How to hire your first employee as a contractor: W-2 or 1099, workers comp and what a helper really costs

Published November 4, 2026 · IRS, Labor Department and state pages for MA, NJ, MN, ID, VA, IA, LA, CT, NE, NY, CO, UT and AR read November 4, 2026

• Free. The checklist comes by email as a PDF, a Word file and a Google Doc.
• Deepsel is our product: free estimate, invoice and scheduling software for contractors (scheduling, quotes, invoicing, card payments). It doesn't run payroll or file any of the forms on this page; the section before the FAQ says what it does for a first helper.
• Owner quotes are from Reddit threads I read on November 4, 2026. None of the authors is on our list of vendor and seeded accounts.
• Not legal or tax advice. The rules, rates and wages come from federal and state pages I read on November 4, 2026. Your state agency, your insurance agent and your payroll provider have the last word.

If your helper works the hours you set, on your jobs, with your tools, he's your employee. You pay him on a W-2 through payroll, not on a 1099, and in Massachusetts, New Jersey, Connecticut and New York construction the state's ABC-style test makes that close to automatic. Before his first paid day you need an EIN, his W-4 and I-9, state unemployment and withholding accounts, the new-hire report (due in 14 to 20 days) and workers comp, which 11 of the 13 states on our list require from the first employee. A helper at $20 an hour costs $46,600 to $56,700 a year once payroll taxes, unemployment and comp are added, depending on your state and trade. That's about $29 to $36 for every hour you can bill him out.

The checklist is two pages. Page 1 is the test (employee or sub), the license and workers comp steps, then every federal and state step with a tick box and a blank for the account number. Page 2 is your state at a glance (comp threshold, minimum wage, sick leave, where to send the new-hire report), comp rates for six trade classes and the first-week list, van rules included. Get it three ways: make your own copy in Google Docs, download the Word version (.docx), or download the PDF. Pick a format, enter your email and I'll send the links.

Why this page. In two years of first-year owner threads across trades, we counted about 80 genuine ones about going from solo to a first helper, and about 90 more on workers comp and 1099 questions.¹ A painter who works alone asked owners about his first helper and added, in bold: "please keep it simple and dont get bogged down in like 1099 vs employee etc. we’re talking time management not money."² Fair enough. But that's the part that can cost you the most, so it comes first here, and the time management comes at the end. The pages that rank for "how to hire your first employee" are payroll and HR companies, an insurer and a website builder, writing for any small business. None of them deals with a helper on a ladder, a license board or a work van.

W-2 or 1099: is your helper an employee?

A 1099 is just a tax form. Writing one doesn't make anyone a contractor. The IRS sorts the facts into three groups: behavioral control ("Does the company control or have the right to control what the worker does and how the worker does his or her job?"), financial control (how he's paid, whether expenses are reimbursed, "who provides tools/supplies") and the type of relationship (contracts, benefits, whether the work "is a key aspect of the business"). No single fact decides it.⁴

Run a helper through that. You tell him when to show up. He rides in your truck, climbs your ladder and works on your customers' jobs. You pay him by the hour. Every one of those points to employee. A commenter on a Connecticut builder's thread put it in one line: "If he works under your supervision, using your materials and only works for you, he's an employee."³

The Labor Department, which enforces minimum wage and overtime, has a 2024 rule on the books that it says it is "no longer applying in its investigations". Its February 26, 2026 proposal asks whether the worker is "in business for him- or herself" or "economically dependent" on you, with two core factors: his control over the work, and his "opportunity for profit or loss based on initiative and/or investment". The comment period closed April 28, 2026, and the page showed no final rule when I read it.⁵ A helper paid by the hour has no profit or loss, so under either version he's an employee.

Your state's test

States run their own tests for unemployment, wage law and workers comp, and several are stricter than the IRS. The strict ones are called ABC tests. A worker is a contractor only if all three are true: (A) he's free from your control, (B) the work is outside the usual course of your business, and (C) he's in an independently established business of the same kind. Part B is the one that catches contractors. A helper on your crew doing your trade fails it by definition.

• Massachusetts is the strictest. Its 3-prong test applies to wage law, and prong 2 is just "the service is performed outside the usual course of the business of the employer", with no "or outside your places of business" escape.⁶
• New Jersey uses the ABC test, and "it is the employer’s burden to meet the qualifications of all three parts". The labor department adopted rules on it on May 5, 2026, citing the state supreme court's 2022 drywall case, East Bay Drywall.⁷
• New York, for construction, uses the Fair Play Act: an ABC test, or a 12-part test for a "separate business entity". It covers the whole state, New York City included.⁸
• Minnesota, for building construction, treats workers as employees "unless they meet the 14 legal requirements", which include his own business, his own tools, other customers, a written contract and pay "on a commission or per-job or competitive bid basis".⁹ For electrical and plumbing it's simpler: everyone doing that work for you must be a W-2 employee (see the trade pages below).
• Colorado presumes "covered employment" unless the worker is free from control and "customarily engaged in an independent trade".¹⁰ Virginia presumes anyone you pay is your employee unless the IRS guidelines say otherwise.¹¹ Nebraska presumes a construction worker is an employee unless he meets its unemployment law's test.¹²
• Connecticut (unemployment), Louisiana (unemployment) and Arkansas (unemployment, where part A plus either B or C will do) use ABC-style tests. Utah's unemployment test needs both an independent trade and freedom from control. Iowa and Idaho look at the right to control the work and whether the worker runs a business of his own.^{13, 14}

