Should you pay freelancers hourly, daily or by project?

Deciding how you pay freelancers is just as important as deciding how much you pay them. Should it be for every hour they work, every day, or for the whole project? The method you decide upon can have a big impact on budgets, current engagements and how effective you can be in attracting top-tier talent to work for your company.

In this post we’ll take a closer look at the different ways to pay freelancers and think about why choosing the right method is so important.

Understanding different payment models

There are a number of different ways to pay freelancers and each has their merits. Below are the pros and cons of four of the more commonly used methods that you should take into consideration.

Hourly rates

Hourly rates are just as they sound. They’re a flexible payment method where freelancers are compensated for the actual hours spent on a project. The freelancer keeps track of the amount of hours worked and invoices according to the number of hours they’ve completed in a certain timeframe and the amount they charge per hour of their time.

Pros

• ‍Flexibility: Hourly rates provide flexibility, making them suitable for tasks with varying time requirements, allowing you to compensate freelancers accurately for the actual time spent on a project.‍
• Tracking and management: Hourly rates are easy to track and manage, particularly beneficial for short-term projects where a clear breakdown of hours is essential for accurate billing.

Cons

• Limited predictability: Hourly rates offer limited predictability for budgeting purposes, making it challenging to forecast project costs accurately.

Project-Based Payments

Project-based payments are a payment structure where the freelancer is paid a set fee for the completion of a specific project. The Project Manager decides in advance how long the project will take and calculates the freelancer’s payment based on this.

Pros

• ‍Clear scope and defined deliverables: One of the significant advantages of project-based payments is the clarity it provides in terms of project scope and defined deliverables. This method ensures that the freelancers you engage with have a clear understanding of the expected outcomes.‍
• Predictable budget: Project-based payments offer a predictable budget for specific tasks, allowing you to allocate funds accurately and freelancers to receive a fixed compensation for the entire project.

Cons

• ‍Challenges in adjusting scope mid-project: While a defined scope is beneficial, it can pose challenges when adjustments are needed mid-project - as they so often are. Any changes in scope may lead to complexities in negotiation and agreement on additional compensation, adding extra complexity to what’s likely to already be a complex project.‍
• Difficulties in tracking progress for ongoing tasks: You may face difficulties in tracking progress for tasks that are ongoing or require continuous adjustments with project-based payments. This can create challenges in assessing the value of the work completed against the agreed-upon payment structure.

Retainers

A retainer fee secures the services of a freelancer over a specified period, often on a monthly basis. This method is often used if freelancers are kept on a project long-term.

Pros

• ‍Stability and consistency: Retainers offer stability and consistency in income for freelancers, providing a predictable source of revenue over a specified period. This can be particularly advantageous for you if you want to establish long-term relationships with certain freelancers.‍
• Priority access: Clients engaging in a retainer agreement often benefit from priority access to the freelancer's services. This ensures timely assistance and availability, fostering a sense of reliability and responsiveness.

Cons

• ‍Limited flexibility: One drawback of retainers is the limited flexibility they may provide, as you will be committed to dedicating a predetermined amount of time to the freelancer. This can potentially mean you're paying for services when you don’t necessarily require them.‍
• Challenges in adjusting workloads: Adjusting workloads within a retainer arrangement can be challenging, as clients may face constraints in modifying the agreed-upon terms. This lack of flexibility may pose difficulties in adapting to changing project requirements or circumstances.

Day Rates

Day rates, like hourly rates, are a flexible payment method in which you pay freelancers a set amount for each day worked. The freelancer keeps track of the amount of days they spend on a project and sends invoices accordingly.

Pros

• Balance between flexibility and predictability: Day rates strike a balance between flexibility and predictability, offering a middle ground for both freelancers and clients. It provides some level of structure while allowing for variations in workload.‍
• Ease of negotiations: Most freelancers have a standard day rate that serves as the foundation for their pricing strategies. This standardised approach helps freelancers maintain consistency in their charges and allows clients to anticipate costs based on the agreed-upon day rate.

Cons

• ‍May not be suitable for extremely short-term projects: While day rates offer a balanced approach and are great for most engagements, they’re not the best fit for extremely short-term projects that last less than a day. For example, if a graphic designer provides images for blogs on an ad-hoc basis, this work is unlikely to be measured in days. In such cases, an hourly model or retainer might be more suitable.

Aligning payment methods to the needs of your company

When you’re evaluating the most suitable payment method to use, you should align the choice with the specific needs of your company. Before you hire a freelancer, you need to have conversations about project duration, complexity, and budget constraints early on to tailor the compensation model accordingly. You should also consider the compensation methods that your freelancer management system supports.

More often than not, projects vary in terms of length and intricacy, and understanding these dynamics will guide you in choosing a method that ensures fair compensation while accommodating the unique demands of each project. Striking the right balance between compensation methods and performance expectations is the key to successful and enduring collaborations.