How much does it cost to convert 1099 subcontractors to W-2 employees?

The employer adds the employer half of Social Security (6.2%) and Medicare (1.45%), federal and state unemployment, and workers compensation on top of what the worker is already paid. For trades where the workers compensation classification is expensive — roofing especially — that comp premium is frequently the largest single line, often exceeding all payroll taxes combined. Overtime, benefits and payroll administration add further cost on top.

Can a roofing company pay its crew as 1099 subcontractors?

It depends on the facts, not on the paperwork. The IRS and the Department of Labor weigh behavioral control, financial control and the nature of the relationship — who sets the hours, who directs the work, who supplies the tools, whether the worker carries their own insurance and works for other builders. A crew that works only for one company, on that company’s schedule and with that company’s equipment, is difficult to defend as independent regardless of how it is paid.

What happens if subcontractors are misclassified?

Worker classification is an active enforcement area for both the IRS and the Department of Labor. A reclassification determination can reach back over years already filed and bring back employment taxes, penalties and interest, and a Department of Labor action can carry unpaid overtime. No structure or filing makes an examination impossible; anyone promising a guaranteed outcome is overpromising.

Free tool

What would it cost to put your crew on payroll?

Most contractors running 1099 crews have never worked this out. It is worth knowing before someone else works it out for you.

Your crew

How many subs?Paid each, per yearWhat you 1099 each of them.

Your rates

Picking your state fills the unemployment wage base — that one is published. The two rates we leave to you on purpose: your unemployment rate is experience-rated and specific to your company, and comp depends on your class code, carrier and claims history. Roofing carries one of the highest comp classifications there is, and a state-level guess would be wrong by a wide margin. Both are on your policy and your annual rate notice.

StateFills the taxable wage base below.Workers' comp rateDollars per $100 of payroll, for the class code your crew falls under.

State unemployment rateYour assigned rate — on your annual rate notice.State taxable wage basePer employee, per year. Choose a state above to fill it.

How this is calculated. Paying someone on a 1099 costs you what you pay them. Paying the same person on a W-2 adds the employer half of Social Security (6.2% up to the wage base) and Medicare (1.45%, uncapped), federal unemployment, state unemployment, and workers’ compensation. The figure shown is that difference, for the whole crew, for a year.

Where the wage base comes from. State unemployment taxable wage bases are the 2026 figures published by EY Tax News (24 January 2026), corroborated against the U.S. Department of Labor’s Significant Provisions of State UI Laws. A few states carry a second, higher base for certain employers — Nebraska and Rhode Island among them — so the field stays editable. Bases change every January.

The two rates are yours. Your unemployment rate is experience-rated and specific to your company, and comp depends on your class code, carrier and claims history. We don’t fill either, because a state-level average would be wrong for almost everyone reading this — published roofing comp rates range from under $3 to over $80 per $100 of payroll depending on which figure you look at. Check both against your policy and your rate notice.

Figures current for the 2026 tax year (Social Security wage base $184,500; FUTA 6.0% on the first $7,000, shown net of the standard 5.4% state credit at 0.6%). Rates and thresholds change annually.

Classification is a facts test, not a form. Whether a worker is an employee or an independent contractor turns on behavioral control, financial control and the nature of the relationship — not on what the paperwork says or how they are paid. If your subs run their own crews, carry their own insurance and work for other builders, that is a very different picture from a crew that works only for you.

This calculator is general information, is illustrative only, and is not tax or legal advice. No outcome with any tax or labor authority is guaranteed. Consult a professional about your specific circumstances. That is what we do.

Two bad options, and a third nobody explains

Every contractor we talk to about this already knows the crew probably should not all be on 1099s. They have usually been told exactly once, by someone who then handed them the number you just calculated and left the room.

So they do nothing, because the fix costs more than the business makes. And doing nothing works right up until it doesn’t. We have a client going through this exact issue right now.

There is a third path, and it only applies where it is true: where the people on your crew genuinely are running their own businesses, they should be set up as businesses. Their own entity, their own books, their own return, and work and money moving between companies the way it would with any other vendor. That is our Crew Structure Program.

It does not make the classification question disappear, and we will not tell you it does. What it does is make the relationship look and behave like what it claims to be — which is what an examiner actually weighs. Where that is not the honest answer for your crew, we will tell you that instead.

Talk it through with us

Common questions

Why is workers’ comp usually the biggest line?: Because it is priced per $100 of payroll against a class code, and roofing carries one of the most expensive classifications there is. On a crew of any size it routinely exceeds every payroll tax combined, which is why the calculator will not guess it for you.
Can I just keep paying them on 1099s?: That depends on facts, not paperwork. Who sets the hours, who directs the work, who supplies the tools, whether they carry their own insurance and work for other builders. A crew that works only for you, on your schedule, with your equipment, is hard to defend however it is paid.
What actually happens if we are found to have misclassified?: A determination can reach back over years already filed — back employment taxes, penalties and interest — and a Department of Labor action can carry unpaid overtime on top. The bill arrives for periods you thought were closed, which is what makes doing nothing expensive rather than free.
Does setting the subs up as companies fix it?: No, and nobody should tell you it does. It removes the parts that look worst — no entity, no agreement, no books, no separate return — and it makes a genuine contractor relationship documentable. If the underlying facts say employee, the structure will not change that, and we will say so.
What does the program cost?: $1,500 setup per subcontractor entity, then $350 a month each, which covers their bookkeeping, accounting and tax filing. Most companies we work with pay for the whole crew rather than passing it down.