If you hire an employee, you need $40,000

by Dale Davidson March 18, 2026

When you sign on as a sub-contractor, you generally get paid on Net-30 terms.

This means you will get paid 30 days after you invoice.

In practice, this means it's two months before you get a check.

Start Jan 1st
Invoice February 1st for Jan 1 - Jan 31 work
Get paid on March 1st

If you hire an employee, that means you need at least two months worth of payroll to hire them.

For a $150,000/year salary, this means they get paid $150,000 % 12 = $12,500 per month.

You will need $12,500 x 2 = $25,000.

Plus, there are benefits and such so tack on another 30%.

That is $25,000 X 1.30% = $32,500.

But, you don't want to go down to zero, so tack on another $5,000 to be safe.

So now it's $37,500.

Round up to $40,000 because you have some other company expenses now like an accountant and additional software subscription that you need to pay for.

After the first two months, assuming they're billing at $140/hour and averaging 150 hours/month, you should get the following:

$140/hour x 150 hours/month = $21,000 monthly revenue
$12,500 x 1.30 = $16,250 monthly cost
$21,000 -$16,250 = $4,750 monthly profit

For an investment of $40,000, you will receive $4,750 X 12 = $57,000 annual profit.

Not bad! See why people get into this business?

It's also why you can go 1099 and make a lot more money if you "hire yourself."

Want the full playbook? Check out Going 1099.