Considering in-house vs outsourcing as a strategy for working with freelancers? We wouldn’t lie to you – both options come with their share of pros and cons.
Join us while we compare the two models, and what they mean for your business.
This is part of a series of articles about Staff Augmentation.
The Process of Outsourcing Employees vs. Independent Contractors
If you’re hiring full-time employees, then the amount that you can outsource is pretty limited.
You can outsource the hiring process to a recruitment company, but your your company will still need to take responsibility over managing the employee once they are hired, including onboarding them to the company, adding them to your payroll, and ensuring compliance with local regulations around employment, such as PTO, sick pay, and benefits.
The only exception to this is if you use a PEO, a Professional Employer Organization for within the US, or EOR, an Employee of Record, for international employees. PEOs will allow a third-party to take on some of the ongoing management of an employee on your behalf, most commonly across state lines where different regions have their own rules for taxation, reporting and employee benefits while EORs will do that for international employees. Both solutions will reduce labor-intensive payment and compliance processes, but will come with a high price tag.
However, when you’re thinking about taking on independent contractors, (and 47% of hiring managers are more likely to hire freelancers now than pre-COVID-19), there are a lot of more options on the table.
At each stage of the freelance relationship you can choose whether you want to perform the work in-house, or outsource it to a staffing agency, an MSP or third-party. You could outsource hiring, or outsource the whole process of working with independent contractors – the choice is yours.
In-house Freelance Management: The Hard Truth
Let’s start with the process of handling freelance talent in-house.
Your first job is to find the right independent contractors for the task at hand. Fiverr has seen a huge increase in what the company calls “high value freelancers” since 2020, which now represent 58% of its income.
Non payroll workers are no longer a category made up of low-skilled workers such as cleaning or security services. Instead, the majority of the freelance workforce is now knowledge workers. These are deeply skilled talent. As a result, their cost is higher, and they need more access to IT systems and sensitive data – raising the risk to the company. Today’s businesses are investing more resources than ever before to manage this complex reality.
For example:
- Hiring managers: The managers that are working with the freelancers are usually the ones vetting and choosing the freelancer, approving a PO and also taking the responsibility for approving monthly invoices..
- Finance: A budget for independent contractors needs to be agreed upon, and approved for each department.
- Legal: Contracts need creating and signing, plus additional legal documentation should be collected, checked and managed like IP agreements, data protection, NDAs etc..
- Procurement: This team is responsible for the payment negotiation, and ensuring all compliance checks have been done, not to mention approving the purchase orders (POs)..
- Accounting: Tasks such as collecting tax forms, running KYC checks, plus submitting end of the year tax forms come under Accounting.
- HR: Human Resources may sometimes be responsible for finding and/or onboarding. They will sometimes run background checks and insurance verification processes.
Truth telling time – it’s a whole lot of work. And we haven’t even discussed how to mitigate workforce classification risks.
Enter, Staffing Agencies. Are They Worth It?
To sidestep a lot of this effort, many businesses leverage staffing agencies. These are third-party businesses whose role is to onboard, manage and pay freelance workers on your behalf. In addition, they will take care of tax and legal compliance and could also take care of the hiring and vetting, if needed.
But hold on before you start Googling “staffing agencies near me”.
There are a number of issues with this approach. The main challenge is that you lose your control over the freelance talent that you’re employing. You won’t have access to the freelancer’s documentation, including their contracts, their background checks, or any data protection agreements. You have a contract with the staffing agency – but not directly with the freelancers, so you lose your visibility.
In addition, when you use a staffing agency, you work with the staffing agencies’ employees, as they don’t usually have a self-service model. You can’t know that the internal project managers that they hire will work well with your own teams, which can add conflict or friction to the way that you work. While the freelancers work with you, their own satisfaction will be dependent on the agency’s model, for example how well projects are managed or how flexibly or accurately they are paid. If their experience is not positive, they might leave – and there’s nothing you can do to improve the quality of service.
On top of that, you can’t guarantee that a freelancer from a staffing agency will be available when you need them.
When a freelancer works solo, you can usually rely on a good professional relationship being enough for them to make time to squeeze in your urgent project, while with a staffing agency, your freelancer of choice might well be outsourced to another company and unable to support your needs, or you may need to wait for contracts to be signed and i’s and t’s to be dotted and crossed behind the scenes. Ultimately, the freelancer’s loyalty (and their contract) is with the staffing agency, not with you – which can create distance.
A Freelance Management System is the Best of Both Worlds
Today’s companies have too much on their plate and not enough resources to find the freelance talent with the skills they need at the right budget and availability and then quickly vet them, issue a PO and onboard them in a compliant way.
It’s just too much work across multiple teams and departments across the business.
While staffing agencies are a great solution to the heavy workload, they are taking away some control over managing your alternative workforce and can also lead to friction with your independent contractors.
These issues are becoming more problematic as a higher proportion of independent contractors are becoming top experts in their fields, therefore being exposed to more sensitive data and becoming increasingly important in your company.
Freelance management systems (FMSs) can be the ultimate solution to keeping workforce management in-house, while removing the heavy workload and compliance risks through automation.
FMSs can automate your company’s onboarding process like collecting tax forms, signing legal docs, background checks, insurance validation and more, help your hiring managers find the perfect freelance talent for their needs, while taking responsibility for tax, legal and workforce classification compliance.
Not only that, but it will also give your procurement, finance, and IT teams full visibility and control over every single contractor your company works with — and every single project they’re working on.
FMSs will also help you to form stronger relationships with your freelancers that enhance loyalty and longevity, and yet the majority of the heavy lifting is completed by automation behind the scenes, taking the pressure of multiple teams including Procurement, Operations, HR, Legal, Finance, and IT.
From finding the right freelancer through a talent directory of skilled and vetted contractors, to compliantly onboarding them to your organization, and paying them accurately and on time according to their preferred process – a Freelance Management System has you covered.
Want to see how it works in practice? Schedule a demo.
Related content: Read our guide to direct sourcing
Related content: Read our guide to direct sourcing solutions