The biggest challenge most startups face, and the primary reason they need to raise funds, is to hire. It often creates a chicken and egg situation - you need to raise the money to hire people, but you need to hire people to get your startup into a position to fundraise. For founders in this familiar conundrum, you might consider looking at freelancers as a strategy for getting over this hump while maintaining flexibility and reducing risk of bringing on bad hires or committing too much to cash burn. I’ve found freelancers incredibly useful for my startup, and coincidentally provide a platform for hiring them locally.
Don’t get me wrong. I have two employees. They can be more productive over time due to full time commitment, familiarity with the work, loyalty and option incentives. It makes sense to hire amazing people for critical roles. But for anything that isn’t core to your startup, or if you aren’t yet in a position to make hires but need outside expertise and help, you should consider hiring a freelancer. Here’s a few reasons why:
1. Hiring freelancers is faster
Hiring an employee is a big commitment with a decent chunk of paperwork, so it can take ages - 67% of hires take over a month according to LinkedIn. Freelancers can be hired in 5 minutes, and platforms streamline the process for searching, contracting and billing.
2. Pay for results
When you hire an employee, you’re generally buying that person’s time. But when you hire a freelancer, you are generally buying a result. They are being paid to deliver a tangible solution. If the task doesn’t suit them, you can find another freelancer. But if they continue to deliver awesome results, you can build a solid working relationship with them. This allows you to more accurately calculate the cost of reaching business milestones.
3. Reduce your financial risk and outgoings
Hiring costs - Most recruitment companies charge at least £2k to place an employee. You can use cheaper job post sites like Indeed or even LinkedIn, but either way, hiring an employee will cost you upfront before you really know whether they’ll fit. On the other hand, most freelance platforms help you find the right person for free (we’ll come to their other fees later). You can run a test project first – pay them to complete a necessary job and see how well they do. If they are good, you can continue hiring them on a regular, or ad hoc basis. If they’re just OK, you don’t need to hire them again, and you’ve paid for a job that needed doing. And if they completely fail, most freelance platforms (like ours) will operate an escrow service that will refund your money if your freelancer didn’t complete the job.
Ongoing costs - Ok, let’s put aside pension schemes, funky startup benefits and other costs - National Insurance alone will cost you £900/year for an employee on minimum wage, £2k/year for a £24k salary and over £4k for a £40k salary. And the salary itself will represent one of your biggest fixed monthly costs. So if you hit a cashflow problem (the no 2 reason startups fail), you have to keep paying out those monthly salaries. With freelancers, you can pause the contract for a few months and restart when you’re on solid ground again. Your freelancer can go get another gig during that time. Not ideal, but less hassle for both parties.
Firing costs - One of your biggest risks will be that an employee leaves, or has to be let go. It’s difficult to estimate the exact cost of replacing an employee, but Oxford Economics puts it at £31k, including recruitment fees and onboarding time. And that’s not including any legal costs if your leaving employee claims unfair dismissal (£16.5k payout on average) or discrimination (£6k-£37k payout on average). Yikes - and also don’t do these things! Replacing a freelancer is pretty much free. When they finish their work, you just pay for that job / billing cycle, and find someone else.
It’s faster, less risky and cheaper to hire freelancers. Freelance platforms do charge a 5% - 20% fee, which freelancers may pass on to the company hiring them in increased hourly rates. But when you factor in the 14% National Insurance cost, plus the hiring and firing costs, you’ll definitely be saving money by hiring a freelancer instead of an employee.
Iman is a London-based social entrepreneur. He founded Crowdskills to fight youth unemployment by helping talented students and graduates to launch freelance careers. It also offers a solution to the digital skills gap - companies can tap into this new pool of designers, developers, marketers and other creatives, who offer great rates and can work anywhere in London.
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