Freelancers comprise around 37% of the US workforce (59 million). That's a lot of workers looking to be paid fast and efficiently, just like regular employees. There's a lot of leverage in the creator market, and if things go wrong with payments, your freelancer may find another client.
If you've worked with creators, you may have struggled with payouts. That's because smart, scalable, and legal payouts can be hard to set up depending on your state or region.
Despite the benefits of hiring a creator, like increased flexibility and lower overhead, compliance and regulations have become a major point of concern for HR, finance, and legal teams.
How can this be addressed head-on? How can your team ensure a reliable payment method to your freelancers while following all the local/federal regulations?
This guide examines the rising trend of hiring creators, legal requirements, insurance, data security, payment challenges, branding, and overall compliance to ensure your business is on track.
The Rise in Companies Hiring and Using Influencers
Every industry has carved out many tasks or projects that an influencer or creator can accomplish. And there are various scenarios where companies utilize influencer marketing to get their message across.
Here are a few jobs companies are hiring Influencers for right now:
Influencer marketing has been growing in popularity for years. The market expanded from $1.7 billion in 2016 to $9.7 billion in 2020. It then grew to $13.8 billion in 2021 and $16.4 billion in 2022. It still remains one of the leading marketing trends, year over year.
While some companies don't want to let go of traditional marketing practices, other industries excel at influencer marketing strategies.
For example, fashion ecommerce and beauty websites target influencers at scale. They are reaching out to reputable fashion bloggers; and are providing clothing or sending payouts to get more visibility. The influencer then posts with a trending hashtag and drives more exposure back to the brand's main page.
Case Studies of Influencer Marketing
Golfer Michelle Wie West became the youngest to qualify for the LPGA Tour when she was just 15. This turned her into a mega-influencer, and Nike took notice.
Since 2005, she has maintained a partnership with the shoe brand and routinely shares content, like a major giveaway in December 2020. This not only boosts brand awareness for Nike, it drives sales and introduces them to an entirely new audience of potential buyers.
Absolut vodka partnered with eco-friendly influencers across various social platforms with an 8-month campaign using the hashtag #AbsolutPlanet. The message was about ways to showcase how we can all be friendlier to the planet.
The campaign was eventually named the Gold Winner for the Best Food and Drink Campaign during the 2020 Influencer Marketing Awards. By its end, 95 influencers had shared a total of 612 posts, generating more than 8.6 million engagements across channels.
It may come to a point where most companies, including yours, will want to hire an influencer to promote their products and services.
The Rise in Companies Hiring and Using Independent Contractors
When it comes to projects, some of the best ways to accomplish them and get it done fast is by hiring an independent contractor (IC). This is because there are a variety of tasks a creator can handle, and you don't have to worry about hiring an employee.
Here are a few jobs companies are hiring ICs for right now:
Content Writing: This includes copywriting, SEO, translation, proofreading, editing, social media, email marketing, and tech writing (to name a few).
Consultant: This role is anything to do with IT or HR, where you bring on an expert for advice. This also includes operations, corporate planning, life and career coaching, business management, and strategy.
Graphic Design: This includes logo and brand designers, packaging developers, and digital illustrators.
Web and App Development: This growing category includes jobs like native app developers, web app developers, and mobile game and chatbot designers. It also includes user experience and interface design, back-end and front-end development, and full-stack development.
Photography and Video: This is one of the more traditional freelancing industries and can include jobs like wedding photography, photojournalism, real estate photography, video editing, producer, and product photography.
Other Freelance Jobs:
- Virtual Assistant
- Administrative Assistant
- Product Management
Hiring and Working with Creators: Legal Employment Compliance Risks
Legal risks are involved with hiring contractors and influencers, and you should know how to protect your company . One of the most significant issues is ensuring creators are correctly classified.
In the United States, 10% to 30% of employers misclassify employees as independent contractors. As a result, you cannot label an independent contractor an employee and vice versa.
The penalty (whether or not you intended to) is a hefty fine and even criminal charges. If the IRS suspects fraud or misconduct, an employer faces $10,000 per misclassified employee and up to five years in prison.
For example, The Illinois Department of Labor was awarded $328,500 in penalty fees from a home improvement company that misclassified 18 workers. Likewise, California Attorney General Jerry Brown won a judgment of $13 million against two businesses that misclassified 300 janitors.
New York State Commissioner M. Patricia Smith says her task force has identified 31,000+ instances of misclassification, costing $11 million in unpaid unemployment taxes and $14.5 million in unpaid wages since 2007.
Filing the Proper Paperwork
When hiring a freelancer, you must have them complete the correct paperwork to ensure proper classification. This is called a W9 form, or officially "Request for Taxpayer Identification Number."
The purpose of this document is to collect all the necessary tax information directly from the creator to ensure your audit trail is accurate.
If you pay someone considered a non-employee more than $600 per year, you must file a 1099 form. The W9 form verifies the accuracy of this information.
Hiring and Working with Creators: Data Security Risks
There are inherent data security risks involved in hiring and working with creators. For example, it's not unusual for an independent contractor to have access to a company's network and system, as well as sensitive and proprietary data.
Additionally, creators typically bring their own tools to the table, which creates an entirely different level of data complexity.