The Connecticut thread above is the common story. A small residential builder had paid every helper on a 1099 since 2016 on his accountant's advice: "having a W2 employee is insanely expensive because I have to pay into their Medicare and whatever else". Then a plumber friend told him he was "screwing" his guys, and he asked whether to keep a young helper, who wants to be his right-hand man, on a 1099.³ The answers were blunt. One: "If your rates are not able to operate legally, then you have no business bidding on those projects."³

What misclassification costs

If the IRS reclassifies a 1099 helper, you owe the payroll taxes you didn't withhold. For an honest mistake there are reduced rates. If you filed the 1099s, it's 7.44% of his pay for Social Security, 1.74% for Medicare and 1.5% for income tax, so 10.68%. Without the 1099s it's 8.68%, 2.03% and 3%, so 13.71%. You can't recover any of it from him, and the reduced rates aren't available if you "intentionally disregard" the rules.¹⁵ On a $41,600 year that's $4,443 or $5,703 before interest and penalties. Most of it you'd have owed anyway. Then the states add theirs:

• Back unemployment contributions for every year, plus interest.
• Workers comp. An audit adds what you paid him to your policy at your class rate. With no policy at all, Massachusetts issues a stop-work order with fines of at least $100 a day ($250 if you appeal), and up to a year in jail and a $1,500 fine on conviction. New Jersey's penalties run up to $5,000 for the first ten days and up to $5,000 for each ten days after; Nebraska's up to $1,000 a day.^{16, 18}
• State fines. Massachusetts: up to $10,000 for a first offense, $25,000 if willful. New York construction: up to $2,500 per misclassified worker for a first willful violation and $5,000 for a second, or a misdemeanor with fines up to $25,000. Minnesota: up to $10,000 for each worker. Colorado: up to $5,000 per worker for willful misclassification, $25,000 the second time. Nebraska: up to $500 per worker, then $5,000. New Jersey can award the worker up to 5% of his gross earnings over the past 12 months.^{6, 7, 8, 9, 10, 12}

And if he falls with no comp in place, the claim is yours. That's the bill I'd worry about most.

When a 1099 is right

A real subcontractor runs his own business: his own insurance (with a certificate that shows workers comp), his own tools and truck, other customers, and he bills you by the job. Get his W-9 before he starts, and file a 1099-NEC if you pay him $2,000 or more in 2026; the threshold rose from $600 for payments made this year.¹⁵ More on subs versus a helper below.

Licensed trades: does your helper need an apprentice card?

In electrical and plumbing, usually yes. Most of these states make anyone touching the wiring or the piping a registered or licensed apprentice working under a licensed person, often within a ratio of helpers to licensees, and some set a deadline. A few examples from our state pages: New Jersey requires an apprentice license or a Class B wireman license; Colorado and Arkansas want each apprentice registered within 30 days of hire; Utah's apprentice license names the supervisor; Minnesota requires the helper to be registered with the Department of Labor and Industry and paid on a W-2; in Connecticut you request an HVAC apprentice's registration before he starts. Virginia has no helper registration, but unlicensed workers work only under a licensed tradesman in that specialty. Rather than repeat each state here, your page has the rule:

• Electrical: Arkansas, Colorado and Denver, Idaho, Iowa, Louisiana, Minnesota, Nebraska, New Jersey, New York City, Utah, Virginia.
• Plumbing: Colorado, Iowa, Louisiana, Minnesota, Nebraska, New Jersey, Virginia.
• HVAC: Colorado, Connecticut, Idaho, Iowa, Louisiana, Massachusetts, Minnesota, New Jersey, New York, Virginia.
• Roofing: Louisiana, Massachusetts, Minnesota, Utah, Virginia.
• Remodeling and handyman licenses and registrations: Massachusetts, New Jersey, Minnesota, Idaho, Virginia, Iowa, Louisiana, Connecticut, Nebraska, New York City, Colorado and Denver, Utah.

One thing the ratio rules mean in practice: a plumber in our threads who started out "using helpers to speed up jobs" kept finding mistakes, even from third- and fourth-year apprentices. A reply asked the question that matters: "Are your apprentices working with licensed guys at the same time on the job site?"³⁷ Where your state wants a licensed person on site and that person is you, the helper works where you work.

New hire paperwork: the federal steps

1. EIN. If you've been a sole proprietor on your Social Security number, get an Employer Identification Number now. It's free and online from the IRS in minutes: "You never have to pay a fee for an EIN."²⁸
2. Form W-4 from him by the first day, so you know how much federal income tax to withhold. Keep it on file.
3. Form I-9. He fills in Section 1 by his first day. You look at his identity and work documents and complete Section 2 "within 3 business days of the date of hire", meaning the first day of work for pay: start Monday, done by Thursday.²⁸ You keep it; you don't send it anywhere.
4. E-Verify is voluntary for a small private shop in the states I checked, unless you bid public work. Louisiana is the one to know: an employer there has to check and keep a copy of the employee's documents, or use E-Verify instead, and public contracts require E-Verify.²⁹
5. Withholding and deposits. Each payday you withhold his federal income tax, 6.2% for Social Security and 1.45% for Medicare, and you add the same 7.65% yourself. In your first year you're a monthly depositor: each month's taxes are due by the 15th of the next month, through EFTPS. You file Form 941 every quarter (April 30, July 31, October 31 and January 31).¹⁵
6. Federal unemployment (FUTA). 6% of his first $7,000, cut to 0.6% by the credit for paying your state unemployment, so $42 a year. Form 940 once a year, with a deposit once the amount owed passes $500.¹⁵
7. Form W-2 to him and to the Social Security Administration by January 31.¹⁵

Most owners hand steps 5 to 7 to a payroll service, and I would too. A late deposit carries its own penalty, and a service files the state side as well.

