Hire vs. Subcontract Calculator
An employee costs the same whether the work is there or not; a subcontractor costs nothing when the phone is quiet. Enter the employee's real annual cost, the hours it can bill, the hours you actually have, and the subcontractor's rate — and see where the two cross.
Method and content reviewed September 23, 2026 · formulas checked against a test suite · runs entirely in your browser
Break-even hours = Annual employee cost ÷ Subcontractor rate$65,160.00 ÷ $55.00 = 1,184.73 → 1,185 billable hoursAt 1,400 billable hours, the employee is cheaper by $11,840.00 a year — although the employee's effective cost is $46.54 per billable hour at this workload versus $36.94 at full capacity.
Compare cash cost only. Control, scheduling flexibility, who the customer relationship belongs to, and employee-versus-contractor rules all sit outside this arithmetic — and in most places the last one is a question for your accountant, not a calculator.
HVAC: where the number comes from
An HVAC company carries an installer at $65,160 a year fully burdened (the Labor Burden example), able to deliver 1,764 billable hours. Installed work currently fills 1,400 of them, and a subcontractor quotes the same work at $55/hr. (Illustrative example — not market data.)
| Input | Value |
|---|---|
| Employee annual cost | $65,160 (wages, taxes, comp, benefits) |
| Billable hours available | 1,764 / year |
| Billable hours you have | 1,400 / year |
| Subcontractor rate | $55 / hr |
Result: At 1,400 billable hours the employee is cheaper — but only above about 1,185 hours a year
Below roughly 1,185 billable hours a year, paying a subcontractor only for the hours you actually have beats carrying a payroll. Note the two employee rates: $46.54 per billable hour at today's workload versus $36.94 at full capacity. The wage is rarely the deciding number — utilisation is.
Load this example into the calculatorThe calculation
| Cost per billable hour at 1,400 hrs | $65,160 ÷ 1,400 = $46.54 |
| Cost per billable hour at capacity | $65,160 ÷ 1,764 = $36.94 |
| Subcontractor cost for 1,400 hrs | 1,400 × $55 = $77,000 |
| Annual difference | $77,000 − $65,160 = $11,840 (employee cheaper) |
| Break-even billable hours | $65,160 ÷ $55 = 1,184.73 → 1,185 |
| Utilisation | 1,400 ÷ 1,764 = 79.4% |
How this calculator works
Every result comes from the formulas below — the math shown is the math used. Change any input and results update instantly in your browser; nothing is sent to a server.
- Employee cost per billable hour:
Cost per Billable Hour = Annual Employee Cost ÷ Billable Hours DeliveredThe same annual cost spread over fewer billable hours is a higher rate — that's what under-utilisation costs you. - Subcontractor cost:
Sub Cost = Subcontractor Rate × Billable Hours - Break-even billable hours:
Break-even Hours = Annual Employee Cost ÷ Subcontractor RateAbove this workload the employee is the cheaper way to cover the work; below it, subcontracting is. - Utilisation:
Utilisation % = Billable Hours Delivered ÷ Billable Hours Available × 100Available billable hours are paid hours minus PTO, training and non-billable time — the Labor Burden Calculator produces that number.
What the result means
The headline number is the workload at which hiring and subcontracting cost the same. Below it, a subcontractor who only bills the hours you have is cheaper; above it, the fixed annual cost of an employee is spread over enough sellable hours to win. The two per-hour figures show what unused capacity does to the employee's real cost.
When to use it
Use it before hiring, before renewing a subcontractor arrangement, or when a quiet quarter makes you wonder whether the payroll is still the right shape.
Want the concept behind the math in depth? Read Hire or Subcontract Out? Finding the Break-Even Workload or How to Calculate Labor Burden (And Why $25/hr Isn't $25/hr).
Common mistakes
- Comparing the wage to the subcontractor's invoice instead of the fully burdened annual cost.
- Assuming 2,080 billable hours — nobody sells every paid hour.
- Treating the cash answer as the whole answer: control, scheduling and employee-versus-contractor rules sit outside the arithmetic.
Frequently asked questions
Is it cheaper to hire an employee or subcontract the work?
It depends on the workload, and it's a solvable question: divide the employee's fully burdened annual cost by the subcontractor's hourly rate. That's the break-even — if you have fewer billable hours a year than that, paying a sub only for the hours you have is cheaper; more, and the employee wins. At $65,160 a year for an installer and a $55/hr sub, break-even is about 1,185 billable hours. If the employee isn't busy with your work, they're still paid — that's the point this calculator makes: the wage isn't the decision, the utilisation is.
What has to be in the employee's annual cost?
Every cost that exists because they're on the payroll: wages, payroll taxes, workers' compensation, benefits, paid time off, training, licenses, and any company gear they need. The Labor Burden Calculator totals it and divides it by billable hours. Leave out recruiting and onboarding costs only if you'd rather treat them as one-offs.
What does this comparison leave out?
Control and risk, which are real and hard to price: subcontractors set their own schedule and methods, may also work for your competitors, and you generally can't direct their work the way you can an employee's. In many places, being able to direct the work is also what legally distinguishes an employee from a contractor — which is a judgment call for a lawyer or accountant, not a calculator. What the numbers can tell you is the workload at which each option starts to make financial sense.
How many billable hours should I assume for an employee?
Your own history if you have one. A common planning figure in trades businesses is roughly 80–85% of paid hours after PTO and holidays — around 1,700–1,850 billable hours for a full-time field role — but that's a heuristic, not a benchmark, and it swings with your mix of service work, project work and admin. Never assume 2,080: nobody bills every paid hour.
Does this calculator include tax differences between employees and contractors?
No. It compares cash cost, not tax treatment. Employer payroll taxes are inside the burdened annual cost, but income tax withholding, self-employment tax for the subcontractor, and employee-versus-contractor rules vary by jurisdiction and situation. Take the workload answer from here and the tax answer from your accountant.
The comparison runs on the employee's true annual cost — start there if you haven't built it.
Calculate labor burden →Related tools and guides
Hire vs. Subcontract Calculator is part of RateCraft, a set of free pricing and estimating tools for contractors and service businesses. Results are calculated entirely in your browser and are estimates for planning purposes — see our disclaimer and methodology.