The Worth of a Freelancer's Work

The Worth of a Freelancer's Work

by Donald Denier

The freelance writer asks, "What is my work worth?" "What can I charge for my work?" "What will someone pay for my work?" Three different questions. To paraphrase H. L. Mencken; "For every difficult question there is a simple answer; and it's wrong."

A writer is in business. At least, most writers want to be. One aspect of the business of writing is contract work. Writers new to contract work are unsure what their work is worth, what they should charge, and what a client will pay.

The Burden of "Burdens"

Employers use a burdened rate (hourly rate plus the cost of benefits, payroll taxes, and overhead costs). By knowing how an employer calculates the cost of an employee, a writer is in a better position to determine what to charge and what an employer is likely to pay.

The burdened rate is different from employer-to-employer, locale-to-locale, and country-to-country. Benefits for full-time employees usually include holiday, vacation, and sick pay. Employers pay a portion of medical and dental insurance and are subject to several payroll taxes. In the USA this includes federal and state Social Security, worker compensation, and unemployment compensation taxes.

Many employers contribute to a full-time employee's development through paid training and reference services. They pay into vested retirement funds and match an employee's additional contributions to these funds up to a specified percentage. Employers then add the overhead costs of office space, desks, phones, office equipment, and supplies. These "burdens" can bring the cost of a full-time employee to as much as 200% of the hourly rate of pay.

A full-time employee is paid for 2080 hours per year (an average of 174 hours per month). About 220 hours are paid holidays, vacation, and sick time. By recalculating the annual pay using 1860 hours (155 hours per month), a freelancer would need to be paid about $28 per hour to equal a full-time employee being paid $25 per hour. Then add the value of employer-paid taxes and benefits.

The following shows the value of a full-time employee's real compensation. Many of the numbers below are examples; substitute more accurate numbers for your location.

Hours per month paid: (174) x $25 = $ 4350
Employer's part of medical and dental insurance - $580
Social Security Tax - $295
Medicare Tax - $70
Retirement funds - $350
Training and development - $40
Facilities, communications, equipment, supplies - $300
Total full-time employee monthly salary plus burden = $5985

To this, add the freelancer's administrative costs of $150 for record-keeping, submitting bids, bills, and reports. The total cost a freelancer must recover is about $6135 per month.

Divide $6135 by the 155 hours actually worked by a full-time employee to arrive at a freelancer's hourly rate of $39.60 -- a rate approximately equal to $25 per hour paid to a full-time employee.

This does not include state and local taxes such as unemployment and worker compensation taxes. Nor does it include other perks that a freelancer does not enjoy. Among them are performance awards, longevity programs, educational reimbursements, discount programs, and access to company employee associations and administrative services such as travel and library services. These are the incentives that employers provide to retain full-time employee.

Money, Contracts and Rights

Why is all of this important to know? Because employers avoid all of these costs by hiring freelancers. These costs are borne fully by the freelancer. They are costs that a freelancer must recover if there is to be parity with employees performing similar work.

Add to this the convenience of the employer being free to hire a freelancer with unique skills for one-time projects and to cover temporary peaks in workload. Hiring freelancers rather than hiring additional permanent staff is a significant option for an employer, an option for which the employer is usually willing to pay.

There are three added concerns that freelancers must deal with: location, laws and rights. Freelancers may be required to travel to remote work locations, often for extended periods of time. There may be costs for travel, temporary lodging and day-to-day living; many of which are reimbursed -- but many of which may not be.

The term "freelancer" is writer jargon for what the USA tax folks call an "independent contractor." There are special rules that independent contractors must follow to get the related tax breaks. A contractor must learn all of the rules and follow them. The good part is that there really aren't that many rules to learn. IRS Pub 15A defines Independent Contractors and the rules that apply. Another concern is rights. It should be clear in the contract what rights are included. In most cases the work of an independent contractor is "work-for-hire". Whether it is or is not work-for-hire, the rights sold should be stated clearly up-front.

Protecting Yourself

First-time contractors have to consider a lot of questions. Is your work worth what you intend to charge? Will the market allow the fee you propose -- or more? Where do you start if you are just starting? Will you take this assignment to fill time while you wait for higher paying assignments? Freelancers needs to answer these questions for themselves and negotiate accordingly. Look at contract work from an employer's point of view. This should help a freelancer determine what they can charge and what a client will be willing to pay.

Writers are in great demand. Freelancers are hired regularly by professional services and job shops. A website for freelancers and other contractors is the Monster Board. Sites such as this help writers find both full-time and contract employment. Writers can also post their credentials and be contacted by services that are willing to represent them. Dice.com specializes in contract work for information technology people; this includes writers. If a writer is "good" (what ever that is), and is mobile (willing to go where the work is), that writer should do well.

Most of all, don't sell yourself short. A freelance writer is providing a needed service. Employers are willing to pay a reasonable rate for these services. Negotiate in good faith from a position of information and you should do well.

For More Information:

Dice.com: http://www.dice.com/
Monster Board: http://www.monsterboard.com/
IRS Forms: http://www.irs.gov/formspubs/lists/0,,id=97819,00.html
Hugh's Mortgage and Financial Calculators: http://www.interest.com/hugh/calc/; A collection of financial tools that can be useful in financial research (or in figuring out how much you're getting paid).
National Survey: Freelance and Contract Writer's Rates: http://www.nwu.org/hotline/hotsurv.htm; An overview of average pay rates in different areas of the writing business, including business writing, web authoring and design, ghostwriting, journalism, copyediting and proofreading, grant-writing, and more.
Putting a Price on Your Capabilities: How to Set Your Fees as a Freelance Writer: http://www.writedirection.com/rprt300e.htm; A complex examination of how to figure your fees, based on your expenses, cost of living, etc.
Salary.com: http://www.salary.com; Find out how much you should be earning, based on your job title/description and region. The Salary Wizard is a bit complicated to use. First, you need to select your location (e.g., zip code), then select a job category. You probably won't find something specific, so just click on "Printing and Publishing." It will offer you a small selection of job titles; click on the "Advanced job title search" link below the list. You'll be asked to type in a specific job title (such as "writer" or "editor"). Typing in "writer" will produce a list of more than 80 different categories, including web writers, copy writers, grant writers, etc.; select the title that best applies to you. (You can also click on the title to produce a job description.) Similarly, typing in "editor" produces nearly 50 titles.
What to Pay a Writer: http://www.writers.ca/whattopay.htm; A good overview of freelance fees and rates for such jobs as advertising, business writing, editing, ghostwriting, magazine writing, technical writing, translation, and more. Though the rates are listed in Canadian dollars (this page is from the Periodical Writers Association of Canada), the same numbers are applicable to U.S. writers.

Donald Denier brings his experience as an instructional designer, organizational analyst, and art gallery owner to his efforts as a freelance writer. He holds a master's degree in management sciences and has over 30 years experience in helping others achieve their objectives. His writings include training programs and articles on business operations, quality improvement, individual effectiveness, and leadership.

MORE RESOURCES FROM THE EDITOR:

Subscribe to our Free Monthly Newsletter!