Every growing service company hits the same moment. The board is full three weeks out, the phones keep ringing, and the question is whether to hire another technician or bring in a subcontractor.
Owners usually answer it by feel. Hiring feels like commitment and control. Subcontracting feels like flexibility and a higher price per job. Both feelings are right, and neither tells you which is cheaper for your demand. The arithmetic does.
This guide covers cost and scheduling. It is not legal or tax advice. Whether a worker is an employee or an independent contractor is a legal question with its own tests, covered briefly below.
The two cost shapes
A technician you hire is a fixed cost. You pay for their hours whether or not there is billable work in them. Call the fully loaded annual cost L: wages, payroll taxes, benefits, truck, fuel, insurance, tools, training. The cost of one productive hour is:
cost per productive hour = L ÷ (paid hours × U)
where U is the share of paid hours spent on billable work. A full-time year is roughly 2,080 paid hours.
A subcontractor is a variable cost. You pay per job or per hour of work, and nothing when there's no work. Call that rate R_s per productive hour (or convert a per-job price to hours).
The break-even formula
Hiring is cheaper when the employee's cost per productive hour is below the sub's rate. Setting them equal gives the break-even utilization:
U* = L ÷ (2,080 × R_s)
If you can keep a new hire on billable work above U* of their paid hours, hiring is cheaper per hour of work. Below U*, the subcontractor is.
These numbers are invented for the illustration. Use your own loaded cost and the rates you are actually quoted. The point is the shape: the same hire is cheaper than the sub at 80% utilization and more expensive at 55%.
Be honest about U. It is not booked utilization. It is the share of paid hours spent on the work itself, after drive, waiting, shop time and slow days. The gap between those two numbers is the subject of booked versus utilized, and the technician utilization calculator will help you find yours.
Seasonality changes the answer
The break-even formula assumes the new hire's whole year can be filled. Most trades have a peak. If the extra demand only lasts part of the year, the hire's off-season hours have to be filled with something else or they count against the extra work.
Say the overflow is 30 hours a week for 16 weeks of peak season. That is 480 hours of work. A full-time hire costs L for the year. If their off-season time can't be filled with other billable work, the cost per overflow hour is 110,000 ÷ 480, about $229 an hour in this illustration. The same 480 hours from a sub at $75 costs $36,000.
The test to run before you hire:
- Estimate the overflow hours by month for the next 12 months.
- Ask how many of the new hire's paid hours that overflow fills, plus any work you can move into their slow months, such as preventive maintenance visits.
- Divide by 2,080 to get the hire's expected
U. Compare withU*.
If expected U is well above U*, hire. If it is below, subcontract the peak and revisit next year. If it is close, the cost is a wash and the other factors below decide it.
What cost doesn't capture
Control of the work
An employee follows your process, your pricing and your standards. A subcontractor controls how they do the work. That is not only a quality question. It is part of the legal line between the two.
The classification line
The IRS page Independent contractor (self-employed) or employee? groups the evidence into three categories: behavioral control, financial control, and the type of relationship. If you tell a sub when to arrive, how to do the job and what tools to use, and they work only for you, ask a professional before you call them a 1099 contractor. State rules can be stricter than federal ones.
Ramp-up time
A new hire takes weeks or months to reach full productivity in your systems. A capable subcontractor may produce from the first job. That shifts the first-year math toward subcontracting, especially for a peak that starts soon. See technician onboarding for the stages.
Callbacks and the customer relationship
Your name is on the job either way. Track the callback rate of subcontracted work separately, and make sure the customer is not left wondering who is coming.
Scheduling subcontractors as real capacity
The cost math only works if the sub's time is actually used. The usual failure is scheduling: you can't see when the subcontractor is free, so work sits waiting, or you send them across town for one job.
Treat a subcontractor's open time like a technician's open time: book it with the drive from where they will be, not from your shop, and send them work that fits their day. Our Field Note on scheduling subcontractors and 1099 crews covers the mechanics.
CrewLink's CrewConnect, in early access, is built for this. Companies and 1099 contractors connect, and the sender sees only the partner's open times at the address in question, never their other jobs, customers or prices. Work goes straight into the partner's schedule with pay terms both owners agreed: a percent of the partner's list price or a flat amount, due a set number of days after the job is done. The sender can require a license, insurance or certification, and a partner whose credential lapses before the job date isn't offered. What is owed each way is recorded in a payouts ledger; the companies settle it directly. More on the subcontractor scheduling page.
What to take away
- A hire is a fixed cost; a subcontractor is a variable cost. Compare them per productive hour.
- Break-even utilization: U* = L ÷ (2,080 × R_s). Above it, hiring is cheaper; below it, subcontracting is.
- Use real utilization on billable work, not booked utilization.
- Seasonal overflow usually favors subcontracting unless you can fill the hire's slow months.
- Classification is a legal question; the IRS groups the evidence into behavioral, financial and relationship factors.
Common questions
Is it cheaper to hire a technician or use a subcontractor?
It depends on how busy you can keep the hire. Divide the hire's loaded annual cost by 2,080 times the sub's hourly rate. If you can keep the hire on billable work above that share of their paid hours, hiring is cheaper. Below it, the subcontractor is.
When should a field service company start using subcontractors?
When demand exceeds capacity for part of the year, or in an area you can't cover efficiently, and the extra hours wouldn't keep a new hire busy year-round. Subcontracting the peak keeps your fixed costs matched to your base demand.
Can I schedule a 1099 subcontractor like an employee?
You can book their open time the same way, with the drive counted. But a subcontractor controls how they do the work, and the more you control it, the closer the relationship looks to employment. Check the IRS guidance and ask a professional.
What does a subcontractor cost per hour compared with an employee?
Convert both to cost per productive hour. For the employee, divide loaded annual cost by paid hours times utilization. For the sub, use their hourly rate or their per-job price divided by job hours. Compare those two numbers, not the sub's rate against the employee's wage.