The state steps

• New-hire report. Within 14 days in Massachusetts, 15 in Iowa and 20 in the others, to the state directory in the table below. Massachusetts, Virginia and Iowa want independent contractors reported too.²⁷
• Unemployment insurance account with the state workforce agency. New employers get a set rate. Iowa's 2026 rate is 1% for most new employers but 5.4% for new construction employers, on the first $20,400 of each worker's pay. New Jersey's new-employer rates add to 3.3% (unemployment 2.6825%, disability 0.5%, workforce 0.1175%) on the first $44,800.²³
• State income tax withholding account with the state revenue department. All 13 states here tax wages, and some have their own withholding form for the employee.
• Paid family leave. Six of the states run programs funded by payroll premiums: New Jersey (disability and family leave insurance; the worker pays 0.19% and 0.23% in 2026), New York (0.432% from the worker), Massachusetts (0.88% in 2026, with an employer share only at 25 or more covered workers), Connecticut (0.5% from the worker), Colorado (0.88%, which you may split 50/50 with him) and Minnesota (0.88%, or 0.66% for small employers, up to 0.44% from the worker). Register before the first payroll.³⁰
• Minimum wage, overtime and sick leave, in the table. Overtime is time and a half for hours over 40 in a workweek under federal law, and an hourly helper is almost never exempt. Colorado also counts hours over 12 in a day.³¹ Denver, New York City, Minneapolis and St. Paul set their own minimum wage or leave rules on top.

Here's each state, from its own pages.^{6–14, 16–21, 25–27}

"None found" means I found no state sick leave law, not that I read every statute. Minnesota's and Arkansas's centers didn't state a deadline on the pages I read; the federal law behind every state's directory sets 20 days.

Workers comp for one employee: what changes when you hire

Buying a policy is a topic of its own. What matters here is what changes on the day he starts.

The threshold. Eleven of the 13 states require coverage from the first employee. Virginia requires it once you regularly employ "more than two", and it counts the employees of subs who do your trade or part of your contract: one employee of yours plus two subs with one employee each makes three.¹⁷ Arkansas starts at three, but at two for anyone "engaged in building or building repair work" and at one for "a contractor who subcontracts any part of his or her contract".²¹

The owner exemption doesn't cover him. Most of these states let a sole proprietor or LLC member skip coverage on himself, and as a solo you may have signed something saying you have no employees. Massachusetts says it plainly: the exemption "does not apply to employees who are not members of the LLC or LLP."¹⁶ Whatever you filed with your license board stops being true on his first day. Utah's license page lists both cases: with no employees, a Workers Compensation Coverage Waiver; with employees, a comp certificate naming DOPL, a state withholding registration and an unemployment registration.²⁰ Nebraska: "All contractors with one or more employees must provide a current Workers’ Compensation Certificate of Insurance (ACORD 25) with the Department of Labor listed as the certificate holder."¹⁸ Your state license page, linked above, says what your board wants.

What it costs. Comp is priced per $100 of payroll, by the class of work, and the class decides almost everything. Here are the 2026 rates for six classes in two of our states, Iowa (the rating bureau's advisory rates, which include expenses; insurers may adjust them) and New Jersey (the state rating bureau's rates), and what each comes to on one helper's $41,600 a year:²²

Each class also has a minimum premium, $1,200 for most of them in New Jersey and $350 to $1,000 in Iowa, so a small payroll still pays the minimum. One more rule: the premium is yours. Louisiana says employers "cannot withhold premium payments from their employees", and Idaho calls deducting it from wages "specifically prohibited".¹⁶

How much does it cost to hire an employee? A $20-an-hour helper, worked out

I used $20 an hour because it sits near what employers pay helpers: the May 2025 median for electricians' helpers was $20.01 in Iowa and $21.42 in New Jersey, and for construction laborers $23.31 and $30.80.²⁴ Same wage in both states, so the difference you see is the state and the trade. The helper works full time and rides with you. Comp is the residential carpentry class, the closest fit for the remodelers and handymen who make up half our list.

Swap the trade and the range is $29.47 a billable hour for an Iowa electrician's helper to $35.77 for a New Jersey roofer's, with the same $500 of tools. That's the "$29 to $36" at the top. On insurance, one remodeler figured his first hire would add "about 3 dollars an hour to total overhead for added insurances", though he doesn't say which policies.³⁸ Ask your agent whether your liability premium is based on payroll, and whether the auto policy covers him driving.

Two things move the number more than the state does.

How many hours you can bill. You pay him on the slow days too. At 1,200 billable hours instead of 1,600, the Iowa helper costs $41.07 an hour and the New Jersey one $44.10. A reply in the painter's thread: "if you’re busy 2 weeks of the month and have nothing for 2 weeks, then they will leave pretty quickly."² An HVAC owner put off hiring for the same reason: "I'm not quite ready to hire a guy, as I don't wa to have to lay him off in the winter."³⁹

A second truck. If he gets his own van, the IRS business rate of 76 cents a mile (July to December 2026) is a fair stand-in for its full cost: 12,000 miles is $9,120, another $5.70 per billable hour.³² That's a later step for most first hires.

A rule of thumb from a reply in a drywall thread: "Most employees cost a company at least double what they are being paid by the time you pay taxes, workers comp and have any benefits at all."³⁸ My example lands at 1.5 to 1.8 times the wage per billable hour with no benefits at all, so double is about right once you add health insurance, paid holidays, or the hours you spend supervising instead of working. Price for it. Bill his hours at a rate that covers this cost plus your overhead and profit, and our contractor markup guide shows what a markup leaves you as margin. The trade pricing pages work through a full rate: electricians, plumbers, HVAC, roofing and handymen. Another reply in the painter's thread said it shorter: "when you hire an employee your over head goes up. so you have to charge for it."²

Subcontractor vs employee: a helper or a licensed sub?

