A $25/hour helper does not cost you $25/hour. Run the full math and he costs somewhere around $44 for every hour you can actually bill him out. Thatâs a 76% premium over the wage, and most of it is invisible until youâve already hired.
Meanwhile the sub youâve been calling charges $65/hour and you pay him nothing when it rains.
So which one makes you more money? It depends on two things: how much steady work you have, and whether your state even lets you treat that person as a sub. The second one isnât your choice to make.
What a W-2 employee actually costs
Start with wage and stack the mandatory costs on top.
Say you hire a helper at $25/hour, full time.
| Item | Rate | Hourly cost |
|---|---|---|
| Base wage | â | $25.00 |
| FICA (Social Security + Medicare) | 7.65% | $1.91 |
| Federal + state unemployment | ~2.5% | $0.63 |
| Workersâ comp | 12% (example) | $3.00 |
| General liability tied to payroll | ~2% | $0.50 |
| Direct cost per paid hour | $31.04 |
That workersâ comp number is the one that swings hardest. Rates are set by class code, state, and your experience mod. Low-risk trades can land in the low single digits as a percentage of payroll. Roofing, framing, and anything at height can run many times higher. Call your agent and get the actual rate for the class code youâd be adding before you do any of this math â a guess here can be off by $8,000 a year. If youâre fuzzy on how your policies stack up, start with contractor insurance basics.
Now the part that doubles the number
You pay for 2,080 hours. You do not bill 2,080 hours.
Your employee gets paid for loading the truck, driving between jobs, standing around waiting on an inspector, going back for the wrong fitting, rain days you send him home on, the week heâs out sick, and the first two months where heâs slow because heâs learning your way of doing things.
A realistic billable figure for a full-time helper is 1,500 to 1,700 hours in year one. Use 1,600.
$31.04 à (2,080 á 1,600) = $40.35 per billable hour
Then add the overhead he brings with him:
| Added overhead | Annual |
|---|---|
| Phone line / software seat | $900 |
| Tools, PPE, consumables | $1,800 |
| Payroll service + extra bookkeeping | $1,200 |
| Training time, your supervision hours | $2,400 |
| Total | $6,300 |
$6,300 á 1,600 billable hours = $3.94/hour
Fully loaded: roughly $44.30 per billable hour for a $25/hour helper. If you eventually need a second truck, add another $8,000â$14,000 a year and re-run it.
This is the same arithmetic you should already be doing on your own time. If you havenât, read the overhead math most contractors skip first â hiring on top of a broken rate just multiplies the problem.
What a sub actually costs
A sub at $65/hour looks worse on paper. It usually isnât, in the beginning.
What youâre buying for that $65:
- He carries his own workersâ comp and liability
- He bills productive hours, not drive time and shop time
- He owns his tools and his truck
- You pay nothing in the three slow weeks of February
- He leaves when the job ends, with no severance, no unemployment claim, no conversation
What youâre giving up:
- You donât control his schedule. He has four other customers.
- You donât control his quality the same way. You can reject work; you canât retrain him.
- Your margin per hour is thinner.
- You canât build a crew out of people who arenât yours.
Most subs donât bill hourly anyway â they bid the scope. The practical comparison is: you mark the subâs bid up 15â25% and keep the spread. If youâre shaky on that calculation, markup is not margin and the difference compounds fast on sub-heavy jobs.
Side-by-side on a real job
A 200-hour project. You bill the labor at $85/hour either way.
| W-2 helper | Sub at $65/hr | |
|---|---|---|
| Billed to customer | $17,000 | $17,000 |
| Your cost | $8,860 | $13,000 |
| Gross profit | $8,140 | $4,000 |
The employee wins by $4,140 on this job. But that only holds if you have another job right behind it. Stack 1,600 billable hours a year at that spread and the employee contributes about $65,000 of gross profit. Keep him at 1,000 billable hours and youâve paid roughly $64,500 in total cost to generate $85,000 in revenue â the math gets thin fast, and it goes negative below that.
The employee is a bet on your backlog, not on the person.
The classification rules that take the decision away from you
Hereâs where contractors get hurt. You donât get to call someone a sub because itâs cheaper. The IRS and your state labor department apply their own tests, and they apply them after the fact.
The federal common-law test
The IRS looks at three buckets of control:
- Behavioral. Do you set his hours? Tell him what order to do tasks in? Require him to show up at your shop first? Supervise the how, not just the what?
- Financial. Do you provide tools and materials? Is he paid hourly rather than by the job? Does he have any opportunity for profit or loss? Does he work for anyone else?
- Relationship. Is there a written subcontract? Is the work indefinite? Is it a core part of what your business does?
The more âyesâ answers in buckets one and two, the more you have an employee wearing a 1099.
The ABC test, where it applies
A growing number of states use some version of an ABC test, where the hiring business must prove all three prongs. Prong B is the killer: the work must be outside the usual course of the hiring business. A plumbing company hiring a plumber struggles with that on its face.
Several states carve out construction subcontracting specifically, usually conditioned on the sub holding his own license, his own insurance, his own entity, and a written contract. Those carve-outs vary a lot and they have teeth-in-the-details requirements.
Go to your state labor or workforce agency site and search âindependent contractor constructionâ before you write a single 1099. This is not a question anyone on the internet can answer for your state, including me.
What getting it wrong costs
If a worker you called a sub gets reclassified â through an unemployment claim, a workersâ comp claim, a wage complaint, or an audit â you can be looking at:
- Back payroll taxes plus penalties and interest
- Unpaid overtime for every hour over 40, going back years
- Workersâ comp premium and penalties for the uncovered period
- State fines, which in some states are per worker per pay period
And the one that ends businesses: an uninsured âsubâ gets hurt on your job, has no coverage, and comes after you personally.
The insurance audit nobody warns you about
Separate from classification. Your general liability and workersâ comp policies get audited every year. The auditor asks for proof of insurance for every sub you paid.
Any sub who canât produce a valid certificate of insurance for the period they worked gets added to your payroll basis. You get billed premium on money you already spent.
Example: you paid a sub $40,000 last year with no COI on file. Your workersâ comp rate is 12%. Thatâs a $4,800 audit bill for one sub, arriving at a random moment with 30 days to pay.
Three rules, no exceptions:
- Get a COI before the first day, naming you as certificate holder
- Check the expiration date and get the renewal
- Keep a signed subcontractor agreement for every sub, every year
How to decide
- Count your backlog honestly. Go back 12 months. In how many of those weeks did you have enough work to keep a second person productive 30+ hours? If the answer is under 35 weeks, youâre not ready for W-2.
- Get your real workersâ comp rate for the class code and state. Rerun the loaded-cost table with your number, not my 12%.
- Check your stateâs classification test. If youâre in an ABC state and the carve-out doesnât clearly cover you, the sub route may simply be closed for same-trade labor.
- Compare contribution, not rate. Loaded employee cost versus sub cost, multiplied by the hours you can realistically keep filled.
- Consider the middle path. A part-time W-2 helper at 24 hours a week removes the classification risk and caps your idle-time exposure while you build backlog.
The honest summary: subs are the right answer while your work is lumpy, and employees become the right answer once your backlog is boringly consistent. Most contractors hire too early because theyâre tired, not because the numbers said to.
Your next move
Open your calendar and count the weeks over the last 12 months where you genuinely had 30+ hours of work for a second set of hands. Write the number down. If itâs under 35, your answer this year is subs with proper COIs on file â and your job is to build the backlog that makes the hire obvious.