Hire someone or subcontract it

You are turning down work you want. The $14,000 kitchen, because the calendar is three weeks out and the customer needs it sooner. The obvious answer is a second pair of hands. The unobvious part is what kind — and the label follows the working relationship, not the other way around.

What you call them does not decide it

Paying by invoice instead of paycheck does not make someone a subcontractor. Neither does a signed agreement, or the fact that they asked to be paid that way.

The IRS looks at the substance of the relationship across three areas:

• Behavioral control. Telling a sub what the finished job must look like is normal. Directing the hours, the sequence, the methods and the training points at employment.
• Financial control. Who owns the tools and the truck? Who absorbs the loss when the job runs long? Does the worker set their own price and work for other people?
• Type of relationship. A defined project with an end, or open-ended work that is central to what you sell?

No single factor decides it. Form SS-8 asks the IRS to rule on an unclear arrangement, but they say that can take six months or more.

That is only the federal tax test. The wage-and-hour test that decides overtime is a separate one, and the Labor Department has rewritten its version more than once in recent years. Passing one is not passing the other.

State law is often stricter, and it is what catches trades. Several states use an ABC test for wage, unemployment, or workers' comp purposes, and a state can apply it to one and a different test to the others. The hard prong is B: the worker's service has to be outside the usual course of your business. A framing contractor hiring a framer fails that on its face. Some ABC states carve out licensed construction subs under conditions — a question for your state labor department, not for the contractor down the road.

Getting it wrong can mean back taxes, interest, penalties, unpaid overtime and unemployment contributions, and that bill lands on you.

The real cost of an employee per billable hour

Two things sit on top of a $28 wage: employer costs, and the paid hours nobody bills.

Only two of those lines are facts. The wage is yours, and employer FICA really is 7.65 percent — 6.2 percent Social Security up to an annual wage cap the IRS resets each year, plus 1.45 percent Medicare. The rest are placeholders. Workers' comp especially: it is quoted per $100 of payroll against a class code, clerical sits near the bottom of the scale and roof and structural work near the top, so get a real quote for your own codes.

Unemployment tax is not a flat percentage of every hour, which is how it ends up written down wrong. Federal FUTA is 6.0 percent of the first $7,000 of each worker's wages, and employers who pay their state unemployment tax in full and on time normally take a 5.4 percent credit — so the federal piece is a few tens of dollars a year per worker, not cents on every hour. The state piece is where the money is: your rate depends on the state and your own claims history, and the wage base it applies to runs from $7,000 to well over $60,000. For one full-time helper that is the difference between roughly a dime an hour and roughly sixty cents, so use the numbers your state workforce agency publishes.

The billable share gets skipped most and moves the answer most. Drive time, loading, shop cleanup, a rained-out morning, a supply house run — all paid, none billed. Seventy-five percent is a guess; if your own timesheets say 60 percent, the same wage costs $57 a billable hour.

The subcontractor comparison, run on the same job

Say a competent sub in your trade invoices you $55 an hour. That looks worse than $45.79 until you write out the week.

The employee costs $34.34 × 40 = $1,374 a week if you keep them on the clock through a slow one. The sub costs $55 × hours worked, and nothing in a week with no work. Sending an hourly employee home early is not free either — several states require reporting-time pay when a worker shows up and you send them away.

With those numbers the two cross at about 25 billable hours a week. Above that the employee is cheaper and gets cheaper the busier you are; below it you are paying for idle time. A slow February inverts the whole thing.

One cost on the sub side never shows on the invoice: a good sub is already booked by other contractors. Availability is what an employee buys you.

So look back twelve months at the weeks, not the annual total. Week after week above your crossover point supports a hire. Three good months and a dead winter supports subs — or a mix: a core employee sized to your slowest quarter, subs on top for the peak. Subbing first and hiring second tests the demand before you commit to a weekly cost.

The paperwork behind each

Subcontractor, before the first payment:

• A signed W-9 — legal name, entity type, TIN. A missing or bad TIN can require you to apply backup withholding.
• A written scope for each project: price, schedule, payment terms.
• A certificate of insurance for general liability, sent by their agent or carrier rather than by the sub, plus proof of workers' comp or a valid exemption — in many states an uninsured sub's injury lands on your policy.
• Their trade license, verified with the state board where the work requires one.

At year-end, a 1099-NEC for unincorporated subs you paid above the reporting threshold. That threshold moved: $600 for decades, and $2,000 for payments made from January 2026 onward, with inflation adjustments starting in 2027. The form goes to the sub and to the IRS by January 31. Payments to a sub that is a C or S corporation generally are not reported at all — one more reason the W-9 comes first. Check the current instructions on irs.gov before you file.

Employee, before the first shift: an EIN, Form W-4 and Form I-9 on file, state new-hire reporting, registration for state unemployment tax and for state withholding where there is an income tax, and workers' comp in force. Then payroll tax deposits on the IRS's schedule, quarterly payroll tax returns, and a W-2 by January 31.

Whether you must carry workers' comp is state law, not federal: most states require it from the first employee, some set a headcount threshold, and Texas alone lets most private employers go without — at the price of losing the lawsuit protection the policy buys.

Put the new number where the money is decided

Either way, your labor cost per billable hour just changed, and the solo rate no longer covers it. The hire happens, the pricing does not, and the extra capacity turns into revenue with no extra profit. In DoneQuote your labor rates live in one catalog, so once you settle on $45.79 for an employee or $55 for a sub you change the number once and that is what goes out on the next quote.

Before you commit, take the last three jobs you turned down, price them at your own loaded rate, and see whether the profit left over is worth the fixed cost. If it is not, the answer is not a different hire — it is a higher price.