The other way to get more done is to sub out part of the work to a licensed, insured contractor. It costs more per hour and nothing on the days you don't need him. No payroll, no new-hire report, no unemployment account. He carries his own comp and liability.

The catch is that last sentence. If he doesn't carry comp, his workers can become yours. Virginia's rule is the "statutory employer" law: a contractor "bears potential workers’ compensation liability for a subcontractor’s employees".¹⁷ Colorado: a business that uses contractors for construction work must "provide workers’ compensation coverage for their contractors" or "obtain proof of coverage from their contractors".¹⁹ Louisiana: hire an uninsured sub for work that's part of your business and "you may be responsible for paying any workers’ compensation benefits if they are injured and you can be charged a premium by your insurance carrier for the cost of the contract."¹⁶ Rating manuals spell out the audit charge. North Carolina's, for one, adds premium for each sub who can't show a certificate, at not less than 90% of a labor-only contract price.⁴⁰

So collect a certificate of insurance before he starts, check that it shows workers comp and that it runs through the job dates, and keep a copy for your audit. In roofing the gap shows up in the price per square. One owner pays "100/sq for an insured sub and 75-80 if I'm having to cover WC for them."³⁹

My read on choosing:

• Hire a helper when you're booked weeks out, the extra hands are on your own trade's work, and you'll keep him busy 1,500 hours a year or more.
• Use a sub for work outside your license or skills, for uneven work, and while you're not yet sure the jobs will keep coming. A reply in the painter's thread suggested a middle path: "hiring another occasional solo, and when you have gaps, they have their own book of work."²
• Don't call a helper a sub. Part B of the ABC test looks at the work he does, whatever the paperwork says.

The first week: training, safety and the van

This is the part the painter actually asked about.

Training. Opinions split on whether the first hire should be experienced. "Your first employee shouldn’t be a trainee. Training an employee is a full-time job, and that’s time you won’t have if you have to wear every other hat in your company," went one reply in the painter's thread.² Another owner, with three year-round employees, lays out "a road map" for each hire: a starting rate, then a raise once he can do a set task alone, then another.² From a handyman's "When to hire" thread, on the cost in your time: "Managing other people can quickly turn into a full time job." Another skips interviews: "Just a phone screening and then we work together for a few days to see how it goes," and "I wouldn't put anyone in a van alone before they worked with me for a while."³⁶ Write down what he'll do alone by the end of week one, month one and month three, and tie the raises to it.

Safety. With an employee on the job, OSHA's rules apply to you as his employer. In construction that means fall protection from six feet up.³⁴ A siding contractor in our roofing threads: "I got a OSHA fine a couple years ago for being more than 12' off the ground in the basket of my genie lift, doing siding, but sans harness and arrestor."³⁹ Show him the ladders and the harness on day one, and tell him what he never touches.

The van. An electrical contractor asked "How to Handle an Employee Using a Company Van Without Permission?" He'd agreed his employee could use the van for side work "as long as he lets me know and pays for materials plus gas and mileage", then saw it at Home Depot on Black Friday with no word from him.³⁵ The top reply, with 748 upvotes, came from another electrical owner who lets his guys use the vehicles "to buzz around town after work hours and weekends" because "It’s incredibly tough to find quality guys". Others want it in writing. One owner: "My company has a written policy to refer to as well as gps trackers in the vehicles." Another, with nine vans: "Commercial vehicle insurance generally ask about who's driving, how much, etc. if you break any of these understandings, they will deny coverage."³⁵

Either way is fine. Deciding after the fact is the problem. Before you hand over keys, write down: personal use yes or no, and how far; side work in the van yes or no, and on what terms; who else may drive; the fuel card; whether there's a tracker; and what happens the first and second time a rule is broken. Then check the auto policy covers what you allowed. One tax point: the IRS treats a van with your name or advertising on it, seats for the driver and one passenger, and shelving that fills most of the cargo area (or an open cargo area that always carries your equipment) as a "qualified nonpersonal use vehicle". Personal use of an ordinary pickup you let him take home is different, and its value can count as wages. Ask your payroll service which yours is.³³

How to use the checklist

1. Work through section A before you offer the job. Every ticked box points to employee, and in the ABC-test states one is enough.
2. Bind the comp policy and update your license board (section B) before his first paid day, and register him as an apprentice if your trade needs it.
3. Do the federal steps in section C: EIN, W-4 and I-9 on day one, then the deposit calendar.
4. Do the state steps in section D within the first two weeks. Page 2 has your state's agencies, minimum wage and sick leave rule.
5. Fill in your own comp rate in section F, and run the cost per billable hour before you price your next job.
6. Go through section G with him on day one, and have him sign the van rules.

More for new contractors

• How to find work as a new contractor: where your first customers come from, with a free first customers plan.
• Angi vs Thumbtack: should you pay for leads yet, with a free lead cost calculator.
• Google Business Profile for contractors: setup, verification and your first reviews, with a free checklist.
• How much to set aside for taxes: self-employment tax, quarterly payments and your state, with a free calculator.
• Contractor insurance: what you need from day one, what it costs and what can wait, with a free checklist.
• Change order template and hidden damage clause: rot behind the wall, charge more or eat it.
• Punch list template: stop a small list holding your final payment.
• Should you pull a permit for someone else? The asks you will get, and the answers.
• When a customer won't pay, the lien deadlines and a demand letter, by state: Arkansas, Colorado, Connecticut, Idaho, Iowa, Louisiana, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Utah, Virginia.

