Updated and revised: September 2007
- Setting Fees
- Project Fees and Hourly Rates
- Renegotiating Fees
- Billable Time
- Reimbursable Expenses
- Specific Fees
Freelancers determine fees by considering their own expertise, the market for their services, the fees colleagues charge, and their own expenses. They also consider the requirements of each project. If, for instance, a project requires technical expertise or knowledge of a foreign language, a higher-than-average fee is appropriate for bringing those skills to the work. A job requiring a rush schedule or special research also commands a higher fee. The editorial freelancer and client negotiate each project separately, with the requirements of both freelancer and client as a basis for discussion.
For clients, contracting with freelancers offers many advantages over hiring employees, the greatest of which is financial: the client pays the freelancer a fee instead of financing a staff position. The difference in cost is significant. Besides a paycheck, an employer normally finances all or part of a staff employee's medical benefits, pension plan, tax-sheltered savings, profit-sharing benefits, disability benefits, social security tax, and unemployment and workers' compensation insurance.
A staff employee also earns paid vacation days, holidays, sick days, lunch hours, and breaks. In the United States paid time off (vacations, holidays, personal time) typically ranges from 14 to 27 days annually depending on length of service. Bureau of Labor Statistics survey results show that, in the private sector, benefits account for more than 29 percent of an employer's total cost of employee compensation.
Independent businesspeople must cover all such costs themselves. The most significant factor a freelancer considers when setting fees is the cost of being self-employed. Freelancing is attractive for the flexibility, variety, and independence it brings, but it also entails financial burdens. Freelancers finance their own benefit plans, maintain their own overhead, and pay their own social security tax. They also bear the costs of looking for work, billing clients, and owning and maintaining expensive office equipment, such as computers, copiers, and fax machines. These costs can take approximately half of the freelancer's gross earnings. Therefore, to approximate the salary of a staff employee, the freelancer must charge approximately twice the employee's hourly wage.
Project Fees and Hourly Rates
The freelancer can charge either a single predetermined fee for an entire project or an hourly fee, with the total amount calculated at the project's completion. Each type of fee is appropriate in certain circumstances. A project fee might be appropriate for a job with few, if any, unknowns, for example, when the freelancer and the client have worked together on similar projects and have developed mutual trust.
When working for a project fee, a freelancer incurs the risk of financial loss that can come about through unforeseen elements of the job. Because of the risks involved, only projects with clearly defined requirements are good candidates for project fees, and even here the fee should be high enough to cover any surprises that might take more time than first estimated. For example, a freelance indexer might charge a project fee because the number of entries in the index can be reasonably estimated in advance and, therefore, the amount of time required to compile the index can be accurately estimated as well. A freelance copyeditor, on the other hand, would most likely charge an hourly fee, or rate, because so many aspects of the work cannot be analyzed in advance.
Project fees are appropriate only when the job specifications are precisely described and understood, and when all agree that any additions, revisions, or unforeseen elements will entail renegotiation of the fee. When gauging the scope of work necessary on a project is difficult or prohibitively time consuming, an hourly rate is a more appropriate method of payment.
If the client is uneasy with an open-ended agreement, an interim arrangement might be reached whereby the freelancer completes a small portion of the job for a predetermined fee negotiated for that portion only. In this way, the freelancer can determine what the job requires, and the client can assess the pace and quality of the freelancer's work. This arrangement gives both parties a better understanding of the scope of the project. If the project's budget has an upper limit, the freelancer needs to know the amount, so that the client can be informed before this figure is exceeded.
All fees are renegotiable. Frequently, a project turns out to require work of a greater scope or longer duration than the client or freelancer originally envisioned. For example, a client might expect that a clean manuscript will facilitate quick proofreading, only to discover that the manuscript was inadequately edited and that the proofreader will need to do some additional editing. Or a developmental editor might be involved in a long-term project for many more months, or even years, than the client anticipated. Changes in the scope or time required for a project are the most common reasons for renegotiation of fees.
In the original contract between freelancer and client, it is good practice not only to spell out the option to renegotiate but also to point out that either party might need to make use of it. If both freelancer and client are aware that revising schedules or payment terms may become necessary, then renegotiation can be a smooth process.
Freelancers bill for all time spent on a project. If the freelancer is working at an hourly rate, billable time includes travel time, time spent conferring on the telephone, time spent meeting with clients or others involved in the project, and time spent on other tasks related to the project, such as writing and mailing correspondence or photocopying material. A project fee covers the same considerations. Before agreeing to a project fee, the freelancer generally lists all billable time and expenses covered by the fee.
Certain expenses are customarily reimbursed to the freelancer by the client. These expenses include the costs of postage, photocopying, telephone calls, and travel beyond a local commute. The freelancer itemizes all such charges on the invoice and submits receipts on request. To avoid misunderstandings regarding reimbursable expenses, the freelancer and client usually list these expenses in the initial agreement. Alternatively, the fee can be high enough to cover routine costs, and then only extraordinary costs, such as a courier service, require reimbursement.
