The U.S. talent pool is undergoing a massive shift.
Following the sudden furloughs and layoffs amid the height of the pandemic, professionals are exploring their options, and many are considering quitting their jobs rather than returning to the office.
The “great resignation,” as it’s been referred to, coincides with talent shortages that are driving employers to reconsider how they attract and retain talent. For hiring businesses, that increasingly means turning to on-demand workers in the form of freelancers. Meanwhile, as more professionals take stock of their current professional positions, they may be more enticed to embrace freelancing as a way to retain control over their work-life balances.
All of this is to say: The freelance economy is growing, and it could be on the verge of another boom.
Yet despite the advantage of hiring freelancers, businesses are finding plenty of new challenges to navigate.
“There is an overall lack of control, visibility and management of independent contractors within a company,” explained Stoke CEO Shahar Erez. “You won’t find a single person in any company that knows how many independent contractors work for the company.”
As the freelancer ecosystem expands, the way firms overcome some of the tallest hurdles related to that lack of visibility and control will have widespread implications for the success of these professionals and the businesses that hire them. In a discussion with PYMNTS, Erez dove into one of the largest and most impactful points of friction facing freelancers and their employers today: on-time payment.
The AP Department’s Burden
Unlike traditional employees, freelancers’ compensation is not handled by human resources and payroll departments. Rather, it’s the responsibility of the accounts payable (AP) department to ingest freelancers’ invoices, process them and pay them.
While freelancers can often choose to let go of salaried, full-time employment in favor of the freedoms that come with this employment model, the backlogs and inefficiencies of AP departments that affect the timely payment of suppliers are the same headaches that delay freelancer payment.
Unlike payroll, there is not a recurring schedule of issuing payments to freelancers. The result, explained Erez, is that freelancers are stuck merely waiting on payment and hoping it comes soon.
“Independent contractors are just as much in need of getting paid on time as employees,” he said. “There’s almost some disrespect to independent contractors by not making sure they get paid on time.”
There is legislation brewing within some states to push for timely payment of freelancers, but that lack of cash flow visibility and predictability isn’t the only payment-related challenge that employers face today.
Businesses can strategically source freelance talent from abroad more easily than ever, but ensuring that tax and other compliance matters are addressed, as well as enabling payment in a freelancer’s home currency, can be complex workflows. What’s more, Erez highlighted the need for organizations to support a wide variety of payment methods, as each freelancer has their own preference for how they wish to receive payment.
“Independent contractors come in a lot of different shapes and forms and are from a lot of different places around the world,” he said. “You can’t force everyone into one payment method.”
Bracing For Growth
Easing this payment challenge is one of the features of Stoke that attracted investors to the tune of a $15.5 million Series A funding round announced earlier this month. Similar to providers of trade finance solutions looking to accelerate B2B payments to suppliers, Stoke has employers pay Stoke, while paying freelancers more quickly.
The solution can support a variety of payment methods, including ACH and PayPal. Bitcoin and other cryptocurrencies are not yet an option despite some employers requesting the service. (Erez noted the compliance challenges surrounding crypto remain too convoluted for now.)
The eventual emergence of crypto as a means to pay talent is just one of the many avenues the industry can take as it grows and evolves moving forward. While the pandemic accelerated expansion of this space, Erez said it’s an ecosystem that has been evolving for a decade and has merely accelerated its trajectory.
Amid the third economic crisis in the last 20 years, young professionals are now looking to take control over their professional lives, Erez explained. And while freelancers were often the first to be let go in the height of the pandemic, they were also more resilient and able to land on their feet than traditional employees thanks to their ability to work with multiple employers at once and continually source more jobs.
With professionals today reevaluating their professional lives, freelancing can become an attractive path forward — and not just for moonlighting or extra cash on the side, either.
“We’re going to see the rise of top freelancers that are getting paid a significant amount to do work,” said Erez. “We’re going to see a middle class of independent contractors.”
To support the emergence of that talent pool and promote the financial well-being of a growing population of professionals, organization must be able to extend their B2B payments optimization efforts to include freelancer payments, ensuring timely, predictable cash flow for key talent.