Fundamentals of Freelancer Retention in the Gig Economy

By Chen Amit, CEO of Tipalti.

The Gig Economy is the new reality. According to economists Lawrence Katz of Harvard University and Alan Krueger of Princeton University, 94% of net job growth in the past decade was in the alternative work category. Over 60% of this growth was due to the rise of independent contractors, freelancers, and contract company workers.

Yet, it’s a fallacy to believe that freelancers are disposable labor. As those with online marketplace business models will tell you: There is a dramatic and strategic difference for businesses dealing with a very mobile, selective group of individuals that are the lifeblood of getting work done and may even be the face of company to the end-consumer. How many times have unhappy rideshare drivers affected the brand and reputation of the rideshare platform? If you’re a food delivery service, what does your client think when your deliverer shows up gloomy and demoralized? Supply chain churn and dissatisfaction are dangerous.

In the traditional labor world, it’s already difficult and expensive to hire the right talent. In the Gig Economy, the problem is exponentially harder if you can’t cultivate quality partners en masse and you’re limited by razor-thin profit margins. Unless you’re blessed with billions in valuation and venture capital, your chances of survival are at risk.

At the very heart of the platform-partner relationship is the mass payables experience. In the eyes of the partner, being paid is the only valid proof that there is symbiosis, and that experience must be addressed to maintain the supply chain.

Power of Payables

How important is partner payables to the relationship? According to a recent survey we conducted with Shareable and CrowdSourcing Week, 73.7 percent, nearly three-quarters of the freelancers we spoke with said they would leave a marketplace because of payments-related issues. No marketplace is truly unique anymore. Competition for both consumers and providers exists and various platforms can easily attract new partners. Think of all the rideshare cars with both Lyft and Uber stickers. Many of these freelancers have other gigs on other platforms. It’s a mere matter of who they give their attention to: a reliable platform who has the operational bandwidth to pay properly, or the one who can barely pay on time and triggers unmentioned bank fees.

A world-class payables operation establishes a loyal, growth-oriented, motivated, and valuable freelancer network. Marketplaces must pay their partners efficiently while mitigating risk, reducing compliance burdens, and maintaining profitability. The only way to achieve this at scale and globally across borders is to use technology.

Payment Experience Matters

In that same survey, 97.5 percent of respondents stated that being paid on time was essential to ensuring their loyalty. This is not always easy to do. The volume of payments can drag payables operations to a grind. The simple act of collecting payment details during partner onboarding can be daunting – including which bank accounts to use, tax identities, and communication avenues.

Freelancers highly value proactive communication with the marketplace. Given that this is one of the primary ongoing interactions between a marketplace and its freelancers, providing information about the state of their payments is the backbone to the relationship. Additionally, no business wants to spend its finance budget on payables staff responding to profit-eating queries such as, “where is my payment,” “when will I get it,” and “why is it wrong.”

The goal should be to have as much hands-off, self-service as possible for the payee to self-correct payment issues. For example, leverage a partner portal for as much of the onboarding and ongoing communications as possible. In addition, track and communicate each step of the payment process, just like an Amazon delivery notification: approval stages, delivery errors or issues, payment confirmation, etc.

Payment Choice as an Incentive

Many marketplaces launch with a single payment method, such as PayPal. This might suffice in the early days of a marketplace’s operation, but it may not be the most cost-effective option and it may not be available or desirable for larger payments or for freelancers in certain countries. So, growing marketplaces then add US ACH, Global ACH and wire transfers. This requires new banking rails, greater payments workload, and modifying their code. It also adds greater risk, as they need to add fraud protections and deal with regulatory compliance. They’re then faced with the fees for the payment errors they will invariably run into by manually onboarding their partners and collecting account details.

In order to pay quickly and efficiently, while keeping the partner happy, marketplaces can choose to either staff up with qualified payables experts or adopt proven technologies that elevate cross-border, cross-method payments.

Additionally, there are opportunities to maximize the marketplace’s cash flow through early payment programs. Incentivizing partners to accept Net 30 or even Net 45 terms, in exchange for a third-party early payment provider, is becoming more of the norm for marketplaces to make ends meet. In fact, in our survey, 80.5 percent of freelancers said they would be interested in early payment programs. By making the acceptance a part of the normal communication and payables flow – rather than carving out a separate, complex negotiation with a financing partner – the opportunity for higher adoption rates and even a bonus for the marketplace in shared revenue can be considerable.

Gig Economy business models are a boon to the consumer to essentially get anything they need when they need it. But that’s only one side of the equation. The challenges and demands of keeping freelancers loyal is essential to maintaining a strong marketplace business. With the appropriate technology, particularly around critical global payables operations, marketplaces can be better positioned to succeed to make their partners, their customers, and their shareholders happy.

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