Wages, payroll taxes, workers' comp, and benefits on one side. 1099 hourly rate on the other. See the real cost per hour of each option before you decide.
Spreadsheet template to compare employee vs. subcontractor across multiple scenarios — includes break-even hours analysis and risk comparison.
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A $28/hour employee doesn't cost you $28/hour. By the time you add FICA (7.65%), state unemployment (~2%), workers' comp (5–12% depending on trade), and any benefits — you're at $35–$40/hour before they've touched a tool. And that's before accounting for the hours they're on your payroll but not billing anyone.
If your employee works 40 hours a week but only 32 of those are billable (80%) — the other 8 are drive time, shop time, callbacks, admin — your true cost per billable hour is 25% higher than their raw cost. A $35/hr burdened cost becomes $43.75 per billable hour. If your subcontractor bills only when they're productive, that changes the comparison significantly.
A properly classified 1099 subcontractor pays their own self-employment tax (~15.3%), their own workers' comp insurance, their own tools and vehicle. You pay their rate and issue a 1099 at year end. No payroll filings, no benefits administration, no unemployment risk. The rate looks higher — but the true comparison often surprises people.
The IRS and state labor departments actively audit worker classification. A subcontractor you control — tell them where to go, when to show up, what tools to use — may legally be an employee. Penalties for misclassification include back payroll taxes, interest, and fines. If you're treating a 1099 like an employee, talk to an accountant or labor attorney before the IRS does it for you.
Employees make sense when you have consistent 40+ hour weeks of billable work, need direct control over quality and schedule, or are building a brand that depends on your crew. Subcontractors make sense for overflow, specialty work, or markets you're testing. Most growing trade businesses use both — the key is knowing the actual cost of each option.
Hiring worksheets, pricing models, job profitability trackers, and the business documents to make every staffing and pricing decision based on real numbers.
Should you hire an employee or keep using subs? The answer depends on your numbers, not your gut. This calculator compares the true all-in cost of an employee (wage + burden + overhead) versus what you actually pay a subcontractor per billable hour. Enter both scenarios and see which structure costs less and protects your margin more.