By Luz Plaza, contributor of Underground Group
⏰ 5-minute read
Hiring freelance workers gives companies flexibility to scale their workforces temporarily and on-demand.
There are a handful of channels through which to recruit and hire freelancers. Choose the one that fits best with the skill sets your company needs and the amount of liability it’s willing to take on.
Up to 45% of companies have misclassified workers who should be “full-time employees” as “freelancers,” which can have costly repercussions. Follow best practices from an industry expert to stay in good legal standing while working with freelancers.
By 2027, the majority of the U.S. workforce will be freelance workers. A study commissioned by Upwork and Freelancers Union reported that 56.7 million Americans worked as freelancers (also called independent contractors or gig workers) in 2018, and 61% of freelancers said they did so by choice vs. necessity.
Hiring freelancers gives companies flexibility to scale their workforces temporarily and on-demand. For those who are not familiar with the ins and outs of recruitment and HR, here’s an introduction to finding, compensating and legally classifying your first freelance hire.
Ways to find freelance talent
Quality of candidates, time and money are key factors when choosing a method of recruiting freelancers. It’s also important to include liability as an early consideration, said HR expert Sara Greene, who holds a certification from the Society of Human Resource Management, a national association.
Companies that don’t have the bandwidth or resources can benefit from outsourcing freelancer recruitment to a third party, like a staffing firm or a professional employment organization (PEO), Greene said. Both can recruit, hire and retain workers directly, absorbing some of the HR-related tasks, such as payroll, worker's compensation and unemployment insurance; as well as reducing the risk of employment misclassification for the company.
Other companies may choose to handle freelancer recruitment in-house. These employers should create a large and diverse pool of candidates by tapping into a healthy mix of online and offline resources, Greene said.
👉 Resources for finding freelancers on your own might include:
When looking to hire freelancers, ask your colleagues and industry peers for referrals. Roughly 38% of freelancers find work through their professional contacts and previous clients, per a 2018 survey by Upwork and Edelman.
Well-known online job boards like LinkedIn, Indeed and CareerBuilder and other, more industry specific boards are are popular outlets for posting freelance job requisitions.
The gig economy has led to a surge of online platforms where it's easy to find freelance talent, and fast. Sites like Upwork, FlexJobs, Guru and Fiverr provide hiring managers with expert workers in a wide range of industries. AngelList is a similar talent marketplace geared toward startups.
Others freelance recruitment platforms are industry-specific. These include:
Tech: PowerToFly, Stack Overflow, Toptal, Coding Ninjas, Codeable
Creative: Behance, OnSite, Modern Copywriter, 99designs, YunoJuno
Legal: Hire an Esquire, Montage Legal Group
Finance: Paro, Graphite
💡 Here's more about the gig economy and how to integrate freelancers amongst your full-time hires.
Local chambers of commerce and national groups like The Professional Association for Design can be high-yield sources of freelance talent. Many have member directories and seasonal networking events. Others have newsletters, magazines and job boards where businesses can post openings.
Ads in news channels such as local newspapers or profession-specific publications can also prove effective in recruiting freelancers.
Posting in online job boards and freelance marketplaces are two ways to find freelancers.
How to calculate a freelancer’s hourly rate
The actual cost of hiring a freelance worker varies by market, industry and level of experience.
Referencing those online marketplaces like Upwork and AngelList, where freelancers list their rates, can be helpful in determining your candidate’s hourly rate.
Meanwhile, sites like Salary.com, PayScale and Glassdoor provide salary information for most full-time jobs. When using salary numbers to determine a freelancer’s pay, add 25% to 30% to account for the fact that your company will not be providing healthcare to the freelancer nor paying incremental taxes on their compensation.
After you or your third-party recruiter has pegged a candidate, it’s time to draft a statement of work (SOW) for the freelance project. The SOW document can come from either you or the freelancer, and it ensures all parties are on the same page about the details of the project. It also helps minimize surprise increases to the scope of the project.
👉 A SOW document typically includes:
Project cost and payment details (an hourly rate or a rate per project completed)
Length of the project
Deliverables and deadlines
A list of company information or resources that will be shared to the freelancer for the project to be completed, e.g., existing research, guidelines, etc.
A review of processes and client feedback deadlines
The number of revisions included in the scope of the project
Number of meetings in which the freelancer will participate
You can also provide the freelancer with other pertinent paperwork from your company, such as a non-disclosure agreement. However, keep in mind that a freelancer is not an employee. The more supervision and control you have over how a freelancer works, the more likely the IRS will see them as a full-time employee. (More on this in the next section.)
Review a statement of work with your freelance hire to ensure expectations are clear.
The correct job classification for freelancers
In 2015, the National Employment Law Project summarized leading studies across 27 states and found that 10-45% of employers misclassified full-time workers as independent contractors. (This is the most recent statistic; many individual state reports are not as recent.)
There are instances in which companies misclassify full-time workers as freelancers and end up saving money on benefits. However, when a company gets caught intentionally misclassifying workers, the blow to its reputation is arguably worse than the cost of playing by the rules. In addition to financial penalties and a criminal conviction, companies found guilty may have to pay retroactive wages and damages. In 2013, for example, the Department of Labor recovered over $1 million in retroactive overtime pay and other benefits for about 200 employees at a Kentucky based cable installer.
(For cases of unintentional misclassification, the IRS offers a program that allows businesses to fix the error for future tax periods and gives them partial relief from federal employment taxes.)
Within your company, there may not be one specific factor that makes a worker an employee vs. an independent contractor or freelancer. But in the eyes of the IRS, there are defined differences.
For clarity on classifications, Greene recommends reviewing the pertinent IRS and state information -- freelancer classification laws can vary across states. She added that companies can minimize the risk of misclassification (to avoid fines and legal problems) by documenting for the duration of a freelancer’s engagement and making sure most of the following statements stay true.
👉 Make sure most of the following statements stay true for the duration of a freelancer's project.
The worker receives proper project briefing and initial direction for deliverables.
Paperwork includes the worker’s business tax ID (or EIN) and not their social security number.
The worker completes Form 1099 (vs. W-2).
The worker has more than one client.
The worker controls where and when they work.
The worker provides their own equipment.
The worker is (preferably) paid per project vs. hourly.
The worker is not obligated to participate in team-building or company events.
When working with freelancers, checking most of the boxes above will help your business stay in good standing and fend off risks.
Armed with the above tools and knowledge, you’re ready to move forward with hiring a freelancer to help with your next project.