On the payroll you earn less per hour and carry almost none of the risk. On your own you bill a lot more per hour and carry all of it, and the number that decides which is better for you is not the hourly rate, it is what is left after everything your employer used to pay for quietly lands on you. This page puts the two side by side the way a tradesperson actually experiences them: what each pays, what each protects you from, what the law says about which one you are, and the four questions that tell you whether you are ready to switch.
What a W-2 job actually pays you, beyond the wage
An employee's wage is the visible part. The invisible part is everything the employer is required or chooses to carry:
- Overtime. If you are a non-exempt employee, federal law makes your employer pay time and a half for every hour over 40 in a workweek, and almost nobody swinging a hammer is exempt. A salary, a day rate or a handshake for straight time changes nothing. The claim for unpaid overtime reaches back two years, three if it was willful, with an equal amount on top as damages. Do I have to pay my crew overtime?
- Half your Social Security and Medicare. Your employer matches 7.65% of your wage out of their own pocket. On your own you pay both halves: 15.3% self-employment tax.
- Workers' comp if you are hurt, unemployment if the work dries up. Both are the employer's cost. Workers' comp is required by law in every state except Texas once a business has employees. On your own, an injury with no coverage is your medical bill and your lost weeks.
- Paid time off, if the outfit offers it, and training the firm pays for. Neither is guaranteed, but where they exist they are worth real money.
- Someone else finds the work, prices it, floats the materials and chases the money. This is the one people forget until they are doing all of it on a Sunday night. Going from employee to running your own show lists everything your boss was quietly handling.
What an employee actually costs a business, once the match, the unemployment tax, the comp premium and the unpaid time are added up, is a burden of roughly 25 to 40 percent on top of the wage. That is the money that stops arriving on your behalf the day you go out on your own: What does a worker actually cost per hour?
What being on your own actually pays
Your billing rate has to be far higher than your old wage before you are in the same place, and the site's pricing guide shows the arithmetic rather than asserting it. Take a tradesperson paid $33 an hour as an employee. Add the employer's share of payroll taxes and comp and it is $41. Spread it over the days you can actually bill, roughly 187 of the 261 working days once quoting, travel, weather, sick days and time off come out, and it is $57. Add overhead, meaning the truck, fuel, tools, insurance, phone, software and licensing, and it is $80. Add a 15% profit, which belongs to the business and not to your wage, and it is $94. That is 2.8 times the wage, and every line is something an employer was paying that now has your name on it: How to price your work so you actually make money. Run your own version on What Should I Actually Charge?.
Then the money arrives differently. An employee is paid every Friday whatever the customer does. On your own you take a deposit, bill in stages, and wait, and one slow payer with all your money riding on a single end-of-job check can freeze the whole business: Deposits and progress billing. The IRS wants its share four times a year rather than out of each check, and the set-aside is about a quarter to a third of profit: When do I pay my taxes if I'm self-employed?
The honest one-line version, from people who have done both: you can gross more than a W-2 counterpart quite quickly, and your reliable, after-everything income in year one is often similar or worse once the costs and the downtime are in.
Side by side
| W-2 employee | On your own | |
|---|---|---|
| Overtime over 40 hours | Owed at time and a half, cannot be waived | None. Your hours are your problem |
| Social Security and Medicare | You pay half, the employer matches 7.65% | You pay all 15.3%, on 92.35% of net profit |
| Injured on the job | Workers' comp, the employer's policy | Your own policy, or your own bill |
| Work dries up | Unemployment insurance, in most cases | Nothing, until the phone rings again |
| A slow-paying customer | Not your problem, you were paid Friday | Your problem, and possibly your lien deadline |
| Tools, truck, insurance, license | Mostly the employer's | All yours, and all deductible |
| Ceiling | The rate for your trade in your area | Whatever you can price, sell and collect |
| Retirement | A 401(k) if offered, plus your Social Security credits | SEP-IRA, Solo 401(k) or Roth, funded entirely by you |
The law decides which one you are, not the label
You do not get to pick employee or contractor because you fancy it, and neither does the outfit paying you. If a company controls how you do the work, not just the finished result, and you work mainly for them on their schedule under their direction, you are an employee whatever the paperwork says. A signed independent-contractor agreement does not change that. The worker who has been wrongly put on a 1099 loses overtime, workers' comp and unemployment, and is stuck paying the employer's half of Social Security and Medicare; the business that did it carries the back taxes, interest and penalties when it is examined. 1099 vs W-2: which are you really? is the full test, the 1099 or W-2? Worker Status Checker walks it, and a worker can ask the IRS to decide with Form SS-8.
