Can I Hire Subcontractors Instead of Employees?

If you’re launching a service-based business in 2025, you’ve likely asked yourself: “Can I hire subcontractors instead of employees?” The short answer is: Yes—and it might be the smartest decision you make as a startup founder.

In this guide, we’ll walk you through:

• The legal and tax differences between subcontractors vs. employees
  
• When to use each type
  
• Real-life business examples
  
• Financial considerations and compliance
  
• Tips for building a lean, high-performance team
  

Let’s break it all down so you can confidently build your business team without breaking the law or your budget.

What Is a Subcontractor vs. an Employee?

Subcontractor (aka Independent Contractor)

• Self-employed
  
• Provides specific services to your business
  
• Uses their own tools, controls their hours, and often works for multiple clients
  

Employee

• Works under your direct supervision
  
• Uses your tools, works your hours, and represents your brand
  
• You must withhold taxes, pay employment benefits, and follow labor laws
  

2025 Update: The IRS and Department of Labor have tightened rules on misclassification. Make sure your subcontractor really qualifies.

Still confused about classification? → Schedule a consultation with Azgari

Why Many Startups Choose Subcontractors First

Lower Overhead

Subcontractors pay their own taxes and benefits. You don’t need to handle payroll, unemployment insurance, or provide health insurance.

Flexibility

You can scale your team up or down depending on the season or project load. Great for cleaning services, mobile car wash companies, pet care, or tutoring businesses.

Specialized Skills

You can hire niche experts—from web designers to bookkeepers to marketing pros—without the cost of a full-time hire.

Faster Onboarding

Many subcontractors are plug-and-play. They come with experience and systems in place.

Not sure how to recruit quality subs? → Book a strategy call now

Real-World Examples: Subcontracting in Action

1. Mobile Detailing Business in Dallas

Marcus runs “Shine & Go” and hires 3 subcontractors who use their own vans and equipment. He gives them booked clients, takes a cut, and avoids payroll headaches. Each sub signs a 1099 agreement.

2. Home Cleaning Startup in Atlanta

Maria launched “Fresh Nest Co.” She uses subcontracted cleaners and trains them on her checklist. Cleaners work their own hours and supply materials. Maria earns on each completed job.

3. Digital Marketing Freelancer in Phoenix

Talia was overwhelmed with client work. Instead of hiring full-time help, she subcontracted ad managers and content writers on a per-project basis. Her revenue tripled while staying lean.

Financial Considerations: Subcontractor vs. Employee Costs

Category	Subcontractor	Employee
Hourly Pay	$20–$45/hr	$15–$25/hr
Payroll Taxes	$0 (contractor handles)	~15% of wages
Benefits	None required	Health, PTO, workers’ comp
Equipment & Supplies	Sub provides	You provide
Flexibility	High	Low
Long-Term Loyalty	Moderate	High

Tip: In your first 6–12 months, subcontractors can reduce your monthly cash burn by up to 40% compared to W2 employees.

IRS Rules: How to Avoid Misclassifying Workers in 2025

The IRS uses the Common Law Test, which looks at:

1. Behavioral Control – Do you control how/when they work?
   
2. Financial Control – Do you control how they get paid or if they can take other jobs?
   
3. Relationship Type – Do they receive benefits or are they permanent staff?
   

To Qualify as a Subcontractor:

• They invoice you (not on payroll)
  
• They use their own tools
  
• They set their own schedule
  
• They sign a written contract
  
• They pay their own taxes
  

Red Flag:

If you say “I need you at 9am every day, use my truck, and wear my uniform”—that’s likely an employee.

Need help creating a compliant contractor agreement? → Let’s talk

How to Find & Manage Great Subcontractors

Where to Find Subcontractors:

• Local job boards (Craigslist, Facebook Jobs, Indeed)
  
• Apps: TaskRabbit, Handy, Thumbtack, HomeAdvisor
  
• Referrals from other business owners
  

What to Include in Your Subcontractor Agreement:

• Scope of work
  
• Pay rate and terms
  
• Tools and materials responsibility
  
• Deadline expectations
  
• Non-compete / Non-solicit clauses (if needed)
  

Tools to Use:

• QuickBooks or Bonsai for 1099 tracking
  
• Slack or Trello for managing workflow
  
• Calendly for appointment coordination
  

Tip: Always get signed W9 forms and issue 1099-NEC if you pay a sub more than $600/year.

When It’s Better to Hire Employees Instead

While subcontractors are ideal for many early-stage businesses, there are times when W2 employees make more sense.

Hire Employees When:

• You need full-time help (40+ hours/week)
  
• You need brand control (uniform, exact hours)
  
• You’re scaling a predictable business model
  
• You need long-term loyalty and team building
  

Example:

A growing junk removal company in Charlotte realized that after 18 months, using only subcontractors created inconsistencies. They began hiring drivers as employees to protect their brand.

Want help knowing when to transition to W2? → Book your Azgari strategy session

Growth Path: Start with Subcontractors, Transition to Core Team

The Azgari.com startup model often recommends this hybrid approach:

Phase 1: Startup Mode

• Use subcontractors only
  
• Low risk, fast scaling
  
• Keep admin costs minimal
  

Phase 2: Growth Mode

• Mix of 2–3 employees + 2–4 subcontractors
  
• Train internal team to handle core functions
  

Phase 3: Maturity

• Core team handles 70%+ of volume
  
• Subcontractors handle overflow, seasonal demand, or specialty services
  

This lets you scale without growing overhead too fast.

Why Azgari.com Helps You Build the Right Team Faster

Hiring the wrong person can cost you thousands. Hiring the wrong way (legally) can bring fines. Azgari’s $25K Business Concierge service makes your first 90 days smooth and scalable.

What You Get:

• Custom 1099 contract templates
  
• Payroll vs contractor roadmap
  
• EIN + legal setup
  
• Job posting help
  
• Subcontractor recruitment checklist
  
• Compliance audit (no misclassification penalties!)
  
• Real-life hiring mentorship from 6-figure founders
  

Azgari vs DIY:

Feature	DIY Struggle	Azgari Done-For-You
Contracts + Compliance	Google templates	Lawyer-reviewed
Recruiting Subcontractors	Trial & error	Proven funnel
Pay + Invoicing	Manual spreadsheets	Automated tools
IRS 1099 Requirements	Risk of penalties	Guaranteed correct

Done-for-you team setup from idea to income → Schedule your call

Final Thoughts: Build Smart, Scale Fast

Subcontractors can give you the freedom to:

• Launch faster
  
• Reduce risk
  
• Expand into new markets
  
• Focus on growth instead of admin
  

But they require clear boundaries, solid agreements, and smart oversight.

You don’t need to hire a lawyer or build a whole HR department to get started. You just need a system that works.

Let’s talk about building your dream team the smart way → Book your free call now