How to Pay Creative Freelancers
Did you know there are over 76 million freelancers in the United States as of 2024? Experts forecast that those numbers will rise substantially in the coming years, surpassing 86 million by 2027. Globally, estimates show the number of freelancers worldwide is over 1.57 billion! That's a lot of non-employee talent your company can hire!
While many different types of freelancers and independent contractors exist, businesses in all industries frequently hire creative professionals. Freelance writers, artists, graphic designers, photographers, videographers, web developers, and more play a big role in helping companies like yours grow. They provide valuable services your organization may not have in-house, allowing you to invest in talent without bringing in new employees. The benefits of hiring great creative freelancers are immeasurable, enabling companies to save money and in-house resources while tapping into a growing talent pool for all their distinct needs.
But how do you pay your creative freelancers? Compensating your artistic gig workers quickly and fairly is paramount, but navigating the logistics of paying non-employees for their work can be confusing. Luckily, we're here to help. In this guide, you'll learn how to pay your creative freelancers without hiccups, ensuring you can build strong professional relationships with your freelance talent.
Significance of Fair and Timely Payments
Small businesses and large enterprises frequently hire independent contractors. There are many reasons to consider doing so. Because freelancers aren't full- or part-time employees, your company can save on labor costs while gaining the flexibility you need to adapt to workplace changes. You may not need to have creative professionals on your payroll. However, occasional projects may require skills you don't have in-house. Hiring freelancers bridges that gap.
That said, business owners can't neglect the monetary aspects of paying freelancers. While they're not your company's employees, gig workers perform valuable work that deserves fair and timely compensation.
Low rates, frequent payment delays, and inefficient payout processes can and will turn freelancers away. Creative freelancers work as independent contractors. They may operate as a sole proprietor or form an official business entity. Either way, they're self-employed and have the freedom to choose the clients they work for. While millions of freelancers are available, the last thing you want to do is develop a reputation as a "bad client."
Poor payment practices and unfair compensation will turn creative professionals away, making it harder for your business to attract and retain freelance talent. Finding a great independent contractor you can count on is a massive boon, and business owners should do what they can to develop long-standing relationships. How you compensate your freelancers has a greater impact than you might realize. Taking steps to ensure you pay artists fairly, efficiently, and on time according to your contract is paramount.
Determining Fair Compensation
One important aspect of hiring creative freelancers is determining fair compensation. Most independent contractors have a set freelance rate. However, because so many variables affect creative work, freelance rates are often negotiable on a per-project basis. Therefore, business owners and hiring decision-makers must determine fair compensation and work with gig workers to come to an amicable agreement.
There's much to consider when setting a budget and nailing compensation details.
Factors influencing creative freelancer rates
No two creative projects are the same. Whether you're paying for a new logo design, hiring a graphic design artist for an expansive marketing campaign, or investing in new website copy, many factors come into play when determining fair compensation. It's important to remember that the artists you want to hire are running a freelance business. While they likely love what they do, they must also make money doing it. Therefore, a lot of freelancers put ample thought into setting their rates. As a client, it's your job to consider all factors to start negotiations on the right foot.
Some of the biggest factors that impact freelance rates include:
• Industry Standards: Within the larger creative industry, there are different pricing standards based on the type of work you need. For example, a website developer will typically charge more than a freelance writer or logo designer. The best way to get a ballpark figure for average rates is to research industry standards. Understand the demand for the work you need and see what the average freelancer charges for similar projects.
• Preferred Compensation Model: Not every freelancer sets their rate the same way. Some have hourly rates, creating invoices based on the number of hours it takes to complete your project. Others will have a day rate. Some also set freelance rates on a per-project basis.
• Location: Cost of living varies around the world. Running a freelance business comes with many costs. Artists might have dedicated studio space or work from home. Regardless, the cost of living can impact rates. A local artist living in San Francisco may charge more than a global freelancer living in a more affordable country.
• Expertise: Many freelancers consider their training and years of experience when developing rates. Highly skilled artists often work more efficiently and produce higher-quality results in half the time. Those perks come at a cost.
• Project Scope: The overall scope of your project matters because it dictates the amount of work involved with delivering an outstanding final project. For instance, you can expect a fully shot and edited video from a freelance videographer to cost significantly more than a simple logo design.
• Specialty Skills: Some projects may require specialty skills. For example, you might prefer your freelancer to work with a certain medium, use a specific design platform, or apply skills that go beyond what typical artists in the industry have. If you're developing content for a website, you may want to hire someone with experience in your industry to ensure they understand the complexities of your business. Hiring a creative freelancer with specialty skills usually comes at a higher cost.
