1099 vs W-2 for Trades: Which Crew Setup Costs You Less
A 1099 subcontractor costs you less on paper — no employer payroll taxes, no workers’ comp on them, no benefits — but only if they’re genuinely independent. A W-2 employee costs ~10–30% more all-in but gives you control over schedule and method. The expensive mistake is paying someone 1099 while treating them like a W-2 employee — misclassification penalties, back payroll taxes, and unpaid comp premiums can hit five figures.
This question comes up the moment a solo contractor takes on help. The tax math favors 1099, but the IRS decides classification by the relationship, not the label on the check. Get it right.
The real cost difference
| 1099 sub | W-2 employee | |
|---|---|---|
| Employer payroll tax (FICA 7.65%) | No | Yes |
| Workers’ comp | Their policy | You carry it |
| Unemployment (FUTA/SUTA) | No | Yes |
| Benefits / PTO | No | Often |
| Your control of schedule/method | Limited | Full |
On $60,000 of pay, the employer-side burden of a W-2 (taxes + comp + unemployment) commonly adds $6,000–$15,000+. That’s the real “1099 saves money” — but it’s only legitimate if the worker truly is independent.
The classification test
The IRS weighs behavioral control, financial control, and the relationship (common-law factors; see Pub 15-A). A real 1099: uses their own tools, sets their own hours, can work for others, is paid by the job, and can profit or lose. If you direct their day, supply tools, and pay hourly indefinitely, they look like a W-2 employee — and a contract calling them a “sub” won’t save you. Lock the independent relationship with a proper subcontractor agreement, but make the day-to-day match it.
Subcontractor Agreement Template (1099)
Independent-contractor language, scope, payment, insurance/COI, and lien-waiver clauses that document a true 1099 relationship — the paperwork half of getting classification right. Editable Word + PDF.
Whichever way you go, track the payments for taxes — see contractor tax deductions (sub payments are deductible; 1099-NEC required at $600+), and keep your books clean with a job cost tracker.
Trade Templates Co. builds back-office templates for solo trade businesses, QA’d against real job numbers before they ship. Informational, not legal or tax advice — classification is fact-specific; confirm with a CPA or attorney.
Frequently asked questions
Is it cheaper to pay 1099 or W-2?
1099 is cheaper on paper — no employer payroll tax, comp, or benefits — but only legitimate if the worker is truly independent.
What makes a worker a true 1099?
Own tools, own schedule, free to work for others, paid by the job, able to profit or lose. The IRS weighs behavioral and financial control and the relationship.
What’s the penalty for misclassification?
Back payroll taxes, the employer FICA share, unpaid unemployment and workers’ comp premiums, plus penalties — often five figures for even a small crew.
Does a subcontractor agreement make someone a 1099?
It helps document intent, but the actual working relationship controls. The paperwork and the day-to-day both have to support independence.
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