According to IBM's Security Intelligence report, almost 75% of security breaches are caused by insiders, whether that's due to error or malicious intent. Stolen or compromised freelancer devices can also lead to data loss and security issues.
Thus, it is imperative to have security policies in place concerning hiring contractors. This can include rules like:
- Run identity and criminal background checks
- Ask them to sign an NDA (Non-Disclosure Agreement)
- Keep detailed records
- Limit access to specific data and system permissions
- Provide unique usernames and passwords
Companies should also consider revoking system access when the project ends. Then, if you work with the freelancer again, you can reinstate it—don't just leave access open-ended.
Hiring and Working with Creators: Insurance Risks
Just like any regular employee, insurance shouldn’t be ignored for independent contractors.. This is typically not the business owner, as creators are free agents. They are well aware of this fact, so asking for insurance information upfront shouldn't be a problem, especially if the contractor is physically working on-site and poses any legal risk in the workplace (i.e., isn't virtually oriented).
While most people think only construction workers and electricians need liability insurance, the truth is every freelancer should have some type of coverage. Even knowledgeable accountants can make a mistake that costs significant damage. This is especially the case in today's digitally-driven ecosystem where data protection violations will cost a business heavy fines.
It is wise to ask any new contractor for proof of insurance as a requirement to start. It's also essential to understand precisely what that insurance protects, including what independent contractors are covered against, and if there are any legal gaps.
If the creator does not have insurance, it is up to the business to accept the risk moving forward. Without insurance, the freelancer may be liable for legal fees and court costs if anything happens. They will be expected to pay damages out of their own personal assets.
Hiring and Working with Creators: Payment Challenges
When hiring and paying creators, there are a multitude of challenges a company faces. It's easy to make payment mistakes when international transactions are considered, and you're dealing with payouts to hundreds of countries.
Here are some of the leading payment challenges you can anticipate when hiring global help:
How do you go from paying a few employees to paying multiple freelancers? Bulk payments are one of the only solutions to ensure everyone gets paid, all over the place, and on time. This is usually only accomplished with robust payment software.
There are associated risks with sending money overseas. Who in your organization will be responsible for monitoring exchange rates and international fees?
Who is responsible for these fees, your business or the freelancer? This should be decided in the contractor agreement before starting work.
Methods of Payment
Freelancers typically set their own preferred method of payment, and it can differ all over the world, depending on what’s available to them. These can include:
- Global ACH (Automated Clearing House)
- Bank wire
- PayPal and online payment systems
- SEPA (Single Euro Payments Area)
- FPS (Faster Payment Service)
- Mobile apps
- Lumanu Creator Payment Platform…
How does your business plan to adapt to payment methods for different creators?
Hiring and Working with Creators: Brand Integrity
61% of US marketers agree that finding the right influencers for a campaign is tricky. More than 1 in 4 also cited brand safety and alignment as a challenge in influencer marketing.
Due to the freedom creators have, it's difficult to micromanage them. Unfortunately, that means there's a greater risk to your brand integrity. Should they make a mistake and post something wrong, it may take you days to notice.
This is why it's crucial for both the brand and influencer to make sure they share the same values. Influencers have a moral obligation to their audience first, and followers will turn away if anything starts to sound spammy.
One example of an influencer relationship going south is the case of two well-known beauty influencers, Tati Westbrook and her protege James Charles. After working together for years, the debacle ensued when James created an Instagram ad for SugarBearHair vitamins. This, unfortunately, was a direct competitor of Westbrook's Halo Beauty vitamins.
The relationship spiraled, and as a result, James Charles lost millions of YouTube subscribers from his peak base of 16.5 million. In addition, it has cost both parties a great deal of money, for a simple miscommunication that led to a conflict of interest.
Therefore, you should strategize and devise a policy for what happens when an influencer posts something that is not in line with your brand. These clauses (like Termination or Indemnity) can be written into the freelancer contract, saving both parties a lot of time and aggravation.
Final Thoughts: Creator Payments Compliance
There's a growing popularity for influencer marketing, and understanding the best strategy for creator payments is the secret to success.
Contractors can accomplish much more than just marketing. Today's freelancers are hired for everything from writing to web design, photography, accounting, product management, and more.
There are many compliance risks involved with hiring creators. First, they must be classified correctly and submit all payment data for tax purposes (W 9 form).
There are also inherent data security and insurance risks that come with outside workers. You cannot manage them the same way, and you cannot force them to get insurance.
Challenges regarding payment methods and brand integrity should also be effectively managed. Decide the best way to pay people early on, and put it in writing. The same goes for anything related to brand messaging and conflict of interest.
So, what can a business do right now to improve its creator payments game? Start by developing internal procedures for payouts. Smarter, standardized payment practices are only realized through intelligent platforms like Lumanu.
Lumanu offers the best way to pay creators and freelancers, skipping all the steps required, from collecting payments to paying out individual contractors. The platform not only ensures payment compliance, but streamlines onboarding and provides you with all the tax documentation needed.
The top firm, Creators Agency, was able to pay all of its talent using Lumanu, in just a few clicks. The system helped them remain compliant as they added influencers to their roster, streamlined operations, and reliably paid creators on time. Ultimately, they saved over 20 hours weekly on invoicing, collections, and payments.
Ready to start making compliant freelancer payments? Schedule a custom demo with the Lumanu Team today.