Hire vs Subcontractor Calculator
Enter the role's pay to compare a W-2 employee against a subcontractor.
Runs entirely in your browser — your numbers never leave this page.
How it works
Hourly rates lie — cost per billable hour tells the truth:
- Employee loaded cost: wages + 7.65% FICA + unemployment + ~3% workers' comp + benefits.
- Utilization: employees are rarely 100% billable — training, downtime, admin. At 75% utilization, each billable hour costs 33% more.
- Sub: higher hourly, but zero cost when there's no work, no benefits, no HR overhead.
- Steady work → hire: full utilization makes employees far cheaper per hour.
- Spiky work → sub: paying bench time for lumpy demand destroys margins.
- Classification: you can't just call someone a contractor — behavioral and financial control determine status, and misclassification penalties are severe.
Frequently asked questions
Is it cheaper to hire or subcontract?
At high utilization, employees win big. At low/spiky utilization, subs win. This calculator finds your break-even.
What is the true cost of an employee?
Roughly 1.25–1.4x wages: FICA 7.65%, unemployment taxes, ~3% workers' comp, plus benefits.
What is utilization?
The % of paid hours that earn revenue. 75% utilization means each billable hour really costs 33% more than the loaded hourly rate.
Can I just call workers contractors?
No — the IRS control test (behavioral, financial, relationship) decides. Misclassification brings back taxes plus penalties.
When should I convert subs to employees?
When someone works ~30+ steady hours/week for you — the math and the legal risk both point to hiring.
Do subs need insurance?
Require a certificate of insurance from every sub — otherwise their injuries and mistakes can become your liability.
What about overtime?
Employees: 1.5x past 40 hrs/week (non-exempt). Subs: whatever the contract says. Factor it into spiky workloads.
Should subs get benefits?
No — providing benefits is a strong indicator of employee status under the control test.
How do I find good subs?
Trade associations, supplier referrals, and other contractors' overflow lists beat job boards for skilled trades.
Can a sub become an employee later?
Yes — common path. Just handle final 1099 reporting and start W-2 withholding cleanly at the switch.