Paying Your Freelancer: What’s the Best Method?

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How to pay a freelancerIf you hire a freelancer to do work for you, one of the biggest issues is how to pay for the service provided.

There are a number of payment options, and they all have costs and benefits. Whether you are hiring a freelance writer, a web developer, or some other professional, make sure you both agree on how the freelancer should be paid.

PayPal

One of the most popular ways to pay others — especially those who live far away — is PayPal. It won’t cost you, as an entrepreneur, to pay others with PayPal. However, your freelancer will be charged a percentage of the transaction. Because of this, many freelancers prefer not to be paid with PayPal.

However, there are ways to limit the costs associated with PayPal. I use FreshBooks to invoice most of my clients. They pay online for free, using PayPal, but I am only charged a flat fee of 50 cents per transaction. Even paying for FreshBooks, I still save close to $2,000 a year in fees. (It’s also worth noting that PayPal transaction fees are tax deductible.)

PayPal is convenient and practically universal for those who work online. It makes sense to use PayPal, as long as your freelancer is ok with the fees.

Direct Deposit

Another option is to direct deposit payments. This makes more sense if you have a regular contractor that you pay each month. Direct deposit doesn’t cost the freelancer anything. However, it can cost you. NFIB points out, though, that if you have quite a few contractors, and make a large number of payments, you can save in the long run. It might cost you between $50 and $200 to set up direct deposit, and then you will pay a transaction fee each month, as well as a per-deposit fee (which is usually fairly low).

Over time, you can save money on the costs to print paper checks, and you can simplify your payroll, saving on administrative costs. If you are a growing business with employees, and you already offer them direct deposit, you might as well make things simpler by adding contractors to the roster.

Paper Check

Believe it or not, I still have clients that pay with paper check. For the most part, the costs associated with paying using this method are limited to the cost of the checks, envelopes, and postage, as well as the time spent preparing the checks and mailing them. Many freelancers don’t like this method, though, since there is the risk of lost checks, and they can bounce. When paid with PayPal or direct deposit, the money is almost always cleared already.

If your bank offers bill pay, you can use this method to have a check sent to your contractors. Depending on your bank’s bill pay policy, you might not be charged for this, and that can be a way to pay without incurring extra costs to you or to your freelancer.

Wire Transfer

With all of the other options, wire transfer is rarely the best choice. This can make sense if you are dealing with a large sum of money (more than $5,000). Wire transfers ensure that the money is sent/received, and they are quite secure. However, a wire transfer will mean costs to you and to the freelancer. Most banks charge you to send a wire transfer (anywhere between $5 and $50), and the freelancer usually has to pay a small fee to receive the transfer. But, for peace of mind with large transactions, it can be worth the cost for everyone.

What’s your preferred method of paying contractors? If you are a freelancer, how do you prefer to be paid?