• Urgency: Do you have a tight deadline for your project? Expect a higher rate or special charges for a quicker turnaround. The urgency with which freelancers must work often impacts the rates they charge because prioritizing your project means reshuffling their schedule or reworking timelines for other clients.
Strategies for negotiating fair pay for different creative roles
Once you determine a fair rate, it's time to move to the negotiating table! As mentioned earlier, most independent contractors are willing to negotiate their rates once they understand the logistics of your project. This process can be daunting, but here are a few strategies to make things easier for all parties.
• Do Your Research: The best way to start things off strong is to do your research. Understand industry standards and how the factors mentioned above may influence freelancer rates. It's better to come into negotiations informed.
• Be Specific About Your Needs and Expectations: Specificity is critical during negotiations. Freelancers need to understand the scope and complexity of their projects to have a productive conversation about compensation. Discuss your needs and the type of work you expect. Then, provide clear details about what you want regarding the timeline, deliverables, etc.
• Be Willing to Compromise: Always be willing to compromise. Freelancers are eager to work with new clients but also need to make money and earn income. Being too firm about rates isn't a good look, and many contractors will walk away if potential clients don't have any wiggle room to meet them in the middle.
• Avoid Lowballing: Finally, don't make bad-faith lowball offers. If you did your research, you should know the industry standard. It's okay to want lower rates, but you should never open negotiations with an insultingly low proposal. It shows that you're not serious about this potential partnership. You'll likely struggle to find any freelancer willing to accept an offer.
Popular Payment Methods
It's not just how much you pay your freelancers. Business owners should also consider how they plan to make payouts! Independent contractors and gig workers can access many different payment options in our increasingly digital world. They're no longer limited to accepting paper checks or direct bank transfers.
While some still prefer those old-school payment options, many prefer modern alternatives. Platforms like PayPal, Venmo, Zelle, and Cash App are popular among freelance circles. The same goes for instant bank transfers and real-time payments (RTPs). These payment options offer easier access to their funds and avoid the delays associated with traditional checks. Freelancers can access their money quicker and have fewer hurdles to overcome.
Offering these payment options can benefit companies like yours. Creative freelancers are often more eager to work and negotiate with potential clients who offer more convenient payment methods.
Let's explore some important considerations you should make when choosing what payment methods you offer.
• Processing Costs: Understanding how much payouts impact your business is important. Many payment methods come with specific processing costs. You may need to pay a small fee per transaction. Plus, there are the labor costs involved with manual payment initiation.
• Convenience: Convenience factors also come into play. For your business, you want to consider how easy sending payouts is. Think about the workflow involved with initiating payments on time. For your freelancers, consider how a payment option impacts fund accessibility. Do your freelancers need to jump through hoops to get money into their bank account?
• Payment Flexibility: Payment methods vary in flexibility. Some have strict limitations, while others give you more flexibility that benefits both parties. For example, some payment options allow you to send funds in your freelancer's currency, eliminating additional steps they may take until they can access their compensation.
• Speed: Speed is becoming an increasingly important factor for a lot of freelancers. No one wants to wait several business days to access their paycheck. Speeder payment options like RTP and instant bank transfers make a big difference.
• Scalability: Scalability is important when you hire several creative freelancers. It's best practice to consider how your needs will evolve and assess how payment methods can accommodate them as your company grows.
Setting Clear Payment Terms
When negotiating with creative freelancers, prioritize transparency in all matters regarding payment. Whether you're paying day rates or a fixed rate for every project, you want the terms of the payment agreement to be concrete. Discuss those details and put them in the contract.
Setting clear payment terms benefits all parties. It provides peace of mind for freelancers, helping them understand how and when they'll receive payment. For businesses, crystal-clear terms avoid confusion and detail your company's responsibilities.
Don't hesitate to consult with attorneys and legal experts when establishing payment terms and building contracts.
Timely Payment Practices
It's up to business owners to ensure that all creative gig workers receive payment on time. There are several best practices to ensure you never make a late payment.
We've already covered one. Having clear payment terms built into a freelance contract is a great way to hold your business accountable. Lay out your responsibilities in the contract terms and establish a payment schedule your company can stick to. To provide even more peace of mind for freelancers, you can consider establishing terms for late payments. For example, you can pay contractors late fees if you don't send payments on time.
Another great strategy is to have a specific contact point for freelance payments. Designating an in-house team member to manage all aspects of paying non-employees helps avoid confusion. It also gives your freelancers someone to contact if they encounter any problems.
