Paying your contractors or freelancers can be a tricky and challenging task. You have to select suitable payment options for freelancers, agree on payment terms, and collect relevant information.
Furthermore, other costs like exchange rates and high transfer fees can significantly alter the payment amount when paying freelancers overseas. In addition to the growing expenditure, there are a bunch of legalities and compliances to consider.
This article will explore some significant points concerning freelancer payments and the availability of payment options for freelancers. Furthermore, we shall also learn about the best practices for paying freelancers, the terms involved, and payment options you should avoid.
Things to Consider While Paying Freelancers
Now, one of the best ways to determine the importance of freelance paying methods is to ask how do freelancers get paid.
If you work with freelancers overseas, you must consider the following things before defining payment terms and methods:
Utilize Marketplaces and management systems
Freelance marketplaces are an excellent way to handle legal disputes, tax compliance, and freelance payment methods. Several marketplaces for hiring and managing freelancers have popped up in recent years, thanks to the boom in the gig industry. These platforms take care of an employer’s payment options for freelancers and act as arbitrators if there are any legal disputes.
Agree on payment terms and conditions and legal jurisdiction
Before hiring freelancers, you should understand how to calculate the payment once the project ends. Most freelancers prefer a fixed pay rate, whether it’s for an hour or a complete project. Some freelancers ask for payment upfront, while others take payment after delivering the final project.
Also, it’s essential to decide the currency for the payments, keeping in mind the currency rate fee. While choosing payment options for freelancers, remember that most options charge a small percentage of the payment as transaction fees.
Furthermore, it is wise to determine a legal jurisdiction if any dispute arises between the parties in the future. Arranging for these aspects beforehand will ensure full transparency.
Ensure compliance with tax laws
When you enter into an agreement with a freelancer, the contract terms clarify compensation, tax liability, freelancer payment method, deadlines for submissions, and other general provisions.
Though it is crucial to create an agreement that complies with tax laws, the process can be quite challenging. For example, US tax laws do not require US companies to pay, withhold, or report taxes for international freelancers outside the US. Also, employers should comply with the labor laws of their freelancers’ country, even though their company lies in a different jurisdiction.
That’s where Multiplier comes in. With Multiplier, employers can generate multilingual contracts and onboard freelancers in a compliant manner.
Conduct a KYC check
Most companies skip this step without knowing its importance. Know your client (KYC) checks are crucial for all employers before sending money to freelancers abroad. It helps verify the criminal background and other necessary aspects of your freelancers. Hence, a KYC will establish clarity and trust between you and the freelancer.
Choose the correct payment method
Although there are multiple payment methods, wire transfers are usually the most popular and secure overseas payment methods for freelancers. It fits all use cases and covers all countries. However, wire transfers can be quite expensive. There is also the risk of high currency conversion fees or other additional charges imposed by banks. So, freelancers either have to bear the brunt or ask for reimbursements.
It’s best to discuss the preferred payment method with your freelancers and choose the most appropriate and reliable option.
Best Practices for Paying Freelancers
Below are some best practices for paying freelancers:
- Always collect the correct tax documents to maintain compliance
- Classify the employee appropriately, whether as a legal contractor, regular employee, or freelancer
- Select a suitable payment method and agree upon the payment terms
- Decide whether to pay the freelancer at an hourly or a fixed rate. Some freelancers also prefer a certain percentage of the payment upfront as a sign of goodwill, especially when you are a new client for them. However, this is not necessary if you pay a freelancer hourly.
- Clearly define the payment terms. You should agree on a payment date and whether there will be any late fees if you miss the due date for payment.
- Decide on the payment checkpoints. You can either pay upfront or after the deliverables have been submitted.
- If you are reimbursing for the resources for the projects, make sure that the freelancers provide proper receipts to support their purchase
- If there’s any intellectual property involved, you should make the freelancer sign a non-disclosure agreement (NDA). This agreement governs how much and what information can be shared about the project.
- Generate invoices and share them with the freelancers. This will ensure transparency and trust between the parties.
Different Approaches to Paying Freelancers
The freelancer payment terms can be four ways:
- Paying upfront: Paying upfront or paying in advance is a payment technique preferred by several freelancers, particularly those who have started working for a new client. From an employer’s perspective, releasing the entire payment in one go might be risky. So, make the complete payment only if you trust the freelancer.