If you go out on your own for real, the same test runs the other way the day you take on help: Employees or subcontractors: which should your business use?
The four questions that actually decide it
- Is there work you can count on? A builder who will feed you jobs, a former employer who will sub to you, a few customers who already know your work. Not hope. Committed work, lined up while you are still drawing a paycheck. What does it really take to start?
- Can you survive the gap? Several months of personal expenses in the bank, on top of the tools and the truck. The paperwork is a week; the cash is what decides it.
- Does your license let you take the work? A journeyman can do the work; in most states a journeyman cannot pull the permit or contract in their own name. Until you hold a master's card or a contractor's license, going out on your own in a licensed trade often means working as a sub under someone who does. Can you work under someone else's license? draws the line between a genuine qualifier and an illegal rented license.
- Do you want to run a business, or do you want to be left alone to do the trade? Both are honest answers. The second one is a reason to stay employed or to sub, not a reason to open a company.
Where to go next in this section
- Back: You've finished your apprenticeship. Now what?
- Next: Going out on your own straight out of your apprenticeship: realistic, or a mistake?
- The five-year version of this comparison: Employee vs on your own, year by year
- If money is the sticking point: The money reality: what you will actually take home
Common questions
Do I make more money on my own than as an employee?
You can, but not automatically, and not just because your billing rate is higher than your old wage. Out of what you bill, you now pay for tools, the truck, insurance, both halves of your payroll tax, unpaid time off and the weeks a year you do not bill, all of which your employer used to carry. The site's pricing guide shows a $33 wage needing roughly $94 an hour billed to land in the same place.
Can my boss make me a 1099 contractor by having me sign a contract?
No. A signed independent-contractor agreement does not decide your status; the facts of how you work do. If the company controls how you do the job and you depend on them for your living, you are an employee regardless of what you signed, and you can ask the IRS to decide with Form SS-8. The 1099 or W-2? Worker Status Checker walks the same test.
Do I still get overtime if I'm paid a day rate?
Yes, if you are an employee. A day rate does not remove your right to overtime. Your total pay for the week is converted to an hourly regular rate and you are owed time and a half on the hours over 40. Straight-time deals, salaries for trade work and comp time in place of pay are all violations for a private employer.
What do I lose the day I go out on my own?
Overtime protection, the employer's 7.65% match on your Social Security and Medicare, workers' comp and unemployment cover, any paid time off and paid training, and someone else finding, pricing, financing and collecting the work. Every one of those has to be either replaced with money or accepted as a risk, and pricing them in is what separates the people who make it from the people who were busy and broke.
Is it better to stay employed for a year or two first?
For most people, yes. A year or two as a fully qualified tradesperson on someone else's payroll is when you learn to run a job, build the contacts that later feed you work, and save the runway, without carrying the risk. The exceptions are people who already have committed work, a cash cushion and a license that lets them take it.
The honest bit
- Overtime, workers' comp and unemployment rules have state layers on top of the federal ones, and some states go further. Check yours on Working in Your State.
- The $33 to $94 example is the site's own worked model with stated assumptions; change the overhead or the billable days and the multiple moves. Build your own number rather than borrowing that one.
- This is general guidance, not legal, tax or employment advice.
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