The Best Payment Options for Freelancers to Get Paid On Time

tired of being broke

As a freelancer, you have to send invoices and receive payments quite frequently. Running your own business requires discipline, guts, vision, willpower, and possibly even bags under your eyes. But there are a few things you continuously don’t have enough of — time and money.

It is imperative that small business owners learn the most effective and efficient ways of doing things in order to save time on the little stuff, so they can focus on the important stuff — like their businesses.

Let’s start with paying our team. First off, how do you classify your team members?

Contractors vs. employees

What’s the difference between a contractor and an employee?

An independent contractor is considered to be self-employed. He or she is not technically your employee. The Internal Revenue Service states that the basic rule of thumb for determining if a person is a contractor is that the payer (that’s you!) only has the right to control the result of the work, but not the process of how it is done.

An independent contractor is great for the go-with-the-flow bosses and hippies.

An employee is not self-employed; he or she is employed by you! The payer (you again!) has the right to dictate both the process of how work is done and the result of that work.

An employee is better suited for bosses who are control freaks and evil dictators.

What about taxation?

An independent contractor will be issued a 1099 for tax purposes. Generally, employers are not required to pay employment taxes for independent contractors — such as FICA & FUTA. Mischaracterization of an employee as an independent contractor will cause you, the employer, to be liable for all of the employment taxes.

An employee will be issued a W-2.  The employer must pay FICA & FUTA taxes on behalf of employees. FICA is comprised of social security and Medicare taxes and the employer and employee each pay half — which is 6.2% for social security and 1.45% Medicare. FUTA is unemployment tax and the employer pays all of it (6% with an available credit of up to 5.4%).

The best payment methods for freelancers

So now you understand how your team members are characterized, right? But how are you supposed to pay them?


You know, that thing you use to buy stuff on eBay. Guess what? You can totally pay your employees with it too! Bookmark it on your laptop or download the app and you’re good to go. To make things even simpler, have your team invoice you at the end of the month. A quick five minute review and the click of a button make for a happy team and a relaxed you.

The downside is the hefty fees associated with using PayPal for the contractor, or receiver of payment. Yes, it’s the cost of doing business, but at 2.9% + $0.30 for every transaction, it adds up. The good news is that PayPal fees can be written off as a business expense.

Payroll software

If you need a bit more support or prefer a better process, I recommend using payroll software. There are some great programs that provide different payroll options to serve different business owners’ needs.

Want to do payroll yourself? Choose from payroll software solutions or a low-cost service where you enter the hours and cut checks to your employees. You can even have your tax forms completed for you!

If you would rather focus on expanding your business than counting beans, you can outsource! Full service payroll means that you don’t have to set up payroll or file the payroll taxes. Score!

Using this is helpful, but let’s not forget that checks can get lost or stolen — and it’s yet another piece of paper to keep track of.

FreshBooks PayPal business payments

If you want to save some money and stop hemorrhaging PayPal fees, you can sign up for FreshBooks and send invoices out and pay only $0.50 per transaction, compared to PayPal’s 2.9%+ they take out for every invoice. You can keep track of hours worked on projects, and send out beautiful invoices, too.

In order to benefit from this, sign up for FreshBooks, and choose the PayPal business payments option, when sending out an invoice. It’s also key to note that clients cannot pay via credit card and that this is only available for U.S. currency.


If you are a small business powerhouse, then WePay is a good option for you. WePay allows you to accept payments promptly and also offers support for issues like fraud, risk management, and more.

In addition, there are many opportunities to personalize the look and feel of your payment platform to help with your brand. You can choose from their Connect plan which has a fee of 2.9% + $0.30 (similar to PayPal) or their Clear Plan, which has flexible pricing based on your needs.


Another great payment alternative is Dwolla, a payment network with a mission to “Allow anyone [or anything] connected to the internet to move money quickly, safely & at the lowest cost possible.”

Currently, all transactions that are $10 or less are free, while all other transactions are a mere $0.25, which the receiver pays. Your clients will need to have a Dwolla account. The one downside is that Dwolla does not accept debit or credit cards, which is how they are able to keep costs low.


To avoid fees altogether try out JustWorks. Their starter plan is free and allows clients to pay contractors via direct deposit, which prevents fees for either party. It’s easy to use interface and support services can make sending and receiving payment easy.

The only downside is that you do need to provide information like your checking account number and your social security number or EIN. If you’re nervous about that, this might not be the option for you.

Snail mail check

Issue checks to your team, then mail them to their homes. Make sure to include a note explaining what a check is (ha!) and how it can be deposited via mobile phone. Checks can be a good option as they are easy to track, and don’t cost any money for the receiver. The bad news is that snail mail is at the mercy of the postal service and can take a while to get to you.

Be sure to write your transactions down in your ledger and don’t forget to make copies on carbon paper. Also, it’s 2015 — stop writing checks! Your contractors and employees with thank you!

How do you pay your team? Do you have any tips on how to make the process less painless?

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  1. John S @ Frugal Rules says:

    We’re all about using PayPal. It’s just so easy and for right now serves our business great. We only deal with contractors right now so we really only have to worry about issuing 1099’s as appropriate. As we grow though, I am sure we’ll need to look into something beyond PayPal which will be a good problem to have. 😉

  2. TheMadPoolboy says:

    I’m a huge fan of the intuit products; now the way they can stitch together everything from your bank transactions feed to your wages, bills, and receivables makes it possible to keep on top of my books in a few minutes a day instead of having a person doing it all by hand. Srsly recommend.

  3. Tim says:

    Welcome, Erin!
    Nice post – I too am a PayPal user and fan. Additionally, I use Inuit merchant services for another business (mainly for credit card processing). While it works well, it’s fairly expensive compared to PayPal.

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