Whether a worker is an employee or an independent contractor depends on the facts of the working relationship, such as control, tools and independence, not on what you call them. Misclassifying employees as contractors can lead to back taxes and penalties, so confirm with a CPA or employment attorney.
The legal difference
Both the IRS and your state apply tests about who controls how, when and where the work is done. Review the IRS guidance on independent contractor versus employee at irs.gov.
Subcontractors
- Pros: flexibility, no payroll, paid per job.
- Cons: less control, must truly be independent, insurance and licensing concerns.
Collect a W-9 and certificate of insurance before they start.
Employees
- Pros: control over how work is done, loyalty and training.
- Cons: payroll taxes, workers' compensation, overtime rules, more admin.
Compare the real cost
For employees include payroll taxes, insurance and benefits on top of wages. For subs, include their rate plus the cost of oversight and callbacks. See scaling your team.
Choosing
If you need to direct day-to-day work, you probably need an employee. If you need specialist help on occasional jobs, a subcontractor is more likely appropriate.
Getting started
See insurance mistakes and tax guide.
FAQ
Can I treat a helper as a 1099 contractor?
Only if they are genuinely independent under IRS and state tests. Ask a CPA or attorney.
What happens if I misclassify a worker?
You may owe back taxes, penalties and benefits. Get advice early.
Do I need a W-9 from subcontractors?
It is standard practice so you can report payments correctly.
Do subcontractors need insurance?
You should require it; ask for a certificate of insurance.