Should I tell my husband the contractor caught me masturbating?

"Honesty is the best policy" is not just a random saying. While it may avoid an argument now by not telling him, the chance definitely exists that he may find out at some point, especially if you know the contractor. It would be much better to bring it to him yourself than to have him find out from someone else. That would just indicate that you're hiding it from him, and then he'll wonder if you're hiding an affair as well.