At some point, every growing contractor hits the same wall: Should I hire W‑2 employees or bring in 1099 subs?
The short answer is: It depends.
Roofing operations expert Nathan Lopez has built and consulted for roofing companies up to $100M in revenue. He sat down with CompanyCam to answer this question (and others) and help growing contractors find the right answer for their business.
What’s the Difference Between W‑2 and 1099?
The difference comes down to taxes, control over a worker’s day-to-day, and benefits.
W‑2 employees are the traditional classification, where an employer withholds federal, state, and FICA taxes from paychecks, generally can dictate how, when, and where you do work, and must abide by labor laws, like minimum wage and overtime.
1099 workers are independent contractors (aka subcontractors) who are paid a gross income (and are responsible for their own taxes), control how the work gets done and what equipment they use, and do not receive employee benefits, but can write off certain expenses
Some businesses, depending on the trade, go all in on one approach or take a hybrid one, having employees but subbing out parts of the business, such as installation, sales, or insurance work.
Expanding With Employees (Pros & Cons)
The W‑2 route was Nathan’s preferred way to grow his businesses because he places a high priority on trust, transparency, and developing an “ownership mentality” among the team. In his experience, this leads to higher-quality work and customer service, building a referral and reputation machine that keeps new jobs coming in at a lower cost.
This approach does take more time because you have to find, vet, and hire every new person you add to your crew, and decisions can pile up at the owner level. This can be difficult early on, as you may not have the resources available to outpay or offer better benefits than others in your area.
On this last point, Nathan mentioned he wasn’t always the highest payer or the one with the best benefits at the start. Still, he was able to attract talent because he could provide a clear growth path that fit every new employee’s needs, whether it was performance bonuses, a chance to advance in their role (or ownership in the company), or simply a reliable schedule that got them home for dinner every night.
Pros of Employees:
- Better for long-term profitability.
- Have much more control over skills training and quality.
- Great for building customer relationships.
Cons of Employees:
- More expensive up front (payroll, benefits, taxes)
- Growth can be slower.
- Easier to fall into the owner bottleneck.
Scaling With Subcontractors (Pros & Cons)
Working with subcontractors can offer owners flexibility, scalability, and the ability to expand quickly. Because they’re 1099 workers, you don’t have to come out of pocket for things like payroll taxes or benefits. And in some states with advantageous licensing, like Texas, it might make more sense to go this route so that you can focus on sales and customer service while subs handle all the labor.
With subcontractors, you do have less control over how the work gets done, and the stakes are different: You’re hiring them to do a specific job, which they’re going to do as efficiently as possible. And you also cannot provide too much direction over how to do their job, or you risk a misclassification issue.
That’s why relationship-building is so important. As with finding employees, you should lean on your field leaders to recruit reliable sub crews that do good work, and prioritize communication and documentation. If not, you risk having to rework behind them, which cuts into margins and damages your reputation.
Pros of Subcontractors:
Lower overhead up front.
Simple way to add more services and service areas.
Greater flexibility in scheduling jobs.
Cons of Subcontractors:
Little to no control over work quality.
Rework can get expensive if things are done wrong
Potential damage to your business reputation
How To Build a High-Performing Team, Whatever Path You Choose
Regardless of how you decide to scale your business, Nathan shared a handful of things that all contractors should do to build out their teams and make their workplace the best place to work.
1. Understand What Motivates Your Team
Throughout his career as a roofing manager, owner, and consultant, Nathan’s believed that if you help people find success, success will come to you. And what success looks like to one person probably isn’t the same as the next.
Within the first 60 days, you should have an idea of what motivates your team members. For some, it’s making as much in bonuses as possible. Maybe it’s a consistent schedule that allows them to be at their kid’s softball game. For others, it could be a clear path upward within the business.
And the only way to find this out is to be intentional in setting aside the time to ask questions, listen to answers, and check in with crew leads about how teams are doing on the job site.
2. Lean on Supers and Ops Managers to Build Crews
As headcount and job volume increase, you’ll start to get pulled in a dozen directions. You can’t afford to sit in on every job interview or update listings across internet job boards. That’s why it’s essential to build trust with your managers and empower them to find the right employees to join their crews or subs to represent what you’re building.
Your duties shift from interviewing each new hire to building leaders who carry your culture into these decisions without your sign-off, whether it’s building relationships with subs or finding new people to hire on to your crews.
By empowering your team at every level, you’ll build an ownership mentality across your organization that will help you feel confident stepping away for a vacation or even identify who might be a good fit to eventually buy you out of the business when you’re ready.
3. Grow Yourself to Grow Your Team
While consulting for a $100M roofing company, a higher-up asked Nathan, “Why are so many of the divisions consistently missing their KPIs?”
After meeting and taking notes, he found that these division leaders were asking the wrong question. So much of the leadership’s focus was on the numbers and employee output, but hardly anyone was asking themselves, “What am I doing to help them get there?”
Teams mirror their managers. If you aren’t investing in your own skills as an owner-operator or manager, you can’t expect your crews to invest in anything beyond their paycheck. That’s why it’s essential to continue learning, whether that’s by reading books, listening to podcasts, or attending trade shows and seminars.
4. Make Accountability Core to Your Culture
When you have a dozen jobs at once, accountability is key. Without it, one crew’s sloppy handoff becomes your reputation problem, and one bad review erases three good ones.
When you set a standard, you need everyone to buy into it for your organization to continue growing. If you say that we’re going to improve our handoffs with better documentation, ask for a review at the end of every final walkthrough, or have a zero-tolerance rule for bullying, you have to mean it across the board.
Nathan shared an important learning moment for himself as a leader. He publicly rewarded someone on the team for their long tenure. But the rest of the team knew that person wasn’t performing day to day, which caused rumblings within the team. And it wasn’t until another person on the team pulled him aside to tell him that the move had caused discontent among the crews.
Hold teams accountable (respectfully) if standards aren’t being met, encourage team members to hold each other accountable, and accept feedback from your team if you’re not living up to the standards you set.
If the W‑2 vs. sub question is one you’re actively working through, our webinar on building SOPs your team will actually follow is a good next step.
We co-host monthly webinars with trades experts on a wide range of topics, like:
