According to Freelancers Union, a staggering 35% of Americans – that’s roughly 55 million people – were freelancers in the year 2016. It’s a number that says a lot about the way our economy works these days and also plenty about the preferences of today’s workforce. Moreover, the statistic gives us a keen insight into the minds of employers. Clearly, more and more decision-makers are getting hip to the intrinsic benefits that come with hiring skilled labor on a temporary, contractual, or on-demand basis. Onboarding a freelance team costs a mere fraction of a team of full-time employees, as contractors generally come in a tidy package with their own equipment, specialized training, and, of course, health insurance.
But, benefits of hiring freelancers aside, one very important factor should be determined before you even begin thinking of searching for freelancers – the hourly rate. The hourly rate is something that can either make or break your goals; if you offer an hourly rate that’s too low, you likely won’t attract the level of talent that you need, but if you offer an hourly rate that’s too high, it may be difficult, or impossible, to make a meaningful return.
Here are the best ways that you, as an employer, can work out the ideal freelancer hourly rate:
Take a Good, Hard Look at Your Budget
This might seem like an obvious first step in the rate-setting process – and it is! – but it’s also a rookie mistake that is made far too often. Often, incorporating a freelancer might seem like somewhat of a temporary aside in the grand scheme of your overarching business plan, but that doesn’t mean that a single freelancer’s inflated pay can’t hurt you in the long run.
Instead of going rogue and making a promise that might hurt you, first meet with your accounting team and, together, come up with an hourly rate that allows for some breathing room. Usually, it’s much simpler to find this rate when you hire freelancers for a solitary project that has its own defined budget. The freelancer’s hourly rate – or project rate, in some cases – should be part of this budget. If you find that their proposed rate is too high, then it’s time to re-work either your budget or the terms of the contract.
Come Up with an Honest Timeline
Depending on the scope of your project or peak, it can be difficult to come up with a definitive timeline in regards to contractual dates. But, difficulty aside, getting as close as possible to a start and end date will help you better determine the hourly rate. If you are hiring a freelancer with a specialized set of skills – let’s say, a software developer – this person may expect a higher hourly rate for short-term work vs. long-term work. Typically, freelancers have no choice but to inflate their hourly in these circumstances as a month’s worth of work comes with less financial certainty than what would be paid out for six months worth of work.
When you devise an honest timeline, you are giving yourself better leverage in the negotiation phase. Sure, your target hourly might not be as high as your competitors, but perhaps you can offer the freelancer more security in the long-run. Until you have a narrower idea of those start and end dates, however, you may lose your bargaining chip.
Determine a Competitive Rate
When you’re first dipping your toe into the world of contract hiring, it can be especially difficult to determine a going, competitive rate. Remember, the competitive rate is something that is very different than the one that naturally fits into the budget of your latest project – rather, this is one that is determined by the other players in your industry.
While it’s unusual for companies to publish their freelancers’ hourly rates, you can still get an idea of what they are paying out for the talent by checking these resources:
- Your industry contacts – Of course, this doesn’t mean picking up the phone and blindly asking your competitor about their freelancer pay practices. Instead, reach out to your trusted contacts, both in and outside of your organization, to inquire about their freelancer pricing experiences. They may not be able to give you a solid dollar amount, but they should be able to provide a ballpark industry rate.
- The Bureau of Labor Statistics – You might not be able to get glean the entire picture from searching the job title on the Bureau of Labor Statistics’ site, but you will get a better idea of what freelancers make in relation to their peers. It also provides in-depth knowledge of wages and how they vary by location and experience level, things that can alter your proposed hourly rate drastically.
- Hourly calculation tools – Mind you, these are the tools and/or formulas that freelancers use to determine their minimum hourly rate. There is a multitude of options that you can find by just performing an internet search, but we’ve found that this formula published by Nation 1099 is the most comprehensive.
Now, that you have a better idea of how to best set freelance hourly rates, it’s time that you get a more in-depth look at all things concerning hourly labor, like hiring laws, standard practices, and more. Remember, freelancers have a lot to offer companies like yours – make sure that you come up with a mutually-advantageous plan so that both you and the freelancer can get the most out of the contract!