5 Ways to Pay Freelancers

The term freelancer applies to any individual earning money on a per-task or per-job basis. A freelancer is considered an independent contractor, often getting paid for short-term work. They are not company employees and can complete different jobs concurrently for various firms or individuals, unless they are committed to working exclusively on a particular project.

Since freelancers are independent workers, they set their own time and can work full time or as a side job to supplement their main employment. As independent contractors, freelancers typically sign contracts with clients that define the job and the predetermined fee. This fee is usually based on the effort and time required to complete the project, and can be structured as a flat fee or on a per-hour, per-project, or per-day basis.

5 Ways to Pay Freelancers

Here are the most common ways to pay a freelancer. It is always a good idea to research any specific considerations when paying freelancers overseas.

1. Checks

   Traditionally, employers paid hired talent with checks against an invoice. While sending checks is generally considered outdated, this form of payment is still effective, helping employers avoid the service fees that come with using other payment options.

   The downside of paper checks is that they can take a while to arrive and may get lost during delivery. There is also no way to secure these payments and guarantee the work is performed. As a result of these inconveniences and security concerns, many businesses now opt for electronic payment methods.

2. PayPal

   PayPal is one of the most well-known digital payment platforms and is often used for paying international freelancers. However, while it is a global service, it is important to check whether the company operates in the freelancer’s country of residence before agreeing to use it.

   The main drawback of a service like PayPal can be its fees, which may include a percentage-based transaction fee, a fixed fee per transaction, and additional fees for currency conversion. For a freelancer, these costs can add up and reduce their overall earnings.

3. Credit Cards

   Some freelancers accept credit card payments. While it is uncommon for individual freelancers to have their own credit card processing equipment, they often work with digital payment systems that can process commercial credit cards. Paying by credit card is highly convenient for both the employer and the freelancer, but you should take into account the fees charged by the credit card company and the relevant payment service, which can vary.

4. Electronic Funds Transfer (EFT)

   An EFT, also called a direct deposit or bank transfer, can be a faster and more cost-effective alternative to other methods, depending on the banks involved. Employers typically choose EFTs to pay regular contractors on a recurring basis. The main advantage is that it often does not cost the freelancer anything to receive the funds, though employers may incur fees depending on their bank and the location of the transfer.

   EFTs are not always instant and may take a few business days to reach the payee. However, for long-term arrangements, direct deposits can save employers the administrative costs associated with other payment methods and can simplify the payroll process.

5. Freelancer Platform

   Freelancer platforms, such as Upwork or Fiverr, often include a built-in onboarding and payment process that can accept payments from an employer on behalf of a contractor. This method is reliable and secure, as the platform often holds the funds in escrow until the work is completed to an agreed standard.

   However, this security comes at a cost, as these platforms typically require both parties to pay service fees. They may also apply restrictions on when and how a freelancer is allowed to withdraw their money.

Paying Freelancers: Tips and Best Practices

Setting the Price

Before any work begins, you must have a clear agreement on the price. Ask your freelancer what they prefer—a fixed price or hourly pay. They may ask for a percentage of the total fee upfront, which is a common practice, particularly when engaging with new clients or taking on large projects.

Establish Ground Rules

It is essential to have a contract written in the clearest possible language, stating the project’s timeframe and what happens if it is not completed within this time. Specify the payment due to the freelancer and define who owns the intellectual property of the completed work.

You should also clearly stipulate rules for communication and resource sharing. For example, what happens if you do not provide a necessary resource on time, and how long should the freelancer wait before the project timeline is affected? Also, determine what happens if payments are late and define whether a late fee is applicable.

Ensure Compliance with Tax Laws

When entering into an agreement with a freelancer, ensure the contract terms specify compensation, payment method, and tax liability. Employers must comply with the labour laws applicable to the freelancer’s country of residence, even if the employer resides in a different jurisdiction. The tax and employment status of independent contractors can be complex, so it is important to understand your legal obligations to avoid misclassifying a freelancer as an employee. Additionally, maintaining accurate pay stubs or payment records can help both parties track earnings and simplify tax reporting.

Use Marketplaces and Management Systems

For businesses that work with a large number of freelancers, dedicated freelance marketplaces or management systems can help handle legal disputes, payments, and tax compliance. These platforms provide various payment options and can act as arbitrators if legal disputes arise, which can help improve the quality and efficiency of your freelance workforce.

Conclusion

Freelancers are a key part of the on-demand economy, helping many businesses to achieve scale and business agility. This article has explained the basics of paying freelancers and provided a few tips that can help you to avoid common problems. By clarifying the price, establishing clear ground rules in a contract, ensuring tax compliance, and using appropriate management systems, you can build a professional and effective relationship with your freelance hires.