Freelancer Payments Turn Traditional Payroll On Its Head

The freelance and gig work economy continues to grow, creating wide-open opportunities for FinTechs and service providers addressing a range of new pain points for both the talent and the employer. Today, nearly half of gig workers surveyed for the most recent PYMNTS.com Gig Economy Index say they use a digital marketplace to find work, handle payments and manage other key components of freelancing, like taxes.

These platforms are a key component to the growth of the gig worker population, which the Association of Independent Professionals and the Self-Employed (IPSE) says currently accounts for 35 percent of the U.S. working population. That figure could rise to 50 percent, it estimates, by 2027.

It’s not a U.S.-only phenomenon, either, with freelancing growth outpacing overall employment growth across the U.K., France and the Netherlands, according to IPSE.

PYMNTS data reveals that this growth could be even faster if one of the biggest challenges of freelancing were addressed: getting paid. In the Gig Economy Index, 84.5 percent of existing freelancers say they would do even more freelance work if they were paid more quickly. But speed is a tricky achievement in payments — made even more difficult with companies hiring freelance talent across borders.

“We see people every single day hiring people outside of their own country,” said Taso Du Val, CEO of Toptal, a platform through which companies can discover and hire freelance workers. “You’re seeing the global freelancer market pick up tremendously, in part, because of the technology infrastructure being built to allow for this.”

Unlike salaried or hourly workers on a traditional payroll, freelancers often act more like a B2B vendors than employees when it comes to getting paid. Rather than automatically receiving wages via direct deposit on a regular basis, gig workers often have to be the one to initiate the process by submitting an invoice to their employers. According to Du Val, this also means that employers will use more expensive payment rails, like cards, to compensate their freelancers, leading to an added expense either for the payer or payee.

Throw into the mix the currency-conversion fees and sluggishness of cross-border payments, and freelancers are really struggling to get paid.

The costs associated with this process are among the biggest barriers for freelancers today, said Du Val. And while more freelancers are relying on digital platforms to not only get hired, but to automate processes like time tracking, invoice generation and payments, rarely are gig workers offered a single solution that can integrate all three for an affordable cost.

This was the goal of Toptal, which operates freelancer time-tracking solution TopTracker. Last week, the company announced a collaboration with cross-border payments firm Payoneer and the integration of invoicing and payments functionality into its solution, meaning freelancers using the tool can generate invoices based off the hours they tracked in the TopTracker platform. Employers that receive those invoices can click a button on the bill to pay via an array of rails, including ACH and SEPA direct deposit transactions.

Du Val noted that this capability enables a more “traditional, payroll-like” experience for freelancers and their employers, and offers this bank transfer service for free via Payoneer. Fee-based payment rails like cards, or currency conversions, will generate an expense for the user, though Du Val emphasized that these costs are significantly lower than other solutions on the market.

“There is massive friction both on the freelancer side and the client [employer] side,” he said, explaining the burden of the freelance economy to track hours, submit invoices and get paid without using automated solutions. He added that people are willing to pay fee percentages in the double-digits “just for the sake of convenience” — a testament to just how complicated a go-it-alone approach can be, especially when cross-border transactions are involved.

“Either the freelancer or the client gets charged a 12 percent premium, just for the fact that this is convenient for them,” Du Val said. “They put in their credit card number, and it’s ‘set it and forget it.'”

Toptal is able to offer this integrated time tracking, invoicing and payments function for free because TopTracker is not the main source of revenue for the company (that lands with the talent-discovery services side of the company). As the freelancer economy continues to proliferate, Du Val noted that there will be even more opportunities to innovate, add new features, and lower the overall barriers for both freelancers and employers to step into the gig economy.

One of the biggest areas of focus for Toptal, he said, will be the user experience of getting paid, as well as the element of collaboration between talent and employer.

“We want to be recognized for enabling freelancers and clients to work collaboratively together,” he said, “and we believe that having it bee a free environment where they can work together is much more powerful than anything.”