones, and you can be held personally liable for the debts and obligations of the business. | The SBA says an LLC protects you from personal liability in most instances. |
| The owner’s income tax | Schedule C with Form 1040. | Unless the LLC elects to be taxed as a corporation, the IRS disregards it for income tax, and its activity goes on the owner’s own return, generally on Schedule C, E or F. |
| Self-employment tax | Schedule SE with Form 1040. | The IRS says an individual owner pays it in the same manner as a sole proprietorship. |
| Forming the business | Nothing to file. The SBA says that if you do business as yourself under your legal name, you don’t need to register anywhere. | A state filing. The SBA says an LLC will probably need to register in any state where it does business, and needs a registered agent in the state before it files. |
From the IRS pages on sole proprietorships, Employer Identification Numbers and single-member LLCs, and the SBA’s guide to business structures, read November 10, 2026. Registering for your state’s payroll taxes is a separate step from forming the business, and the first-employee guide covers it.
What does forming an LLC cost?
The free route: file with your state yourself
The SBA says most states register an LLC through the Secretary of State’s office, a business bureau or a business agency, and that some take the filing online. You pay the state its filing fee, with no company’s charge on top. The SBA puts the total cost to register a business at less than $300 in most cases and says fees vary by state and business structure. An LLC also needs a registered agent in the state before it files, which is whoever receives official papers and legal documents for the company. Find where to register in your state, from the SBA.
Companies that file it for you, and what their own pages charge
| Company | Lowest price | What its page says | Link |
|---|---|---|---|
| BizeeBasicRead Nov 10, 2026 | $0plus state fee | Bizee’s LLC page lists its Basic package at $0 plus the state fee, as a one-time payment, and says each package is eligible for one free year of its registered agent service. Their page, Nov 10, 2026 | See pricing at Bizee |
| LegalZoomBasicRead Nov 10, 2026 | $0plus state fee | LegalZoom’s LLC page lists its Basic package at $0 plus state filing fees, covering a company name check and the state filing of the articles of organization. Its next package, Managed Service, is $249 plus state filing fees and adds an operating agreement and an Employer Identification Number (EIN). Their page, Nov 10, 2026 | See pricing at LegalZoom |
| Northwest Registered AgentThe Northwest LLCRead Nov 10, 2026 | $39plus state fee | Northwest’s LLC page lists its LLC service at $39 plus state fees and names registered agent service among what’s included. Their page, Nov 10, 2026 | See pricing at Northwest Registered Agent |
| ZenBusinessRead Nov 10, 2026 | $0plus state fee | ZenBusiness’s pricing page says starting an LLC starts at $0 plus state fees, and lists its registered agent service at $199 a year. Their page, Nov 10, 2026 | See pricing at ZenBusiness |
Listed alphabetically. A company is here when its own page publishes what it charges to form an LLC, and these four are ones people often search for side by side. Prices are each company’s lowest, before the state’s fee and any add-ons. We may earn a commission from some of these links; it never decides who’s listed. How we make money.
Can a sole proprietor run payroll without a payroll service?
The free route: do it yourself
Yes. The withholding, the deposits and the returns can all be done directly with the IRS and your state. What doing it yourself involves.
