Employee vs Subcontractor Costs

A subcontractor's rate looks higher per hour than an employee's wage, but it already includes their own tools, insurance, and self-employment tax — you're not adding payroll tax, workers' comp, or benefits on top. An employee's lower hourly wage gets 20-35% heavier once burdened, and you're responsible for training, providing tools, and keeping them busy even in slow weeks. Depending on volume and consistency of work, either can come out cheaper — it's not a fixed answer.

This decision isn't purely financial — misclassifying an employee as a subcontractor to avoid payroll costs is one of the most commonly audited issues in the trades, and the back taxes, penalties, and interest can be severe. The IRS and most states look at control: do you set their hours and methods, provide their tools, and direct the work closely? That points toward employee, regardless of what the contract calls them.

Subcontractors fit well for specialized work you don't do often enough to justify hiring for, or for managing variable workload without permanent payroll commitment. Employees make more sense for core, steady work where you need consistent availability and want more control over how the job gets done. Many growing contracting businesses use both, deliberately, rather than picking one model for everything.