Subcontractor crews versus employees: the tradeoff nobody explains
Subcontractors buy you capacity you can switch off when the phone goes quiet. Employees buy you control you can build on, and a crew that knows how you want the work done. The part nobody explains is that the choice is not settled by which one you prefer, because federal and state agencies decide who counts as an employee based on how the work runs, not on what the contract calls the person.
What each model actually buys you
Subs are variable capacity. They carry their own tools and insurance, they invoice per job, and when the work stops you stop paying. That matters in a trade with a busy season and a dead one, and when a job needs a scope you do not do yourself.
Employees are the opposite trade. You set the sequence and the standards, they learn your process, and after a couple of seasons one is good enough to run a second crew. You are paying for that continuity whether the phone rings or not, which is the whole risk of the model.
The cost comparison most contractors get wrong
A sub invoice usually looks more expensive per hour than a wage, and a lot of owners stop there. The wage is not what the employee costs you. Compare against the loaded cost of an hour of employee labor, which includes:
- Payroll taxes, workers compensation, and unemployment insurance
- General liability that scales with your payroll
- Paid time off, holidays, and any benefits you offer
- Drive time, shop time, training, and hours between jobs you still pay for
- Truck, fuel, tools, phone, and uniforms
Run that number off your own books, because it moves a lot by trade and by state. We walked through pricing on top of real cost in how to price for margin instead of guessing, and the same arithmetic decides this question.
The sub side has quiet costs too. Someone still has to coordinate them and walk the work, and if a sub did work your customer thinks you did, the warranty is yours no matter whose truck was in the driveway.
Classification is not a preference
This is the part that gets skipped, and it is the one with teeth. Whether a worker is an employee is decided by law, not by a signed agreement or a 1099. The IRS applies a common law test that looks at behavioral control, financial control, and the nature of the relationship. States run their own tests on top of that, and some are stricter than the federal one. In Washington, Labor and Industries and Employment Security each have criteria you must satisfy before treating someone as an independent contractor.
The warning signs are the ones you would expect. If you set their hours, supply the tools, tell them how to do the work rather than what result you need, and they work only for you, an auditor is going to see an employee regardless of the paperwork. Getting it wrong turns into back taxes and workers compensation exposure all at once.
We are not attorneys or accountants, and none of this is advice about your situation. Sit down with a CPA and an employment attorney licensed in your state before you set up either model. That conversation costs a fraction of what an audit does.
Where subs quietly cost you
Schedule control is the first thing to go. A sub working for four general contractors goes where the money and the relationship are best that week, and that is not always your job. A schedule slip you cannot fix with a phone call becomes a customer call you have to make.
Quality drift is the second. Two subs doing the same scope will hand you two different finishes, and the customer only sees your name on the invoice. Scopes you can measure travel fine. Judgment and finish work are harder to hand off, because the standard lives in someone's hands rather than a spec you can write down.
Most companies land in the middle. Core work that defines your reputation stays with people you control, spikes and specialty scopes go to subs, and the split gets decided scope by scope rather than as a policy you announce once.
What we do in our own companies
We run painting and flooring companies in Bellingham along with the licensed Washington general contractor they operate under, and we have used both models. We keep the finish work customers judge us on with people we direct, and reach for subs when demand spikes past what our crews can absorb or when a job needs a trade outside our lane.
The administrative side decides it in practice. Whichever way you go, somebody has to track insurance certificates, hours, and job cost per crew. If that lives in a shoebox you will not know which model is making you money. We keep job cost by crew on the same dashboard as leads and response time, at the front of the system we run. We wrote about what breaks first as a contracting company grows in multi-location and multi-trade.
What we cannot tell you is which model fits your company. That depends on how steady your work is, how much cash you can carry through a slow month, and what your state says about classification. Anyone who answers it for you without asking those questions is selling something.
Worker classification rules differ by state and change over time. This article describes how we understand the rules that apply to our own Washington companies as of the date shown, and it is not legal or tax advice. Confirm the current test with your state agency, an attorney, or a CPA before you act on it.
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