Comparison
Should you hire a first employee or subcontract the work?
Short answer: hiring and subcontracting are two different ways to get capacity, not two prices for the same person. A W-2 hire has a true cost of wages plus official employer taxes and insurance. A genuine subcontractor invoices you for a job or a trade you are not staffed to do, carries their own crew and coverage, and is not cheaper just because you avoided FICA. This page is a job-costing comparison. It is not a substitute for the 1099 vs W-2 classification guide or the W-2 vs 1099 cost page.
Key takeaways
- Hire when you have steady work, you need the person under your direction, and the official true-cost stack still leaves room in your prices. Subcontract when the work is overflow, a specialty you do not want to staff, or a defined job another licensed shop can bid.
- On a $20-an-hour, full-time W-2 hire, official employer payroll taxes add $3,336.90 to $4,451.60 in states with a published new-employer rate, before workers’ comp. A subcontractor invoice has no employer FICA line, but it is usually a higher rate, and you still have your own overhead.
- If you direct the person’s hours and send them to your jobs as your helper, changing the label to “sub” does not make them a subcontractor. Use the official IRS and DOL tests on the classification guide.
On this page
Price the hire first Know the official W-2 stack before you compare it with a sub’s bid.
Open the calculatorWhat you are actually comparing
| Hiring a W-2 employee | Subcontracting to another business | |
|---|---|---|
| What you pay | Wages, official employer taxes, insurance, tools, and payroll time | The invoice, plus any markup you choose not to pass through |
| Who directs the work | You, as the employer | The subcontractor, on a defined scope |
| Who insures the worker | Usually you (workers’ comp and payroll taxes) | Usually the sub; ask for a current certificate of insurance |
| When it fits | Steady hours, a crew you are building, work under your name | Overflow, a specialty trade, a one-off job |
A useful test is pipeline, not tax. If you can already fill 30-plus hours a week of helper or technician work for months, the official W-2 stack is often the right model, and you can price it with the cost of hiring your first employee. If the work arrives in spikes, or it is a trade you are not licensed or equipped to staff, a bid from another shop can be cheaper than carrying a person through idle weeks — even though the invoice rate looks higher than a wage.
How to compare a bid with a hire, without inventing a markup
Take the subcontractor’s written bid for a job you understand. Set beside it the true W-2 cost of doing that job yourself: hours × your helper or technician true cost per hour from the calculator, plus your own materials and supervision. Do not convert a wage to a “typical contractor rate” with a made-up percentage. The bid is the number; the true cost is the number. Whichever leaves more contribution after the work is done is the better job-cost choice for that job — provided the person is correctly classified.
Subcontracting also fails when the other shop is late, uninsured, or doing work under your license in a way your state contractor board does not allow. Those are not payroll-tax questions, but they belong in the decision. Hiring fails when the work is not there yet; can I afford a helper is the break-even test for that risk. Part-time versus full-time is the middle path when you want an employee without a 40-hour commitment.
Get the true hourly cost Then put it next to a real bid, not a guessed contractor markup.
Open the calculatorFrequently asked questions
Is subcontracting cheaper than hiring?
It can be for overflow or specialty work, because you do not carry wages, employer taxes, or that person's downtime. It is not automatically cheaper, and it is not lawful to treat your helper as a subcontractor to avoid employer taxes if they are an employee under official IRS and DOL tests.
What official costs should I put on the hiring side?
Wages, employer Social Security and Medicare, net FUTA, official state unemployment tax, and a workers' comp quote, plus any benefits and payroll tools you will actually pay. On a $20-an-hour full-time example, official employer payroll taxes alone are $3,336.90 to $4,451.60 in states with a published new-employer rate.
How is this different from the 1099 vs W-2 guide?
That guide covers classification tests. The cost page compares employer taxes with a true contractor invoice. This page compares two business models: building a W-2 crew versus sending defined work to another shop. Use all three, not one as a shortcut for the others.
Figures on this page were checked against the linked official IRS, DOL, USCIS, ACF, and (where used) Indiana ICRB pages in November 2026. Examples are planning estimates, not a tax, legal, or insurance outcome. Confirm with your agencies, accountant, and carrier before you hire or classify a worker.