Posted by Gabe Solomon on Nov 15, 2023 3:49:00 PM
Event production companies rely on freelancers to do much of the work related to the events they produce, including technical aspects. Freelancer costs can add up quickly and may vary depending on whether the workers you engage are 1099 workers or W2 workers. In both cases, there are direct and indirect costs to consider.
At Mertzcrew, we’ve created a robust freelance management system to help event production companies manage freelancer costs. We understand that it’s necessary to properly account for different costs between paying 1099 and W2 workers. While some options may be more expensive than others, it’s important to remember that going with the least expensive option may not be the best thing for you or your client. With that in mind, here are 5 examples of direct and indirect costs associated with contracting freelancers.
Understanding Direct and Indirect Costs
Any time you contract with an AV freelancer, there are expenses to consider. Here are some direct and indirect costs examples to help you understand the difference.
Direct Costs of Contracting Freelancers
Let’s start with direct cost examples, which are those costs associated directly with paying freelancers.
Every freelancer you contract with has an hourly rate or day rate they charge for their freelance service. Experienced freelancers usually charge more than those with less experience. You may want to estimate your average hourly rate for freelance workers as a way of keeping track of your budget, keeping in mind that you’ll get the best results when you pay for skilled and experienced freelancers. We should note that W-9 freelancers often charge higher rates because they’re responsible for taxes and insurance.
In some cases, you may be able to negotiate a flat rate with freelancers, especially if you’ve worked with them before. Pricing events with a flat rate may result in labor cost savings and an overall reduction in your direct expenses.
#2: Travel Expenses
Freelance work usually requires reimbursement for expenses related to the work the freelancer does. One common direct expense of engaging AV freelancers is travel. As the event production company, you may be on the hook to reimburse freelancers for travel expenses, including things like airfare, mileage, and parking.
One way to reduce your direct costs is to contract freelancers who are local to the area where your event is being held. It’s a lot more expensive to pay for travel from a remote location than it is to reimburse freelancers for mileage and parking.
Indirect Costs of Contracting Freelancers
Now, let’s look at some indirect cost examples associated with contracting freelancers.
#1: Searching for Qualified Freelancers
Finding AV freelancers with the qualifications and experience you need for a successful event can be time-consuming and expensive. This type of indirect expense is something that applies to W2 employees too, but on a less consistent basis since employees may be with you for years, while freelancer contracting happens on an event-to-event basis.
The job of identifying freelancers who are suitable for each event can account for significant expenses. For example, if you’re producing events all over the country and contracting local freelancers for each event, you may spend quite a bit of time searching for the right people.
#2: Freelancer Management
AV freelance management costs can add up quickly. When you’re bringing on 1099 workers, you’ll need a robust freelancer management system to help you track things like production insurance, documentation and administration of freelancer contracts, hours and payments. You’ll also need a communication system that allows for consistent and centralized communication with everyone involved with your event.
Even if you contract W2 workers instead of 1099 workers, you’ll have indirect administrative expenses to consider. While these expenses might fall under the Human Resources umbrella, they’re still related to managing your workers. Managing freelancers is easy if you have the right freelancer technology to help you.
The Impact of Direct and Indirect Costs on Event Companies
Both direct and indirect costs associated with sourcing either a freelancer or a direct employee can impact your company and your clients.
How Direct and Indirect Costs May Affect Your Budget
Here are some of the most significant ways these expenses may be felt:
- The cost of contracting freelancers may be significant, particularly when they charge more for providing their own insurance. The costs can put a strain on your budget and may also impact your profits.
- Freelancer management can be a time-consuming endeavor that can add to your indirect costs and make it difficult to keep your budget in check.
- When you include the behind-the-scenes costs of freelancer management, including things like HR tasks and bookkeeping, the expense can be significant.
Since many of the indirect costs associated with contracting AV freelancers may be essential for compliance, it can be difficult to cut costs without putting your company at risk.
