MarginWorkshopEmployee vs. Subcontractor Cost Comparison
For a recurring chunk of work, is it cheaper to bring it in-house as a W2 hire or keep paying a subcontractor? See the real annual-hours crossover.
Cost by annual hours
| Hours scenario | Employee | Subcontractor | Cheaper |
|---|---|---|---|
| Light (200 hrs) | $9,500 | $9,000 | Subcontractor |
| Part-time (500 hrs) | $19,250 | $22,500 | Employee |
| Half-time (1000 hrs) | $35,500 | $45,000 | Employee |
| Near full-time (1500 hrs) | $51,750 | $67,500 | Employee |
| Full-time (2000 hrs) | $68,000 | $90,000 | Employee |
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Methodology
Formula: employee annual cost = (annual hours × loaded rate) + fixed benefits/onboarding cost. Subcontractor annual cost = annual hours × subcontractor rate. Break-even hours = benefits cost / (subcontractor rate - employee variable rate), the volume at which the employee's fixed cost gets paid off.
Assumption: if the subcontractor rate is already at or below your employee's per-hour cost, no volume of work makes the employee cheaper, the engine reports this directly rather than showing a broken break-even number.
Limitation: compares direct cost only, doesn't model quality consistency, availability, or the management overhead of either option.
Guide: The Employee vs. Subcontractor Staffing Guide, this comparison and the short-term hire-vs-overtime question, both worked through.
Frequently Asked
- Why is there a break-even in annual hours?
- A W2 employee carries fixed costs (payroll taxes, benefits, overhead) regardless of hours worked, while a subcontractor is typically paid per hour or per job with no fixed overhead; below a certain annual hour volume, the subcontractor is cheaper, above it, the employee is.
- Does this account for the control and reliability difference?
- No, this is a cost comparison only; scheduling control, quality consistency, and liability exposure differ meaningfully between the two options and are worth weighing separately from cost alone.
- What if the work volume varies a lot month to month?
- Use your actual expected annual total, not a single typical month; the break-even is an annual-hours threshold, so month-to-month variance around a stable annual total does not change the underlying answer.
- Are there legal classification risks to consider?
- Yes, misclassifying an employee as a subcontractor carries real legal and tax risk regardless of which option is cheaper on paper; this tool prices the cost comparison only, not classification compliance.