Marketing teams are leaner than ever, relying on the growing ecosystem of creative freelancers to help power campaigns across social media and owned channels. In order to support the scale of partnerships, putting in place a process to effectively onboard, manage and pay 1099 contractors is paramount. This comprehensive guide dives into options and best practices for  managing and paying creative freelancers, specifically focusing on those classified as 1099 contractors.

Properly classifying workers as either 1099 (independent contractor) or W-2 (employee) is an important step which is crucial to avoid hefty fines and legal headaches down the road. California fines will equate to a minimum of $5K per violation and can reach up to $40K+ if the court decides there is an ongoing practice of violations. Always consult a legal advisor,l but influencers, models, affiliates, and User-Generated Content (UGC) creators typically fall under the 1099 umbrella. Conversely, creative production staff working in-house or on set (excluding models) are usually considered W-2 temporary employees.

We’ll dive into the challenges faced by marketing and finance teams when collaborating with creative freelancers and social media influencers below. Additionally, we’ll explore potential solutions to help mitigate the challenges, and highlight the pros and cons of each approach.

Understanding the Landscape: Challenges and Considerations

When it comes to digital marketing, the partnership between marketing and finance teams is crucial yet often faces challenges. These common common friction points include:

• Marketing's Need for Speed: Marketing teams often need to prioritize agility and fast turnaround times, which can clash with finance's need for oversight and adherence to compliance protocols.

• Finance's Focus on Budget Oversight: Finance teams prioritize maintaining control over spending and ensuring proper procurement and accounts payable (AP) processes. Managing a large pool of freelancers translates to a significant amount of time spent on tasks like vendor setup, payment status checks, and approvals.

• Exceptions with payment terms: Net 30 & 60 day terms are often in place for all vendors so that AP can manage payments and Finance can manage cash flow. This can put strain on independent contractors who have to outlay the cost of production and pay rent.

• Multi-Team Involvement: The influencer marketing process often involves multiple teams, each with their own goals and priorities. Marketing might focus on nurturing relationships and fostering strong partnerships after putting in time to find the right influencers and affiliates. This dynamic can add complexity to the payment process, especially when adding in the complexity of managing flat fee and variable payouts associated with usage rights and commissions.

Influencer Marketing Payments: From fixed rate and pay-per-post to Commission based models

Influencer marketing has evolved from the days when follower count, engagement rate and influencer demographics were all that brands relied on to find the “right influencers” and pay influencers for posting across social media channels. At the end of the day, audience size does not drive results.

Giving out free products for gifting campaigns is still common for brands partnering with nano-influencers, but many brands now realize the potential to drive measurable conversions and performance exceeding traditional marketing channels by investing in their influencer marketing strategy.

In 2023 there was a big shift with how ecommerce brands structure their influencer program payments into a hybrid flat-fee and performance-based payments model. This approach reduces the upfront payment for content creation (which is still important for the time and effort put into content creation) and creates a win-win relationship based on performance. The typical structure combines payouts for affiliate marketing and a percent of ad spend for all “dark posts” (ads run by the brand but leveraging the creator’s Instagram or Tiktok account). This is usually 2%-5% of ad spend depending on the brands calculations of how influencer ads perform versus brand ad benchmarks. For sponsored content with Tiktok influencers, these are run via Spark ads.

Exploring Options: Choosing the Right Solution for Influencer Payments

The ideal solution for paying creative freelancers balances efficiency, transparency, compliance, control, and cost-effectiveness across stakeholders. The ideal solution gives Marketing the speed and agility they need while ensuring the control and compliance Finance requires is in place.

The solution must be able to manage a wide variety of creative freelancers: Tiktok, Instagram and youtube influencers, affiliates, live event staff, UCG creators, photographers, graphic designers, etc. 

Here's a breakdown of potential options, each with its own advantages and drawbacks:

Traditional ERP/ Accounts Payable/ Accounting Systems (Netsuite, Quickbooks, SAP, Coupa, Apex, Ariba):

• Pros: Designed to handle large-scale enterprise spending, these systems offer robust spend control features to manage vendors across a company.

• Cons: Often cumbersome and time-consuming for freelancers to navigate, especially during onboarding with large-scale 1099 collection requirements. Creates extra work for marketing teams, such as PO creation, approvals, and tracking, due to limited access to finance systems. Can make tax filing at year-end a tedious process for the Finance team. Legacy systems are typically limited with payment methods, leading to manual workarounds.

Modern AP Add-Ons (Tipalti, Zip, Trolley):

• Pros: Compared to legacy ERP systems and manual processes, these add-ons provide a more streamlined and automated onboarding experience for freelancers.

• Cons: Still requires each vendor setup within the system, and 1099 collection and year-end tax filing remain a burden. Coordination challenges between marketing and finance might persist.