Automated payout technology can also help avoid delays. Top-notch payout platforms like Dots allow you to set a payment schedule to automatically initiate payouts for all of your freelancers from one play. The Dots API streamlines payout processes, eliminates the risk of human error, and automates how your business pays freelancers.
Invoicing Best Practices
Invoicing is how creative freelancers collect payment. Good invoicing practices can pave the way to smoother compensation. Start by setting expectations about the invoicing process during negotiations. You can develop an invoicing schedule with your freelancer, establishing when they'll send an invoice when your company will process it, and when payments go out.
In-house, process invoices quickly to avoid delays. You can also utilize invoicing software to digitize the process. Utilizing a payouts API like Dots allows you to integrate automation technology into your existing system, syncing with accounting software to handle invoices and payouts in minutes.
Understanding Tax Implications and Regulations
One point of confusion for business owners regarding creative freelancers is tax implications. You should always turn to tax professionals and attorneys for guidance about your specific business and needs. However, working with non-employee contractors isn't as confusing as most think.
The big thing to remember is that freelancers aren't employees. They're not on your payroll and don't receive benefits like health insurance. Gig workers are sole proprietors who typically pay self-employment taxes. That means your business doesn't have to withhold employment taxes or Social Security. There are exceptions, and it's best to consult professionals for full legal guidance.
While you don't withhold taxes from payments to freelancers, there are some important rules to follow. When you pay contractors more than $600 in a given tax year, you must report those payments to the Internal Revenue Service (IRS). Businesses do this with 1099 forms and collect relevant tax information by collecting W-9 forms from freelancers.
The IRS has several different types of 1099 forms based on the compensation you provide. You must file these forms on time every year. A copy of those forms goes to your freelancer, allowing them to do their own taxes and submit an accurate tax return. Failing to fulfill your reporting obligations can also result in penalties.
Professional Communication about Payments
If done right, business owners can create a compensation plan that's quick, convenient, and stress-free. However, there will be moments when you must discuss payments and compensation with freelancers. Whether hiring new freelancers or renegotiating a new contract with one you've worked with, you must keep things professional.
Make a habit of communicating with contract workers via email. Personal face-to-face conversations or phone calls are also helpful, but having a digital paper trail of your discussions is always good.
Discuss payment concerns with professionalism to avoid drama. You want to avoid harming the relationship you develop with creative freelancers. Be clear and concise in your communications, and avoid getting personal. Conversations about money can easily go south, so you want to maintain professionalism at all times to protect your business and reputation.
Providing Additional Incentives
Want to bring out the best in your freelancers while attracting the best talent? Consider providing additional incentives. Many small businesses and larger enterprises have contractor compensation plans to incentivize creative freelancers to produce outstanding work.
These incentives can include anything from unique perks to monetary bonuses. Tie those incentives to performance and lay clear terms for how freelancers can earn them. For example, you can offer incentives for faster turnaround or deliverables that go above and beyond the contracted work.
Those incentives are a great treat for freelancers. Offering them can help you attract the best artists while giving gig workers more opportunities to earn.
Addressing Payment Disputes
When paying freelancers, disputes may occur. Your company may drop the ball and send late payments. Or freelancers may feel they deserve more compensation for the work they did. Whatever the case, handling payment disputes is a delicate dance.
You want to remain professional and allow your freelancers to express their concerns. Please give them the courtesy of investigating the issue. Hear your artists out and consider the impact of the dispute. Of course, you should thoroughly investigate the problem to determine how to make things right. Not every disagreement will be legitimate. You might not agree with your freelancer's concerns, and that's okay.
What's important is that you take steps to mediate the problem. Maintain professionalism throughout your communications, do your due diligence, and follow the terms of your contract. Always refer to your original contract to ensure you're meeting your obligations of the agreement and use it to resolve the issue amicably.
Simplify Your Gig Worker Payouts With Dots Today
Paying creative freelancers doesn't have to be stressful, confusing, or frustrating for anyone. Artists do more to help businesses grow than most realize, and tapping into a massive talent pool can benefit your company in many ways. But before hiring artists to take on projects, you must ensure you compensate them fairly without any issues. Taking the time to iron out the compensation details will ensure smooth payouts with zero problems.
Let Dots streamline how you pay freelancers around the world. Dots is a unified platform that simplifies your payout processes. With the Dots API, you can send payments en masse to all your freelancers, all while providing plenty of payment options. Pay your contractors how they want, use automation to never miss a payment, and employ powerful features for tax reporting and compliance. With Dots, paying creative freelancers has never been easier!
Schedule your Dots demo today to learn more about how a payouts platform can benefit your business.