- Paying after completing a milestone: When employers set project milestones, they make payments to motivate the freelancers to achieve further milestones. The most common method is to pay half the amount upfront and the remaining half upon project completion. If you have a longer project in hand, spanning over months, you must fix the payment terms in advance.
- Paying after project completion: This is one of the most dependable payment options for freelancers. Here, employers pay freelancers once they deliver the entire project. It is excellent for small businesses with limited finances.
- Hourly rate: Employers can also use time tracking software or platforms like Upwork to figure out the accurate hours freelancers spend working on the project. This option works when freelancers and clients find enough credibility in each other.
How to Pay Freelancers?
Employers can use the following payment methods for freelancers overseas:
- Checks: The costs of postage and envelope are minimal. However, freelancers often don’t prefer checks because they are less secure. Checks can often bounce, leaving the payment unfinished. Furthermore, checks aren’t the fastest payment mode. Generally, freelancers must wait for the mail and get a clearance from their banks during check payments.
- Digital payment platforms: Digital payment platforms are trusted across the globe. Although they have increased their fees significantly over the years, these platforms are not present in many countries. For instance, the transaction fees for freelancers are now 2.9% of each payment, plus an additional fixed fee of $.03 on Paypal. Also, freelancers can lose another 5% of their income if they wish to convert the currency.
Multiplier can help you manage freelancer payments worldwide on a single platform. With our global PEO and payroll solution, employers can onboard, manage and pay freelancers without worrying about hidden costs. Furthermore, freelancers do not face any losses in currency transactions as our SaaS-based solution helps you pay in their local currencies.
- Freelancer marketplaces: Earlier, online marketplaces allowed payment methods for freelancers only on their platform. Later, they added new features, allowing freelancers to create project contracts acceptable on all platforms and share them with clients. Employers can accept the agreement and submit the money in escrow. They can disperse the payments once the freelancers have completed the work.
With Direct Contracts, freelancers get the same payment protection and legal dispute assistance as working with clients on Upwork. However, Upwork charges 3.4% per contract from freelancers.
- Wire transfers: Wire transfers are now almost obsolete due to far convenient digital payment modes available to the masses. They are mostly used for transferring large amounts and are considerably expensive.
- Credit cards: For making payments via credit cards, both employers and freelancers require a digital payment app. Several options are available, including PayPal, Google Wallet, Wave, and Square. You can also purchase a wireless terminal and credit card processing software to make freelancers’ payments.
Apart from these options, you can also opt for Multiplier, a global PEO/EOR platform. By partnering with Multiplier, you can create diverse payment methods and manage employees and contractors globally.
Freelancer Payment Methods to Avoid
Though there are numerous payment methods for freelancers available, there are a few practices to avoid while paying overseas or within your country:
A freelancer might ask to release their payment other than the one trusted by the freelancer marketplace. Offsite freelancer payment methods, especially in milestone projects, can cause confusion and mistrust. Always abide by the marketplace rules, as your payment will not be released until the freelancer completes their milestone and delivers on their promise.
Organizations are advised to always clear the payment amount and method with the freelancer during contracting. This will protect the interests of both parties and ensure complete legality.
Amidst various payment options for freelancers, it can be challenging to pick the one which suits you. You need to agree upon a legitimate payment method for freelancers to have a stable and working relationship with your hired gun. You should consider location, payment protection options, transaction fees, additional fees, etc, before the project begins.
With Multiplier, you can onboard and pay your global freelancers without hidden costs and payment hassles. Our self-serve SaaS-based solution helps you generate freelance contracts in minutes and ensures that you choose the most fitting payment option for freelancers.
We offer onboarding solutions to employ anyone from anywhere in the world, that too in just a few clicks. Furthermore, we also provide a complete breakdown of salary, payslips, and other benefits according to your requirements.
Q. Which payment method is the best for freelancers?
There is no definitive answer to the question as it depends on different factors affecting both freelancers and individuals. The choice of payment methods for freelancers can be influenced by your location, transaction fees and currency exchange fees if you both are in different countries.
Q. Which is the best platform for hiring freelancers?
Different platforms are available for hiring freelancers. The best way to choose the most appropriate freelancer for your project is to get on multiple platforms and cast a wide net. It will help you find freelancers with diverse skills and expertise.