Freelance payroll management wasn’t something many organizations considered until the freelance revolution. Traditionally, most workers were employees, working a fixed amount of time, from a single office location, and generally working for just one business. At the end of the month, they were paid a fixed salary and benefits as part of a rolling payroll process.
Quaint, huh?
Today, the workforce has changed beyond recognition. 60 million Americans freelanced in 2022, with that number growing all the time. Paying these freelancers needs its own strategy for success.
Streamlining freelancer payments starts with a single platform for freelancer management. Learn more about Fiverr Enterprise here, and keep reading to find out what you need to know about getting freelancers paid accurately, compliantly, and on time.
This is part of a series of articles about Global Payroll.
Components of Freelancers’ Payroll
A person shows up on your porch, and asks if you’ll pay $5 if they cut your grass. You happily agree, and hand them a $5 bill, watching them complete the task. Simple payment for a simple task. Unfortunately, when you’re hiring someone to complete a task for your business, it gets a bit more complicated.
Hiring freelancers, independent contractors, consultants, or even agency workers to fill skills gaps and augment internal people-power comes with a lot of considerations.
- Basic compensation: First decide how much you pay the freelancer in question, which will generally come from their own rates and processes, not yours. They may want to be paid a deposit ahead of time, or be paid regularly according to the hours they have worked. They may have a fixed fee, an hourly rate, a per item price, or a totally different structure you hadn’t considered.
- Invoicing: Freelancers will need to send you an invoice to show what work they are charging for. However, especially if you’re working globally, these invoices can arrive in different formats, languages and currencies. Think about how you will streamline acceptance and payments of these invoices without heavy administrative overheads.
- Taxes: Generally speaking, taxes are not the business’ concern when hiring freelance workers. Freelancers take responsibility for their own taxes, paying both the employer and the employee portion of social security and Medicare taxes via the Self Employment tax, which is 15.3% in addition to their income tax.
- Additional compensation: Will you be providing any other compensation on top of the agreed price for the task? This could be a bonus for getting a job completed before a certain date, or could include tips from customers if the talent is hired to fill an emergent retail or hospitality role. All of this needs to be documented and tracked.
- Expenses and reimbursements: Be careful before paying for training, equipment or materials when you’re hiring freelancers. This could open an employee/employer relationship with the worker, even if this is not your intention. As a general rule, freelancers should be paying for their own supplies, but you may need to monitor and document reimbursements for things like travel expenses or specific additional costs.
Why Are There So Many Challenges in Managing Freelance Payroll?
While employee payroll is fairly straightforward, freelance payroll can be extremely complicated.
First of all, each freelancer will have their own specific use case. As an employer, you can decide that you will pay all of your in-house UX designers the same annual salary, but when you hire a freelance UX designer to help with an urgent deadline, they will usually set their own rate. Hire another, and they will have a different idea for compensation, including details such as per project or per hour, and even when they need you to settle an invoice. Now multiply this by every department, and every freelancer you work with.
Then there is the distributed nature of working with freelancers. One of the great things about the freelance revolution is that it’s opened up remote work on a global scale. It’s just as easy to hire a video designer from the Philippines as it is to hire one from Denver, Colorado. But when payment time rolls around, international payments and currency conversions can be difficult without fees and bottlenecks.
Regulation is the final reason why freelancer payments are so difficult to grapple with. You need to make sure that you’re paying freelancers according to their terms, as that’s an important element of how the IRS determines misclassification. There are also different tax laws and regulations in different countries that are worth considering. You should always make sure that your documentation is clear, and that you have all the necessary forms at filing season, including 1099-NEC, 1099-MISC, and W-9.
How Fiverr Enterprise Can Help Your Business to Manage Freelancers’ Payroll
Efficient and intelligent freelancer payroll management starts before your freelancers have ever done an hours’ work for your business. Begin with a clear agreement, so that freelancers understand exactly what’s expected of them, and what remuneration will be for their hard work.
Fiverr Enterprise can help you to implement an efficient invoicing process where freelancers all use the same platform to submit their invoices and request payments. Your hiring managers will simply review and approve the milestone in a single click, and the payment will be on its way to your freelancers, via their preferred payment method.
This is a huge value-add for today’s organizations, who don’t have time to manually pay one freelancer via wire transfer abroad, another to PayPal, and a third through Bill.com, translating and consolidating disparate invoices and vendor contracts. Instead, every freelancer payment, across 190 countries, 80 currencies, and 7 payment methods, is consolidated into a single global invoice for your business, and then Fiverr Enterprise pays each freelancer the way that they choose.
Using Fiverr Enterprise also means you can set up a regular payment schedule to streamline how freelancers are paid, which can be as often as every two weeks – if that’s what the freelancer would like. This regular payment schedule helps to build trust between you and your workers – quickly making you your freelancers’ preferred client to work with.
At all times, Fiverr Enterprise monitors relationships for risk of misclassification, ensuring that you’re two steps ahead of any compliance concern, and collecting and tracking all the documentation necessary for each tax year.
While many businesses attempt to use traditional payroll software or platforms to pay freelancers, it’s a lot like squeezing a round peg into a square hole. There are just too many gaps. Freelancers have their own requirements, and therefore deserve their own strategy, technology included.
Freelancer payroll management becoming a headache for your organization? Schedule a 30-min call with one of our workforce experts to learn more about our freelance management system (FMS).
Related content: Read our guide to foreign subsidiary.
Related content: Read our guide to employer of record.