Madalena
At some point, you can’t do all the work yourself. You’re at $500K in revenue, booked 3 to 4 weeks out, and turning leads away. The question isn’t whether to expand. It’s how. A subcontractor costs less upfront and gives you flexibility. An employee costs more but builds something you own. The right choice depends on your work, your trade, and where you want the business to go.
What’s the actual cost difference?
It’s not as simple as “subs are cheaper.”
Subcontractor costs: You pay them per job or per day. No payroll taxes, no benefits, no workers’ comp (they carry their own), no unemployment insurance. A sub who charges $40/hour costs you $40/hour. Period.
Employee costs: You pay hourly or salary, plus payroll taxes (roughly 7.65% for employer-side FICA), workers’ compensation insurance (varies wildly by trade, from 3% to 15%+ of payroll), general liability implications, potential benefits, and unemployment insurance. A $25/hour employee actually costs you $30 to $35/hour when loaded.
So a sub at $40/hour might cost the same as an employee at $28/hour after you add the burden. The sub is more expensive per hour but less expensive per month in slow periods because you only pay when there’s work.
When do subcontractors make more sense?
Overflow work. If your lead volume spikes seasonally and you need extra hands for 3 to 4 months, subs make sense. You scale up for summer, scale down for winter, and don’t carry payroll in the slow months.
Specialty work outside your license. You’re a GC and the job needs electrical or plumbing. You sub that out because you don’t do it. This isn’t a growth decision. It’s scope management.
Testing demand before committing. Before you commit to a $40K+ annual salary, use subs for 3 to 6 months to verify that the work volume is consistent. If you’re still feeding them 30+ hours per week after 6 months, that’s your signal to hire.
Variable job sizes. If your work fluctuates between $500 jobs and $15,000 jobs, subs let you flex without carrying overhead during the small-job weeks.
When do employees make more sense?
Consistent volume. If you have 40+ hours of work per week, every week, for the foreseeable future, an employee costs less per hour than a sub and builds capacity you control.
Quality control. An employee works for you. You train them. They learn your standards. A sub has their own standards, their own pace, and their own priorities. If your reputation depends on consistent quality, employees give you more control.
Customer experience. The homeowner hired you, not your sub. When a sub shows up instead of you, the customer can feel the disconnect. An employee wearing your company shirt, driving your truck, and following your process maintains the brand you’ve built.
Building value. A contracting business with employees and systems is worth more than one that depends entirely on the owner and a rotating cast of subs. If you ever want to sell the business, reduce your hours, or take a vacation, employees make that possible.
What are the risks of each?
Sub risks:
You have less control over quality and scheduling. A sub can cancel on you. A sub can do work that doesn’t meet your standards. A sub can take a job from a competitor instead of yours. And if you treat a sub too much like an employee (setting their hours, providing tools, controlling how they work), you risk misclassification, which carries penalties.
Employee risks:
You commit to payroll whether work comes in or not. If business slows for 2 months, you’re still paying. Workers’ comp premiums in construction trades can be steep. And a bad hire costs more than a bad sub, because firing an employee is legally messier than ending a sub relationship.
The biggest risk for both: expanding crew without fixing admin. If you’re still losing 30% of leads to slow response and missed follow-ups, adding labor capacity doesn’t help. You need the pipeline converting well before you add the capacity to fulfill more work.
We covered this in first hire: office help or another crew member. Fix conversion first. Then add hands.
What does the hybrid approach look like?
Most contractors who grow past $500K use both.
1 to 2 employees for your core daily work. They know your systems, maintain quality, and are available every day.
A roster of 2 to 3 trusted subs for overflow, specialty work, and seasonal peaks. You’ve worked with them before, you trust their quality, and they’re available on short notice.
This gives you a stable base plus flex capacity. You’re not overstaffed during slow periods and not overwhelmed during busy ones.
The admin to manage this hybrid crew is real: scheduling two teams, tracking sub invoices, coordinating timelines. That’s why the admin fix has to come before or alongside the crew expansion. A part-time admin or AI that handles lead response and scheduling frees you to manage crews instead of chasing leads at 9pm.
What revenue level supports each option?
| Revenue | Recommended approach |
|---|---|
| Under $300K | Solo or occasional subs for overflow. Admin is the bigger bottleneck. |
| $300K–$500K | Subs for overflow work. Fix admin with AI ($149/month). Test demand. |
| $500K–$700K | First employee hire if volume is consistent 40+ hrs/week. Keep 2–3 subs for flex. |
| $700K+ | 2+ employees. Part-time office admin or full-time if volume supports it. Subs for specialty and peaks. |
The revenue thresholds aren’t hard rules. A plumber doing $400K in emergency work (high margin, consistent volume) might hire sooner than a painter doing $500K in seasonal residential work (lower margin, variable volume).
The common mistake is hiring at the wrong stage. We see it both ways: contractors who hire crew at $300K before fixing conversion (and can’t fill the capacity), and contractors who stay solo at $600K because they’re afraid of payroll (and burn out).
The growth roadmap is in signs your contracting business is ready to scale and the conversion-first approach in how to go from $300K to $700K.
Before you add crew, make sure the pipeline is healthy at madalena.co.
FAQ
Should I hire a subcontractor or an employee? Subs are better for overflow, seasonal work, and testing demand. Employees are better for consistent volume, quality control, and building long-term business value. Most growing contractors use both: employees for daily work and subs for flex capacity.
What does an employee actually cost versus a sub? A sub at $40/hr costs $40/hr with no overhead. An employee at $25/hr costs $30–$35/hr after payroll taxes, workers’ comp, and insurance. The sub is more expensive per hour but cheaper in slow periods because you only pay for work done.
When should a contractor make their first hire? When revenue consistently exceeds $500K and you have 40+ hours of work per week. Before that, subs and AI admin tools cover most of the gap. The key is verifying consistent demand before committing to payroll.
What’s the biggest risk of expanding a crew? Adding labor before fixing your lead pipeline. If you’re losing 30% of leads to slow response and converting at 15%, more crew capacity doesn’t help. Fix conversion first, then expand crew with the revenue that better conversion generates.
Sources
- Driven Results contractor lead study, 2025 — 2,847 leads across 38 home services businesses
- Service Direct — homeowner hiring behavior and first-responder advantage
- ContractorTalk — contractor growth discussions and hiring decision anecdotes