Payroll systems that say they file the taxes for you
| System and its lowest plan that files payroll taxes | One employee, a month | What its page says | Link |
|---|---|---|---|
| ADP RUNPrice not published; quoted by request | n/a | ADP’s RUN product page says RUN calculates payroll taxes automatically and can file federal, state and local payroll taxes for you with proper authorization. Their page, Nov 9, 2026 | See plans for ADP RUN |
| GustoSimple: $49 plus $7 per person | $56 | Gusto’s pricing page lists tax filings and payments on all three plans. Their page, Nov 9, 2026 | See plans for Gusto |
| OnPayPayroll Essentials: $49 plus $6 per worker | $55 | OnPay’s pricing page says federal, state and local tax filings are included. Their page, Nov 9, 2026 | See plans for OnPay |
| Patriot SoftwareFull Service Payroll: $37 plus $5 per worker paid | $42 | Patriot’s pricing page lists federal, state and local tax filings and deposits on Full Service Payroll, as additions to Basic Payroll. Their page, Nov 9, 2026 | See plans for Patriot Software |
| Paychex FlexPrice not published; quoted by request | n/a | Paychex’s small business payroll page says it calculates, withholds and files federal, state and local payroll taxes. Their page, Nov 9, 2026 | See plans for Paychex Flex |
| QuickBooks PayrollWorkforce Payroll: $50 plus $7 per employee | $57 | QuickBooks’ pricing page lists full service payroll on all three Workforce plans and says payroll taxes are done for you. Their page, Nov 9, 2026 | See plans for QuickBooks Payroll |
| RipplingPrice not published; quoted by request | n/a | Rippling’s payroll page says it automatically calculates payroll taxes and files them with the correct federal, state and local agencies. Their page, Nov 10, 2026 | See plans for Rippling |
| Square PayrollFull-service payroll: $35 plus $6 per person paid | $41 | Square’s pricing page says full-service payroll calculates, withholds and files federal payroll taxes, and pays and files the taxes in each state or tax jurisdiction where you run payroll. Their page, Nov 9, 2026 | See plans for Square Payroll |
Listed alphabetically, and only where the company’s own page says it files payroll taxes. List prices before discounts and add-ons; the one-employee figure is our arithmetic. We may earn a commission from these links; it never decides who’s listed. How we make money.
Questions sole proprietors ask
Can a sole proprietor have employees?
Yes. The IRS’s page for sole proprietors lists the employer tax returns, Forms 941 and 940, and Form W-2 among the forms a sole proprietor may need to file, and its page on Employer Identification Numbers says you need an EIN if you have employees. Nothing on either page requires forming a limited liability company (LLC) or a corporation first.
Does a sole proprietor need an EIN?
With employees, yes. The IRS says you need an Employer Identification Number (EIN) if you have employees, if you will pay employment, excise or alcohol, tobacco and firearms taxes, or if you withhold tax on income paid to a non-resident alien. Its list of who needs one doesn’t otherwise include sole proprietors, and it says that if you don’t need an EIN for federal tax purposes you can still request one for banking or state tax purposes.
Do I need an LLC to hire employees?
No page we read from the IRS requires one. A sole proprietor hires under an Employer Identification Number (EIN) and files the same employer returns as any business. If you do form a limited liability company (LLC), the IRS says to register it with your state before applying for an EIN, and that an LLC with employees reports and pays employment taxes under its own name and EIN.
Can a single-member LLC have employees?
Yes. The IRS says a limited liability company (LLC) needs an Employer Identification Number (EIN) if it has any employees. A single-member LLC must use its own name and EIN to report and pay employment taxes, even when the IRS disregards it for income tax.
Is a sole proprietor personally liable for the business’s debts?
Yes, according to the Small Business Administration (SBA). It says a sole proprietorship isn’t a separate business entity, so your business assets and liabilities aren’t separate from your personal ones, and you can be held personally liable for the debts and obligations of the business. The SBA says a limited liability company (LLC) protects you from personal liability in most instances.
Do I need a new EIN if my sole proprietorship becomes an LLC?
The IRS says that, in general, you need a new Employer Identification Number (EIN) when you change your business’s ownership or structure, and that changing the business name or address doesn’t call for one. It also says a single-member limited liability company (LLC) with employees must use the LLC’s own EIN for employment taxes.
How much does it cost to form an LLC?
The Small Business Administration (SBA) puts the total cost to register a business at less than $300 in most cases and says fees vary by state and business structure. Companies that file a limited liability company (LLC) for you charge on top of the state’s fee: $0 to $39 at the lowest price on each one’s own page, for Bizee, LegalZoom, Northwest Registered Agent and ZenBusiness, read November 10, 2026.
How to hire your first employee · Employer requirements in every state · Deadline calendar
Sources
- Sole proprietorships, Internal Revenue Service (read Nov 10, 2026)
- Employer identification number, Internal Revenue Service (read Nov 10, 2026)
- Single member limited liability companies, Internal Revenue Service (read Nov 10, 2026)
- Launch your business: choose a business structure and register your business, U.S. Small Business Administration (read Nov 10, 2026)