Where Deepsel fits

Deepsel doesn't run payroll, file new-hire reports, keep timesheets or track insurance certificates; a payroll service and your agent handle those. What it does for a first helper: every plan has unlimited users, so adding him, or a second and third hire, never changes the bill. The Free plan covers 30 estimates and 30 invoices a month at $0, and Pro is $29 a month for unlimited estimates and invoices. You add him from the Team page with an email invite or a password you set, as a Technician (the other role is Owner). His home screen is "My day": today's visits assigned to him, next one on top, with On my way, Start and Finish buttons that record the times, and the day's unassigned visits with an "Assign to me" button. He can open customer records, write estimates, create invoices and record payments. The price book is read-only to him, and he can't manage the team, the shop settings or your Deepsel billing. He does see the whole customer list, not just his jobs. A visit can have more than one tech, each in his own color on the schedule. The recorded times help you check his hours, but they aren't a time clock. Details are on the pricing page.

Frequently asked questions

Can I pay my helper as a 1099?

Not if he works the hours you set, on your jobs, with your tools, for an hourly or day rate. The IRS looks at who controls the work, who controls the money side and how the relationship works, and a helper fails on all three. In Massachusetts, New Jersey, Connecticut and New York construction the ABC-style tests are stricter still: someone doing the same work your business sells can't pass them. Minnesota goes further for electrical and plumbing: everyone doing that work for you must be a W-2 employee. A 1099 is for a real business with its own insurance, tools and customers, priced by the job.

Do I need workers comp for one employee?

In 11 of the 13 states on our list, yes, from the first employee: Massachusetts, New Jersey, Minnesota, Idaho, Iowa, Louisiana, Connecticut, Nebraska, New York, Colorado and Utah. Virginia requires it once you regularly employ more than two people, and it counts the employees of subs doing your trade toward that number. Arkansas starts at three employees, but at two for anyone in building or building repair work and at one for a contractor who subcontracts any part of a contract. The owner exemption most states give a sole proprietor covers you, not him.

How much does it cost to hire an employee?

For a helper at $20 an hour, full time, about $46,600 to $56,700 a year in my worked example: $41,600 in wages, 7.65% employer Social Security and Medicare, $42 of federal unemployment, state unemployment ($1,102 for a new construction employer in Iowa, $1,373 in New Jersey) and workers comp, which runs from $719 for an Iowa electrician's helper to $10,539 for a New Jersey roofer's. Spread over 1,600 billable hours, with $500 of tools, that's about $29 to $36 for every hour you can bill him out, before a second truck.

Is a subcontractor considered an employee?

Sometimes, and the label doesn't decide it. A sub who runs his own business, carries his own workers comp and liability, has other customers and bills you by the job is a subcontractor. Someone you call a sub who works your hours on your crew is an employee under the IRS test and under the ABC tests in Massachusetts, New Jersey, Connecticut and New York construction. And a real sub without workers comp can still land on you: in Virginia, Colorado and Louisiana, among others, an uninsured sub's workers can become your responsibility, and your insurer can charge you for them at audit.

Can a company tell an independent contractor when to work?

It can set the job, the deadline and the result. Setting his hours, telling him how to do the work and supervising him are signs of an employee. The IRS's first question is whether the company controls or has the right to control what the worker does and how he does it, and part A of the ABC test asks whether he is free from your control and direction, under the contract and in fact.

What paperwork do I need to hire an employee?

Federally, a Form W-4 and a Form I-9 from him (you complete Section 2 of the I-9 within 3 business days of his first paid day) and an EIN for you. From your state, an unemployment insurance account, a withholding account and the state's withholding form if it has one, plus the new-hire report within 14 days in Massachusetts, 15 in Iowa and 20 elsewhere. Add the workers comp policy, a paid family leave registration in New Jersey, New York, Massachusetts, Connecticut, Colorado and Minnesota, and an apprentice registration if your trade's helper needs one. The free checklist on this page lists each one.

Can I pay a helper cash?

Cash is only how you pay him. If he's an employee, the wages still go through payroll with taxes withheld, a new-hire report, unemployment and workers comp, and a W-2 in January. Paying cash off the books is how an owner ends up owing the IRS 10.7% to 13.7% of everything he paid, plus state unemployment, a comp audit and state fines.

When should I hire my first employee?

Replies in our threads put it at being booked several weeks out, steadily, for months: ‘If you’re a few weeks out consistently for a long time, then yes, hire someone.’ The math agrees. A helper who's billable 1,600 hours a year costs about $29 to $36 an hour in my example; billable 1,200 hours, the same helper costs $41 or more, because you pay him on the slow days too.

