How to Pay Your Freelancers in 2020

A female freelancer working at home on her laptop

The hiring of freelancers and other independent contractors is a great way to source high-quality talent for your company on a per-job basis. After all, many startups run fast and lean, and hiring someone full time for a simple task isn't a viable option for an entrepreneur on a tight budget

Luckily, the proliferation of freelance sites such as Upwork, Toptal, and Fiverr means that you can find a skilled coder, graphic designer, or writer within minutes. But once you've found the perfect freelancer for your company's needs, how are you going to pay them?

Finding help online means that you don't have the opportunity to build the same relationship you would face to face, so you need to know that there is an inherent layer of security within the payment process. To help you find one, here is a brief guide on paying freelancers, as well as the advantages and disadvantages of each method.

Online vs Traditional Forms of Payment

Generally speaking, methods for paying freelancers fall into two categories. You can either utilise an existing online service to process and deliver funds, or you can instead rely on a more traditional form of payment. These two methods vary in speed, security and acceptance and, while it is useful to organise your freelance payments under one service, you may have to employ a combination of both forms depending on how you are recruiting freelancers. 

Luckily, the majority of freelancers are comfortable taking payment through an online payment service. If you use one of these, it is useful to work with providers that have a wide reach. The three most popular, and the ones we will be looking at, are:

  • PayPal
  • Payoneer
  • Skrill

On the other hand, independent contractors may be wary of accepting funds through these services. Often, such individuals are far more comfortable receiving a simple cheque or plastic payment, as they may not have an online presence or are averse to any fees that might be associated with other forms of payment. The three methods we are going to evaluate here are:

  • Cheques
  • Credit cards
  • Electronic funds transfers

Online Payment Services

These services exist to perform secure and verified money transfers across the internet. They are the preferred method of payment for most online freelancers and are often endorsed by freelancer marketplaces, such as Fiverr and Upwork.

PayPal

An early pioneer of online payment services, PayPal is now one of the world's most widely used tools for freelancer payments. Initially founded in 1998 under the guise of Confinity, it is accepted in more than 200 countries, meaning that almost anyone you hire online will be able to accept payment through it. All transfers are highly secure and, in most cases, are cleared in a matter of seconds.

In addition, PayPal is one of the few online money transfer services that are accepted by retail locations and is, arguably, one of the only online services that local independent contractors might accept. If you plan on using freelancers in any capacity, you are well-advised to at least look into setting up an account; there is a good chance that someone you work with will request to be paid through this service.

The biggest downside to PayPal is that, due to its ubiquity, it can afford to charge significant service fees that some independent contractors prefer to avoid; higher tier freelancers, for example, may not use the service. On top of a small standard transaction fee, freelancers are charged 2.9% of the final invoiced fee, representing a significant amount of lost income if your freelancer's costs are running into the thousands.

Payoneer

Payoneer is another widely used payment service that is also in over 200 countries worldwide. It accepts many different currencies, which means that it can be a useful tool if your company is based outside of the United States or Europe, or regularly works with freelancers outside of those areas. Indeed, this flexibility is good news for your freelancers, as it can help to negate costly currency conversion fees.

However, one of the most significant issues with Payoneer is that the process of getting approved for an account is far more involved than PayPal's, and can take more time to complete. This is worth bearing in mind if you, or the freelancers you work with, do not already have a Payoneer account set up.

Skrill

A digital wallet with multipurpose applications, Skrill is a UK-based payment service that has the advantage of operating in areas where Payoneer and PayPal do not. It is also free and easy to use, requiring just your identification credentials in order to open an account.

Skrill is also used as a tool by many freelancers to withdraw money from online talent pools such as Upwork. This means that if you are using these sites to hire freelancers, then they are likely to be familiar with the service already.

However, despite specialising in underserved regions, Skrill has the least reach of all three services. This means that while it is an excellent payment tool, you will probably have to use another payment method when dealing with the majority of freelancers.

Traditional Payment Services

As mentioned, independent contractors will likely prefer to be paid differently, especially if they are locally based and providing services in person. The availability of the methods detailed here may depend on if your banking system is compatible, but they are undoubtedly secure, quick and widely trusted ways of paying.

Cheques

Although cheques have become less prevalent since the rise of electronic payments, they are still an excellent – and reliable – way to complete transactions. Many local contractors prefer them because they can accept them in person, and freelancers working on lucrative projects value the fact that there are no associated fees when putting them in their bank.

Of course, the biggest downside of cheques is that they are physical pieces of paper. Therefore, it takes time to mail them – time that only increases if you are sending them abroad – while they can also easily be damaged or lost. Freelancers typically work from project to project and, so, will want their money as quickly as possible.

Credit Cards

Utilising a simple credit card account is another effective way to pay freelancers and contractors. The funds move instantly, meaning that most services are more excited to interact with these payments than they are with cheques.

The downside of credit cards is that they require the recipient to have a method for accepting these payments. For businesses, this might mean owning bulky credit card processing equipment, although apps such as Square Cash have made this less of a burden for most companies.

Freelancers can accept plastic payments through electronic services such as PayPal or Payoneer, too, although not all freelancers are correctly set up to receive such payments. Besides, if they already have a PayPal account, they might prefer just to be paid through that service instead.

Electronic Funds Transfer

One of the more attractive traditional payment methods for offsite freelancers is an electronic funds transfer (or EFT). This method is straightforward and often fee-free, and can be performed across any physical space constraint.

However, it requires that your bank be compatible with the receiver's bank; it also involves a wait of around three to five business days for the transaction to go through. These complications, which can vary from freelancer to freelancer, have made instant services such as PayPal more attractive to today's generation of freelancers.

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To work best with freelancers, you should be prepared to use one or more of these methods. During your introductory conversation, try to agree on what is an accepted form of payment, and stick to it after the job has been completed.

In the meantime, if you know any other great ways to process freelancer payments, then let us know in the comment section below!