Why Freelance Hourly Rates Are Higher Than Employee Hourly…
“Your hourly rate is … what?”
Before balking at a freelancer’s hourly rate, there are a few things you need to take into consideration.
1. You are not paying taxes
Freelancers are responsible for paying both the employee and employer portion of Social Security and Medicare (FICA tax). That means their income is taxed at 15.3% instead of 7.65% like most W-2 employees.
2. You are not providing benefits
Hiring a freelancer means you don’t have to offer a benefits package as you would with an employee. No healthcare, no paid time off (vacation, sick, personal days), and no retirement plans. Freelancers are still human, however, and do need time off, as well as healthcare and retirement.
3. You are not covering business expenses
Depending on your office, the overhead expenses may vary, but, ultimately, if you have employees in the office, you’re covering costs as varied as computer and workspace, printer paper and ink, snacks and coffee, and/or email, video conferencing, and other tech services. When you work with a freelancer, that individual is responsible for all business and operating expenses.
Not covering these expenses is arguably one of the benefits of hiring a freelancer–and you still stand to save compare with a full-time, on-staff employee. (Having been on both sides, employers pay for a a lot of down time with full-time employees.)
So, before you say “That hourly rate is beyond our budget,” look to the immense savings you’re realizing elsewhere. An even better option? Forgo hourly pricing.
Opt for project pricing instead of hourly pricing
I’ve written about this before, but it’s worth repeating: project pricing is often much more effective for you and your freelancer.
Recently I worked on a website for a client after they were unhappy with their first writer’s work. The first writer took more than double the time I did and the client wasn’t happy with it.
Now, I’m not sure about her hourly rate, but based on level of experience, I’m guessing it is similar to mine, and, based on her location, potentially higher.
Does it make sense that she was paid as much, if not more, for the project than I was?
No way. But that’s a common situation when you opt for hourly pricing versus project pricing. Project pricing allows you and your freelancer to determine the value of the project.
If the freelancer can get it done in 5 hours instead of 20, that provides you additional value. You’re also paying for the knowledge and experience of that freelancer that allows the freelancer to produce better work, faster.
And, if it takes longer than the freelancer realized? That means you end up saving versus having to pay for additional hours to get the project right.