Sources

1. Deepsel research, "Common topics for newly licensed contractors" (doc 8.3), ranked rows 6, 12 and 22: about 80 genuine owner threads on going from solo to a first helper, about 90 on workers comp and 1099 questions, and about 80 on managing employees (a dedicated scan of 145 owner threads), from Reddit posts 2024-08 to 2026-08 outside HVAC. Counted November 2, 2026. Google results for "how to hire your first employee" (biBerk, OnPay, Oyster HR, Gusto and others) pulled through DataForSEO November 4, 2026.
2. r/paint, "Owners: question about going from solo to having first helper/painter.." (May 22, 2025, post since removed, read in an archived copy): "please keep it simple and dont get bogged down in like 1099 vs employee etc." (1ksgrj0). Replies: "Your first employee shouldn’t be a trainee…" and "if you’re busy 2 weeks of the month and have nothing for 2 weeks, then they will leave pretty quickly" (mtncyby); "when you hire an employee your over head goes up. so you have to charge for it." (mtmql7g); an owner with three year-round employees on "a road map" (mtnkpqx); "How about hiring another occasional solo, and when you have gaps, they have their own book of work." (June 1, 2025, mve1cjg). Replies checked live November 4, 2026.
3. r/Contractor, "W2 vs 1099 employees" (December 27, 2024, post since removed, read in an archived copy), a Connecticut residential building contractor: "having a W2 employee is insanely expensive because I have to pay into their Medicare and whatever else" (1hnncaj). Replies: a California GC, "If he works under your supervision, using your materials and only works for you, he's an employee." (m431aep); "If your rates are not able to operate legally, then you have no business bidding on those projects." (m43j7n4). Replies checked live November 4, 2026.
4. IRS, "Independent contractor (self-employed) or employee?": common law rules, behavioral, financial and type of relationship; Form SS-8, "it may take at least six months to receive a determination". irs.gov, read November 4, 2026.
5. US Department of Labor, Wage and Hour Division: "Notice of Proposed Rule: Employee or Independent Contractor Status Under the Fair Labor Standards Act…" (RIN 1235-AA46), announced February 26, 2026, 91 FR 9932, comments to April 28, 2026; proposes to rescind the 2024 rule "which it is no longer applying in its investigations"; "economic reality" test with two core factors (dol.gov); 2024 final rule page (dol.gov). Read November 4, 2026.
6. Massachusetts Trial Court Law Libraries, "Massachusetts law about independent contractors", MGL c. 149, § 148B 3-prong test (mass.gov); MGL c. 149, § 27C: willful violation of § 148B, "a fine of not more than $25,000 or by imprisonment for not more than one year for a first offense"; without willful intent, "a fine of not more than $10,000" (malegislature.gov); Attorney General's Advisory 2008/1 on the law (mass.gov). Read November 4, 2026.
7. New Jersey Department of Labor and Workforce Development, "Independent Contractors and Misclassification": ABC test under N.J.S.A. 43:21-19(i)(6); "it is the employer’s burden to meet the qualifications of all three parts"; workers "can be awarded up to 5% of the worker’s gross earnings over the past 12 months as a penalty" (nj.gov); "NJDOL Adopts Clear Rules on Worker Classification…", May 5, 2026, citing East Bay Drywall, LLC v. Department of Labor (2022) (nj.gov). Read November 4, 2026.
8. New York State Department of Labor, "The New York State Construction Industry Fair Play Act" fact sheet (P738): ABC test and 12-part separate business entity test; willful violation "up to a $2,500 fine per misclassified employee for a first violation and up to $5,000 per misclassified employee for a second violation within a five-year period"; misdemeanor "up to 30 days in jail, up to a $25,000 fine". dol.ny.gov, read November 4, 2026.
9. Minnesota Department of Labor and Industry, "Construction worker misclassification": "workers are considered employees unless they meet the 14 legal requirements", including compensation "on a commission or per-job or competitive bid basis and not on any other basis" (dli.mn.gov); "Misclassification FAQs": "A penalty of up to $10,000 for each employee the employer fails to classify, represent or treat as an employee" (dli.mn.gov). Read November 4, 2026.
10. Colorado Department of Labor and Employment, "Independent Contractors": "an individual is presumed to be in covered employment unless and until it is shown that the individual is free from control and direction… and… customarily engaged in an independent trade" (cdle.colorado.gov); "Worker Misclassification Reporting & Advisory Opinions": willful misclassification "up to $5,000 per misclassified employee for the first misclassification and up to $25,000 per misclassified employee for a second or subsequent" (cdle.colorado.gov). Read November 4, 2026.
11. Code of Virginia § 40.1-28.7:7, "Misclassification of workers": an individual paid for services "shall be presumed to be an employee… unless it is shown that the individual is an independent contractor as determined under the Internal Revenue Service guidelines". law.lis.virginia.gov, read November 4, 2026.
12. Nebraska Department of Labor, "Employee Classification Act" (dol.nebraska.gov); Neb. Rev. Stat. 48-2903: "An individual performing construction labor services for a contractor is presumed an employee and not an independent contractor… unless the individual meets the criteria found in subdivision (5) of section 48-604" (nebraskalegislature.gov); 48-2907: "not more than five hundred dollars per misclassified individual for the first offense and not more than five thousand dollars… for each second or subsequent offense" (nebraskalegislature.gov). Read November 4, 2026.
13. Connecticut Department of Labor, "Worker/Employee Misclassification Frequently Asked Questions": the Unemployment Compensation Division "uses the 'ABC' test" (portal.ct.gov); "Employer Employee Relationship For CT Unemployment Taxes" (portal.ct.gov). Read November 4, 2026.