Influencer Marketing Platforms (Captiv8, Creator IQ):

• Pros: These platforms function as an all-in-one solution for influencer marketing campaign management, including integrated payments. Ability to tie deliverables (e.g. instagram post) to influencer payouts. The platform assumes vendor responsibility and handles tax compliance, easing the burden on internal teams. Suitable solution for teams working with mid-tier influencers who do not need to manage payouts for other freelancers. 

• Cons: Often a point solution that serves influencers but excludes other freelancer types (affiliates, live event staff). Their costs can be significant due to the involvement of a third-party provider (typically Tipalti or Trolley), with fees starting at 3% of payouts. Limited flexibility and potential reconciliation challenges for finance. Pooled funds across multiple companies might pose a risk for some.

PayPal:

• Pros: Widely popular among freelancers, PayPal simplifies tax paperwork and filings. Most freelancers already have an existing PayPal account, making payouts seamless.

• Cons: Not a viable option for large companies due to limitations on funding sources (bank transfers are usually required). Transaction fees are relatively high at 2.9%, making it an expensive choice in the long run. Reconciliation and reporting is a significant challenge.

Agencies:

Many large companies choose to work through agencies to manage influencer marketing campaigns strictly to handle the vendor onboarding and payment process. Agencies also provide additional services like influencer marketing strategy, influencer discovery and management.

• Pros: Resources who work with influencers and creators across clients/ built in expertise. Can act as an extension of the team without hiring additional headcount. Setup the agency once and receive consolidated invoices from the agency.

• Cons: Agencies often bake in additional fees on top of what influencers charge. Lack of transparency into the true cost of influencer activations. Lack of control and lack of ownership over relationships.

Lumanu: A Fintech Mater Vendor to Manage Compliance and Creative Freelancer Payments

This guide wouldn't be complete without highlighting Lumanu's unique approach to managing and paying creative freelancers. Here's what sets Lumanu apart:

• Built on a Banking Foundation: Lumanu leverages its secure banking infrastructure to ensure segregated funds and optimal security.

• Supports All Freelancer Types: From influencers and content creators to affiliates and live event staff, Lumanu caters to a diverse range of creative freelancers from individuals to talent management.

• Single vendor, Consolidated invoices and POs: Lumanu acts as a single fintech master vendor and gives you the ability to receive consolidated invoices per campaign, time period, budget, or group of payouts. 

• Network approach: Lumanu is a payment network, meaning once a creator has setup a Lumanu account they do not need to go through the onboarding process when working with other brands. 

• Shared Access for Marketing and Finance: Both marketing and finance teams enjoy real-time access to the Lumanu platform, fostering transparency and facilitating collaboration.

• Integration Capabilities: Lumanu seamlessly integrates with existing systems to automate payout creation, streamlining workflows and minimizing manual efforts.

Should the Type of Influencers or Creative Freelancers Impact Vendor and Payment Decisions? 

As mentioned in the introduction, the first consideration is if creative freelancers are classified as 1099 freelancers or W2 temporary employees. If they require a W2, then you will want to run a payroll process which has its own set of complications. If you are partnering with 1099 creators, then the first thing to consider is the scale which you are managing. Working with smaller influencers usually means partnering directly with more unsophisticated individuals when going through the vendor setup and invoicing process. At Lumanu we highly recommend getting rid of the need to invoice altogether and creating payouts and associated invoices on behalf of your partners to reduce errors and back and forth. Micro-influencers tend to have the highest rate of incorrect invoice submissions with over 40% containing errors associated with the due date, PO number or even amount. 

Working with mega-influencers and macro-influencers brings with it another set of challenges as many are represented by talent management and have loan out company structures. It is important to choose a solution which can easily deal with these scenarios without resulting in hours spent by marketing and finance teams to figure it out. Also note there is additional contract complexity and requests for exclusivity, account metrics will usually result in higher influencer rates.

If you are working with International creators for sponsored posts you also need to ensure your solution has the capability to onboard International vendors and manage W8 form and payout in local currencies.

In conclusion: The Impact of Influencer Payments on Influencer Partnerships

Given the importance creative freelancers have for the modern marketing team and the impact  influencer marketing can have on driving results, not implementing the optimal solution for managing freelancers can have a negative impact on business results. It’s difficult enough to  form long term partnerships, generate influencer content and prove out return on investment without having to put up the additional barrier of being difficult to work with and ultimately not paying on time. The Instagram influencer community is surprisingly small and word gets around on who is and isn’t a good brand partner.

If you are ready to begin onboarding and paying marketing freelancers and want to learn more about Lumanu can help you scale these efforts while saving time, set up a time to chat with our team to understand how Lumanu can be a partner to your success.