Costs for Contracting AV Freelancers vs Full-Time Employees
Here are some of the important differences between contracting 1099 workers and hiring full-time employees for your events:
- Rates. Rates tend to be higher with 1099 employees because techs are accounting for administrative and tax costs that they need to cover. They may also be paying for their own insurance.
- Employer responsibilities. When you contract freelancers, you do so with the understanding that they’ll be paying their own taxes and buying their own insurance. With W2 employees, you’ll be paying a portion of their payroll taxes, and amounts vary by state.
- Insurance. As we’ve noted, freelancers often buy their own insurance while you’ll be on the hook to purchase production insurance for your employees.
- Speed of payment. Many states have requirements about how quickly employees must be paid and there’s no room for negotiation, while freelancers are generally not protected by those rules.
- Fringe benefits. There are no fringe benefits for freelancers, but W2 workers must be given paid sick leave, FMLA, and penalties if they don’t get a meal or rest breaks.
The most important takeaway here is that the direct costs associated with bringing on AV freelancers may be lower than they would be for W2 employees, but that doesn’t mean you should contract low-cost freelancers. Indirect expenses are higher for W2 employees and ultimately, the most important thing is to engage the best and most skilled AV freelancers for your events.
Strategies for Reducing Direct and Indirect Costs
Here are some strategies that event production companies can use to reduce both direct and indirect costs:
- Negotiate Annual Rates. If you have preferred freelancers, you can approach them about negotiating an annual pay package for a specified number of events. Some freelancers are willing to trade a discounted rate for the certainty of having work lined up throughout the year.
- Use Freelancer Technology. Using a freelancer management system like Mertzcrew can help to reduce your administrative costs by automating some aspects of managing freelancers.
- Document Your Expectations with Freelancers. As the saying goes, verbal agreements aren’t worth the paper they’re written on. Using the right freelance management system can help to avoid misunderstandings and budget overflow.
- Minimize Freelancer Risks. Some of the biggest risks related to freelancer management are compliance issues. By using a solution that makes it easy to track freelancers’ insurance and contracts, you’ll reduce your risks and avoid related budgetary issues.
- Incorporate Freelancer Costs into the Production Budget. Successful companies make sure the cost of hiring freelancers is included in the production cost. This should be done while maintaining your desired profit margin and it should be shown in your pricing.
- Contract Local Freelancers. When building your project’s production team, strive to contract freelancers who are local to the venue. That way you’re saving additional expenses of flying out any personnel.
Contracting freelancers might seem like it will cost more, but we want to stress again that there are indirect costs associated with W2 employees and risks that you can avoid by bringing on skilled and capable freelancers you can find.
Budgeting for Direct and Indirect Costs
Let’s close with some pointers to help you create accurate budgets that accommodate both indirect and direct costs.
First, it’s essential to assign the administrative costs associated with freelancers to the projects they’re working on. Remember, this should include the direct costs of paying freelancers along with the ongoing costs associated with 1099 or W2 workers. Internal 1099 administrative costs range from 15% to 25%, while the internal costs of administering W2 employees can range from 35% to 45%.
As we noted before, the 1099 rate of a freelancer is likely to be higher than the W2 rate of an employee, but that’s because they take on the burden of paying their own taxes and may also be paying for insurance. You’ll take on those expenses for W2 employees.
Let Mertzcrew Help with Direct and Indirect Costs
Whether you work with freelancers or W2 employees, you’ll be responsible for the direct and indirect costs of contracting them, as well as managing and administering them. The 1099 model can save you money on a head-to-head basis. You’ll need to be careful to administer freelancers in compliance with legal requirements to avoid additional costs.
By contrast, the W2 model is safer in some ways because it eliminates some of the risks associated with contracting freelancers. However, it’s important to balance the flexibility of working with freelancers against the safety of hiring full-time employees. We don’t recommend contracting the cheapest freelancers to save money, since there may be additional risks and costs that can arise if you do that.
Do you need a way to reduce the direct and indirect costs of contracting AV freelancers? Mertzcrew is here to help! Click here to connect with us and schedule a free demo!