14. Other states' unemployment tests: Louisiana R.S. 23:1472, free from control, outside the usual course or all places of business, and customarily engaged in an independent business (legis.la.gov); Arkansas Division of Workforce Services, "Misclassification of Workers", A.C.A. § 11-10-210(e) (dws.arkansas.gov); Utah Department of Workforce Services, "Independent Contractor" (jobs.utah.gov); Iowa Workforce Development, "Employer Audits and Misclassification of Workers": "The right to control the work to be done and how it will be done is one of the main factors considered" (workforce.iowa.gov); Idaho Department of Labor, Unemployment Insurance tax handbook (November 2025): "if there is direction or control retained by the employer and if the worker is engaged in an independent business apart from the employer" (labor.idaho.gov). Read November 4, 2026.
15. IRS, Publication 15 (2026), Employer's Tax Guide: 2026 rates (6.2% Social Security on wages up to $184,500, 1.45% Medicare, each side); section 3509 rates (7.44%, 1.74% and 1.5% if required information returns were filed; 8.68%, 2.03% and 3.0% if not; not available for intentional disregard); new employers are monthly schedule depositors in their first calendar year, deposits "by the 15th day of the following month"; Form 941 by April 30, July 31, October 31 and January 31; FUTA deposit when over $500; Form 1099-NEC threshold $2,000 for payments made in 2026 (irs.gov); Topic no. 759, Form 940 (irs.gov). Read November 4, 2026.
16. Workers comp coverage rules: Massachusetts Department of Industrial Accidents, "Workers' Compensation Insurance Requirements" ("The requirement applies no matter the number of hours worked or the number of employees"; stop work order fines "$100 per day", "$250 per day" on appeal, up to a $1,500 fine and 1 year on conviction) (mass.gov); New Jersey Department of Labor, "Employer Requirements" (penalties "up to $5,000 for the first ten days and up to $5,000 for each additional" ten days) (nj.gov); Minnesota DLI, "Who needs workers' compensation coverage?" ("an employer with only one part-time employee generally must provide coverage") (dli.mn.gov); Idaho Industrial Commission, "Employers FAQs" (iic.idaho.gov); Iowa DIAL, "Compliance" (dial.iowa.gov); Louisiana Workforce Commission, "Workers' Compensation Coverage for Employers" FAQ (laworks.net); Connecticut Workers' Compensation Commission, "About workers’ compensation insurance" (portal.ct.gov); New York Workers' Compensation Board, "Is Workers' Compensation Coverage Required?" (wcb.ny.gov). Read November 4, 2026.
17. Virginia Workers' Compensation Commission, "Contractor Information": coverage for an employer who "regularly employs more than two part-time or full-time employees", subcontractors' employees included in the count; statutory employer, § 65.2-302. workcomp.virginia.gov, read November 4, 2026.
18. Nebraska Workers' Compensation Court, "Employer Frequently Asked Questions" ("A civil fine not to exceed $1,000.00 for each violation. Each day of continued failure to secure coverage constitutes a separate violation") (newcc.gov); Nebraska Department of Labor, "Who Needs to Register", contractor registration (dol.nebraska.gov). Read November 4, 2026.
19. Colorado Department of Labor and Employment, Division of Workers' Compensation, "Coverage Resource Center": "Every person performing construction work on a construction site must be covered"; rejection of coverage for officers and LLC members with at least ten percent ownership. cdle.colorado.gov, read November 4, 2026.
20. Utah Labor Commission, "Workers' Compensation Coverage Waivers" and "Employers" (laborcommission.utah.gov); Utah DOPL, "Specialty Contractor License": "If you have employees, you MUST: Have obtained a certificate of workers compensation insurance with DOPL as certificate holder… a state withholding tax registration from the Utah State Tax Commission… an unemployment registration from the Utah Department of Workforce Services. If you do NOT have employees, you MUST: Have obtained a Workers Compensation Coverage Waiver" (commerce.utah.gov). Read November 4, 2026.
21. Arkansas Workers' Compensation Commission, "Basic Facts": "Most employers in Arkansas with three or more employees are required by law to have Workers’ Compensation insurance" (labor.arkansas.gov); Ark. Code § 11-9-102(11): three or more employees; "two (2) or more employees are employed by any person engaged in building or building repair work"; "one (1) or more employees are employed by a contractor who subcontracts any part of his or her contract" (law.justia.com). Read November 4, 2026.
22. Workers comp rates per $100 of payroll, effective January 1, 2026: Iowa Insurance Division, NCCI advisory rates (voluntary market, rates include expenses; minimum premiums $350 for 5190 to $1,000 for 5551) (iid.iowa.gov); New Jersey Compensation Rating and Inspection Bureau, Rate and Classification Handbook 2026 (5190 $3.843, 5183 $4.457, 3724 including "HVAC installation, service or repair… residential" $5.636, 5474 $8.883, 5645 $14.946, 5551 $25.334; minimum premium $1,200) (njcrib.com). Read November 4, 2026.
23. State unemployment rates for 2026: Iowa Workforce Development, Unemployment Insurance Employer Handbook 2026 ("New non-construction employers… 1.000%"; "New construction employers… 5.400%"; taxable wage base $20,400) (workforce.iowa.gov); New Jersey Department of Labor, "Rate information, contributions, and due dates": new employer UI 2.6825%, DI 0.5%, WF/SWF 0.1175%; 2026 taxable wage base $44,800; worker DI 0.19% and FLI 0.23% in 2026 (nj.gov). Read November 4, 2026.
24. US Bureau of Labor Statistics, Occupational Employment and Wage Statistics, May 2025, median hourly wage, pulled through the BLS public API November 4, 2026: helpers, electricians (47-3013) Iowa $20.01, New Jersey $21.42; construction laborers (47-2061) Iowa $23.31, New Jersey $30.80. Employee pay. bls.gov.