Rush Fees. Occasionally, a client presents a project that cannot be completed on schedule unless the freelancer agrees to work additional hours during nights, weekends, or holidays. In such a case, a rush fee of 20 to 50 percent may be negotiated to cover the overtime involved. If the fee is determined at an hourly rate, the percentage is applied to the hours involved. If the freelancer is receiving a project fee, the client and freelancer might break the fee into time units and apply the additional percentage to the units that are beyond normal working hours. For example, if a seven-day job must be completed during Thanksgiving week, the rush-fee percentage would be applied to three-sevenths of the basic fee, because three of the seven days spent working are not regular business days.
Similarly, if the client requests that work be completed within a shorter period than originally negotiated or requests that the freelancer spend more time within a negotiated period, a rush fee — again 20 to 50 percent — might be appropriate. If the freelancer cannot accommodate the schedule change and the client deems the change essential, then the freelancer receives a cancellation fee for the remainder of the project and returns project materials to the client. Alternatively, the freelancer may, with the client's knowledge, subcontract all or part of the project to another capable freelancer.
Cancellation Fees and Late Fees. Because freelancers reserve time for projects and depend on clients' schedules, it is necessary for contracts to protect the freelancer's working time. The contract between freelancer and client therefore specifies contingencies that will require a cancellation fee or a late fee.
If a project is canceled before scheduled delivery to the freelancer, at least two weeks' notice allows a reasonable amount of time for the freelancer to obtain other work. Less than two weeks' notice requires a cancellation fee equal to two weeks' time. For example, if the freelancer has reserved fifteen hours per week for the project, the cancellation fee would equal either thirty hours at the freelancer's hourly rate or the proportion of the project fee corresponding to thirty hours' work. When a project is canceled in progress, the cancellation fee is added to the freelancer's final invoice, in addition to payment for the time worked.
If a client delivers the material for a project late, then the client compensates the freelancer for the resultant unused reserved time at either (a) 20 to 50 percent of the contracted hourly rate or (b) 20 to 50 percent of the effective hourly rate, if the contract called for a project fee. If the project is canceled by default—in other words, if it is so late that the freelancer must forgo it to move on to another scheduled project—then a two-week cancellation fee is appropriate. Cancellation fees should also cover any special expenses for the project, such as those for software, reference materials, or travel. The freelancer is reimbursed for these expenses in addition to the agreed-upon cancellation fee.
A client can avoid a cancellation fee by substituting an acceptable project that can be done in the time reserved for the original job. If the freelancer accepts the substitute job and does not lose working time—that is, does not incur opportunity costs—then the client need not pay a cancellation fee.
The freelancer might also cancel the project. Changes in the scope of work required in the project's schedule might make it impossible for the freelancer to complete the project. If, for example, a project is extended without notice beyond the negotiated time, a freelancer who is committed to another project might have to cancel the one being extended. The freelancer might also cancel a project because of a violation of professional standards. For instance, a freelance copyeditor might inform a client that a manuscript is incoherent and requires substantive editing, in contrast to the straightforward reading for punctuation errors that was originally requested; if the client refuses to authorize and pay for substantive editing, the freelancer might find the project requirements untenable and cancel the project.
Reservation Fees. Another way to deal with the possibility that a project will be delivered late or will be canceled is to negotiate a reservation fee, essentially an advance to reserve the freelancer's time. A freelancer who agrees to set aside a lengthy period for a long-term project or who commits to a project well in advance may require partial prepayment. If the client delivers the project materials on time, the freelancer then deducts the reservation fee from the first invoice. If the client delivers the project late, the reservation fee can be applied to a late fee. If the client cancels the project, the reservation fee can be applied to a cancellation fee that is added to the charge for the time spent working on the project. An appropriate reservation fee is 20 percent of the project fee or two weeks of the freelancer's time at the agreed-upon hourly rate.
For long-term jobs, freelancers usually receive payment in installments. For project fees, one common practice is to divide the total fee into thirds. The freelancer then bills the client for the first third to be paid when the project begins, for the second installment when half the project is completed, and for the final third when the project is finished. Another option, for jobs of any length, is a weekly or biweekly billing and payment schedule. Short jobs, generally those requiring less than two weeks to complete, usually involve billing and payment when the project is completed.
Interest Applied to Overdue Payment
Invoices are typically payable within fifteen days. After thirty days, interest is assessed, usually at a rate of 2 percent per month or partial month. A freelance proofreader, for example, who billed for $1,000 upon completion of a one-week job and received no payment would send a reminder after two weeks and after thirty days would bill for $1,020. Were payment not received at the end of another thirty days, the freelancer would send an invoice for $1,040.40, and so on, until payment is made.
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