At some point, there aren’t enough hours in your day. Jobs stack up, calls go unreturned, and you’re leaving money on the table every week. That’s when the hiring question gets real — not “should I hire,” but “how do I do this without creating a bigger problem than the one I’m solving.”
Hiring wrong is expensive. Misclassifying a worker, skipping workers’ comp, paying under the table — these mistakes have a way of surfacing at the worst possible time. This hub walks you through every step of adding help to your operation the right way.
Start with a subcontractor if you want flexibility and lower administrative burden. Move to employees when you need consistent availability, want more control, or your state’s rules push you that direction. Either way, get the paperwork right from day one — the IRS and your state labor board don’t give grace periods for good intentions.
Employee vs. Subcontractor: The First Decision
This choice has real legal and financial consequences. It’s not just a preference — the IRS and most states apply a test to determine which classification is correct, and getting it wrong creates liability.
| Factor | Employee (W-2) | Subcontractor (1099) |
|---|---|---|
| Direction and control | You direct how and when they work | They control their own methods |
| Tools and equipment | You provide tools | They use their own tools |
| Exclusivity | Works only for you | Can work for multiple clients |
| Tax withholding | You withhold and remit taxes | They handle their own taxes |
| Workers’ comp | You provide coverage | They carry their own (ideally) |
| Schedule | You set the schedule | They set their availability |
If someone works for you full-time, uses your tools, follows your schedule, and works exclusively for your company — that’s an employee, regardless of what your agreement says. The IRS looks at the reality of the relationship, not just the label.
The True Cost of Adding Help
Labor costs more than the hourly rate. Before you make an offer, know your all-in number:
- Base wage: What you agree to pay per hour
- FICA taxes: Employer pays 7.65% of wages (Social Security + Medicare)
- Federal unemployment (FUTA): 6% on first $7,000/year per employee
- State unemployment (SUTA): Varies by state, typically 1–5%
- Workers’ comp: Varies by trade and state; exterior trades run $5–$20+ per $100 of payroll
- Admin time: Payroll, scheduling, HR tasks
The practical rule: budget 25–35% above base wage for employer costs. A $20/hour worker costs you $25–$27/hour all-in. That has to be built into your job pricing before you hire, not discovered after.
Use the True Cost of an Employee Calculator before you make an offer. Enter the hourly rate, trade, and state and it shows you total labor cost including taxes and workers’ comp. Build that number into your bids.
What’s in This Silo
Every article in this section covers a specific piece of the hiring and crew management puzzle:
The IRS test, state rules, and how to classify your first hire correctly.
The paperwork, accounts, and legal steps to bring on a W-2 employee.
Where to find reliable subs and what to verify before they work a job.
DIY payroll vs. payroll services — costs, trade-offs, and recommendations.
How workers’ comp works, what it costs, and how to buy it correctly.
A repeatable onboarding system that gets new help productive fast.
How to use day labor legally, including staffing agencies and labor halls.
What a subcontractor agreement needs to cover and a walkthrough of key terms.
Market rates by trade, how to structure pay, and when to offer raises.
How to lead a small crew effectively without micromanaging or losing authority.
The measurable signals that tell you it’s time to add help.
Your legal obligations for verifying employment eligibility before work begins.
Related Guides
- Workers’ Compensation for Contractors
- 1099 Rules for Contractors and Subcontractors
- Running a Job Site Like a Pro
- When to Hire: Financial Readiness — see Finance silo
Adding help is one of the highest-leverage moves a solo operator can make — and one of the riskiest if you skip steps. Classify workers correctly, know your all-in labor cost before you hire, get the paperwork done on day one, and protect yourself with a written agreement for every subcontractor. The contractors who grow past one person are the ones who build systems, not just relationships.
Frequently Asked Questions
When should I hire my first employee or subcontractor?
Hire when you’re consistently turning down work or working unsustainable hours and have enough recurring revenue to cover the additional labor cost. The specific signals: you’re booked 3+ weeks out, you’re working 60+ hour weeks, or you’re leaving identifiable money on the table because you can’t take the jobs.
What’s the difference between an employee and a subcontractor?
An employee works under your direction and control — you set their hours, how they do the work, and provide their tools. A subcontractor operates independently, sets their own schedule, uses their own tools, and can work for multiple clients. The IRS uses a multi-factor test to determine which classification applies. Misclassifying an employee as a contractor carries significant penalties.
Do I need workers’ comp if I only use subcontractors?
It depends on your state. Some states require workers’ comp for subcontractors who don’t carry their own policy. Even in states that don’t require it, you may be liable if an uninsured sub is injured on your job site. Always verify that your subs carry their own workers’ comp before they set foot on a job.
Can I pay my first hire in cash?
You can pay employees in cash as long as you still withhold and remit taxes properly and maintain accurate payroll records. Paying under the table — no withholding, no records — is illegal and creates serious liability. Cash as a payment method is legal; cash as a way to avoid payroll obligations is not.
What’s the true cost of an employee beyond their wage?
Budget 25–35% above the base wage for employer-side costs: FICA (Social Security and Medicare), federal and state unemployment taxes, workers’ comp insurance, and any benefits. An employee earning $20/hour actually costs you $25–$27/hour all-in. Build that into your pricing before you hire.