25. 2026 minimum wages, each state's page: Massachusetts ($15.00); New Jersey ($15.92; $15.23 for seasonal and small employers); Minnesota ($11.41); Idaho ($7.25); Virginia ($12.77); Iowa ($7.25, $6.35 for the first 90 days); Louisiana, R.S. 23:642 (legis.la.gov) and the US Department of Labor's state table, "No state minimum wage law" (dol.gov); Connecticut ($16.94); Nebraska ($15); New York ($17.00 NYC, Long Island and Westchester; $16.00 elsewhere); Colorado, CDLE (cdle.colorado.gov, $15.16) and Denver ($19.29); Utah ($7.25); Arkansas ($11.00, employers with 4 or more employees). Read November 4, 2026.
26. Paid sick leave, each state's page: Massachusetts; New Jersey; Minnesota; Connecticut (11 or more employees from January 1, 2026, 1 or more from January 1, 2027); Nebraska (11 or more employees); New York State and New York City (Protected Time Off Law: "32 hours of unpaid protected time off", "20 hours of paid prenatal leave"); Colorado; Virginia, Code §§ 40.1-33.3 to 40.1-33.6, home health workers (law.lis.virginia.gov); Louisiana R.S. 23:642 bars local sick leave mandates. Read November 4, 2026.
27. New-hire reporting, each state's page: Massachusetts (14 days, independent contractors too); New Jersey (20 days); Minnesota; Idaho; Virginia (independent contractors too); Iowa, Code chapter 252G (legis.iowa.gov, fifteen days, contractors too) and IWD; Louisiana; Connecticut; Nebraska (20 days under federal law, 42 U.S.C. 653A); New York; Colorado; Utah; Arkansas. Read November 4, 2026.
28. IRS, "Get an employer identification number": "You never have to pay a fee for an EIN." (irs.gov); IRS, "Hiring employees" (irs.gov); USCIS, "Completing Section 2, Employer Review and Attestation": "within 3 business days of the date of hire of your employee (the hire date means the first day of work for pay)" (uscis.gov). Read November 4, 2026.
29. Louisiana Workforce Commission, "E-Verify": employers keep a copy of the documentation or may use E-Verify; Act 376 requires E-Verify of employers who contract with a public entity. laworks.net, read November 4, 2026.
30. Paid family and medical leave premiums for 2026: New Jersey (src-23); New York Paid Family Leave, "Updates for 2026" (0.432%) (paidfamilyleave.ny.gov); Massachusetts PFML, "employer contribution rates and calculator" ("Employers are only required to send an employer contribution if they have 25 or more covered individuals"; 0.88%) (mass.gov); CT Paid Leave, "Contributions" (0.5% for 2026) (ctpaidleave.org); Colorado FAMLI, "Employers" (0.88%, "may split the cost 50/50") (famli.colorado.gov); Minnesota Paid Leave, "Premium rate and contributions" (0.88%; small employer rate 0.66%; "employers can collect up to 0.44% from employees") (pl.mn.gov). Read November 4, 2026.
31. US Department of Labor, "Overtime Pay": "overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half" (dol.gov); "State Minimum Wage Laws", updated July 1, 2026: Colorado premium pay after 12 hours daily and 40 weekly (dol.gov). Read November 4, 2026.
32. IRS, "Standard mileage rates": 2026 business rate 72.5 cents a mile January 1 to June 30 and 76 cents July 1 to December 31. irs.gov, read November 4, 2026.
33. IRS, Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits, "Qualified nonpersonal use vehicles", Vans: "clearly marked with permanently affixed decals, special painting, or other advertising associated with your trade… and has a seat for the driver only (or the driver and one other person) and either… Permanent shelving that fills most of the cargo area… An open cargo area and the van always carries merchandise, material, or equipment". irs.gov, read November 4, 2026.
34. OSHA, "Fall Protection": "OSHA requires that fall protection be provided at… six feet in the construction industry". osha.gov, read November 4, 2026.
35. r/electricians, "How to Handle an Employee Using a Company Van Without Permission?" (December 1, 2024), posted by an electrical company owner (1h4gmai); the owner's follow-up on side work (lzyc4zs); an electrical business owner, 748 upvotes (lzy9bt8); "My company has a written policy…" (m01wy03); an owner who had 9 vans (lzznx4s). Checked live November 4, 2026.
36. r/handyman, "When to hire" (October 9, 2025, post since removed): "Managing other people can quickly turn into a full time job." (nilho4n); "I wouldn't put anyone in a van alone before they worked with me for a while…" (nim2gvz). Checked live November 4, 2026.
37. r/Plumbing, "How to Deal with Apprentice fuck ups" (January 14, 2025): "Started my business not too long ago using helpers to speed up jobs" (1i1b36j); reply, "Are your apprentices working with licensed guys at the same time on the job site?" (m74qhtr). Read in the archive November 4, 2026.
38. r/drywall, "Wanting to hire a first employee, finding it unlikely to break even" (April 1, 2025), a remodel and repair contractor in central Wisconsin: "adding another worker will add about 3 dollars an hour to total overhead for added insurances" (1jolzsh); reply, "Most employees cost a company at least double what they are being paid…" (mkw658g). Checked live November 4, 2026.
39. Quotes from our trade research, checked there: an HVAC owner, "I'm not quite ready to hire a guy, as I don't wa to have to lay him off in the winter." (r/HVAC, November 10, 2024, lwhj3sy); a roofing owner, "100/sq for an insured sub and 75-80 if I'm having to cover WC for them." (r/Roofing, July 12, 2025, n2nd4w8); a siding contractor on an OSHA fine (May 11, 2025, comment since removed, read in an archived copy, mrtoaib).
40. North Carolina Rate Bureau, Basic Manual Rule 2-H, Subcontractors: evidence of each subcontractor's comp; otherwise "additional premium must be charged on the contractor’s policy for the uninsured subcontractor’s employees". One state's manual, shown as an example of the rule. ncrb.org, read November 4, 2026.