The Real Cost of Hiring Your First Employee (Most Tradespeople Underestimate This)
You have more work than you can handle. You think about hiring a helper at $25/hr. Before you do, run the actual math. A $25/hr employee does not cost you $25/hr — and the gap between what you think and what is real is the difference between a hire that helps your business and one that sinks it.
The True Cost Stack
Start with $25/hr base wage. Add employer FICA: 7.65% = $1.91/hr. Federal unemployment (FUTA): 0.6% on the first $7,000 = roughly $0.20/hr blended. State unemployment (SUTA): varies by state and your experience rating, typically 1–5% = $0.25–$1.25/hr. Workers compensation insurance: in the trades, typically $8–$18 per $100 of payroll depending on classification code. At $12/100: $3.00/hr.
Total: $25 + $1.91 + $0.20 + $1.00 + $3.00 = $31.11/hr minimum, before any benefits, tools, or vehicle. At 40 hours/week, 50 weeks: $62,220/year in direct labor cost for an employee you are paying $26,000 in wage.
What Changes When You Add a Person
Your general liability premium goes up — you are now a two-person operation and your exposure increases. Your truck situation changes: either they ride with you (which limits your capacity) or you need a second vehicle (add $15,000–$22,000/year in truck cost). Your management time goes up: scheduling, checking work, handling their issues. And if the work slows down, their cost does not.
The Subcontractor Alternative
A qualified 1099 subcontractor costs you their rate — typically $35–$60/hr for trade work — with no payroll taxes, no workers comp (they carry their own), no unemployment, and no fixed commitment. When work slows, you stop calling them. The per-hour cost looks higher. The total-cost-of-capacity calculation often looks better.
Use the Employee vs. Subcontractor Calculator to compare the true cost of both options for your specific numbers — wage, benefits, work hours per week, and your subcontractor rate. The calculator shows you the break-even point and which option costs less at different utilization levels.
Frequently Asked Questions
What does it actually cost to hire a $25/hr employee?
On top of the $25/hr wage: employer FICA (7.65% = $1.91/hr), FUTA federal unemployment (0.6% = $0.15/hr), SUTA state unemployment (variable, typically 2–5%), workers comp insurance (varies by trade, typically $8–$18 per $100 of payroll = $2–$4.50/hr for trades), and general liability increase. Total burden typically adds 25–35% to base wage — so $25/hr costs $31–$34/hr in cash, before any benefits.
What is the difference between an employee and a subcontractor for tax purposes?
An employee requires payroll taxes, workers comp, and unemployment insurance. You control how, when, and where they work. A subcontractor is responsible for their own taxes, insurance, and equipment. They typically work for multiple clients and control their own work method. Misclassifying employees as subcontractors carries significant IRS and state labor department penalties.
When does hiring an employee make sense vs. using a subcontractor?
Employees make sense when you have consistent, predictable work that justifies the fixed cost of their employment. Subcontractors make sense for variable workload, specialized skills, or when you cannot yet guarantee 40 hours/week of work. The break-even is typically at 30+ hours/week of consistent work for most trade businesses.
What administrative costs come with having employees?
Payroll processing ($50–$150/month), workers comp audit prep, quarterly 941 filings, annual W-2 processing, state unemployment filings, and the time cost of managing schedules, timesheets, and HR issues. These add $2,000–$4,000/year in direct cost and 2–4 hours/week of management time.