What is the best way to pay independant contractors of my new web development company?

March 23, 2009 12:55 AM

I'd like to hire some designers/copywriters as contractors, how do I handle stuff like "comps" for my clients? Also, is it a common practice to tell the contractor that they will get paid when I get paid by the client? I have some more questions inside. These are partly business process questions and partly "contractor etiquette" questions.

I've been a web developer for nine and half years and I'm trying to get my own web development company rolling. I'm definitely doing this "bootstrap" style, but I'm my design/writing skills are weak so I'd like to find people to help me out in those departments.

My first web dev job was for an ad agency, so I'm somewhat familiar with the process of:

1) Talking to the client and getting a feel what they want

2) Have the designers each come with a "comp", or concept

3) Get the client to pick one

4) Do a bunch of revs and get approval

5) Developers/copy writers/designers build the site

6) Client approves, everyone is happy.

If everyone is employees (like they were at my job) this is pretty cut and dry. Everyone would turn in their hours or be on salary and the company would pay them.

But, in my case, these people would be independent contractors.

I haven't found all the people I need, but I may have a couple designers and perhaps one copy writer I can use. But for this question let's say that I hypothetically have 5 designers and 3 copy writers I can send work too.

1) What would be the best setup for paying for comps? Should I tell the designers "Here's what the client wants, spend x hours on an idea"? Or, is there some sort of industry standard "Comp Price"?

2) Is it acceptable to only pay for a design that the client chooses?

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?

5) Is some sort of retainer customary in this situation?

My goal would be to get enough work and capital to build a staff and not have to worry about this sort of issue. But, in the mean time I'm going to have to contract out work that needs skills outside my expertise.

posted by sideshow to work & money (16 comments total)

2) Is it acceptable to only pay for a design that the client chooses?

This sounds a lot like you turning into a spec work broker... Though I suppose the degree of it would depending on how detailed these "comps" are.

By the way, is "comp" a regular and accepted term? In my experience, it usually means a freebie for a client from the business, like a "comp" room at a hotel -- short for complimentary.
posted by polexa at 1:21 AM on March 23

2) Is it acceptable to only pay for a design that the client chooses?

Not when you realise that, when rephrased, you're asking "is it okay to ask for spec work"?

Now, in the rotten real world, freelancers suck it up all the time because clients have money and rent doesn't pay itself, but if you're going to work in that kind of collective fashion, where you're facing the client but subcontracting some of the tasks, you have to be prepared to absorb at least some of the costs. The flip side is that you have every right to take a cut of what the subcontractors would normally charge as an hourly or per-project. In order to do this, you also need to be a position where you're not doing pure spec work yourself.

Beyond that, it's a question of whatever keeps everyone happy. The best rules of thumb I can think of: don't make promises about payment that you can't keep, and don't ask for sacrifices (i.e. underbilling, waiting for payment) that you wouldn't make yourself.
posted by holgate at 1:24 AM on March 23

Also, is it a common practice to tell the contractor that they will get paid when I get paid by the client?

No. If I were your client and you commissioned me to work for you, I'd want to get paid no matter what your circumstances. Your budget is your problem.
If it is common practice, it shouldn't be. First, because you're putting yourself unnecessarily in the middle and taking the blame that should be your client's, and second, because a bit of assertion on your part is the difference between everyone getting paid and nobody getting paid.
If you can afford to hire contractors, you can afford to squeeze your clients to pay them.
posted by Fiasco da Gama at 2:00 AM on March 23 [1 favorite has favorites]

So .. my two cents.

I am a freelance web developer. I typically work in the position / role that would be held by your contractors (actually, my company would, but my company is.. well, me.) And apologies in advance if this sounds harsh. Your questions touch a few nerves that have been recently pained.



1) What would be the best setup for paying for comps? Should I tell the designers "Here's what the client wants, spend x hours on an idea"? Or, is there some sort of industry standard "Comp Price"?

I would give you a rough sketch free of charge. It will be very rough, and nobody would be able to build a website out of it... but you'll know where my ideas are going. I do not do spec work. It's a waste of my time. If any .psd's or .html's get sent from my computer to my client's ... an invoice will follow.

2) Is it acceptable to only pay for a design that the client chooses?

See above. If I were a contractor working with you, and even once heard "So, the client liked developer x's idea better..." ...you would find that my schedule suddenly has very little room for your work.

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?

That depends entirely on the pre-arranged contract. As a contractor, I do not do work without a very clear contract in place that details my payment terms. I have done jobs that are 50/25/25... I have done jobs where I submit weekly invoices... I have even done jobs where it was 100% at the end (but had it in escrow, long story). Effectively, make a contract with your contractors, and stick to it. I'm pretty flexible with clients as to whether they pay me upfront, or as the job progresses. But once they've committed to a schedule, I am _not_ tolerant of variations from that schedule. I recently "fired" several clients because they did not pay according to the contracts we had signed.

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?


Again, this goes by the contract. 99% of the time, I will receive from my clients two pieces of information. A statement of work (which is a VERY detailed, nearly contractual document indicating what I need to send to him or her to meet my end of the deal), and a max hours / max rate. I then bill actual hours worked, and discuss with my client if there's a chance I'll go over max hours. If your contractors are good at bidding their jobs... they will very rarely go over max hours (I go past my bids... maybe twice a year?). Sometimes I go by project pay rate, but not often. I, personally, prefer to bill by hours. My clients seem to prefer to pay by hours.

5) Is some sort of retainer customary in this situation?

I have never used a retainer. The closest I've ever come was the escrow job. Now, if a client wanted to discuss having ALL of my time, exclusively, for a time period available (ie, "I need you from March 25 to April 15)... yes, I would require an investment that would be equal to how much money I would NOT make in that time by devoting it to them, ie, a retainer.


Pay attention to the contract you sign with your contractors when they work for you, whether they are duration based ("Contractor will work at $x/hr until next year"), or project based ("Contractor will bill at $x, or $x/hr for y project"). Many contractors keep them very close on hand (because many have been ... for lack of a better word, screwed), and won't hesitate to call your attention to the LEGAL document you have signed with them.

I do hope this hasn't sounded overly hostile - I'm trying to help you avoid the mistakes that several of my clients have very recently ... caused me pain... by doing.

Feel free to mefimail me if you have any other questions.
posted by frwagon at 2:20 AM on March 23 [4 favorites has favorites]

2) Is it acceptable to only pay for a design that the client chooses?

No. But there are a lot of people who will do it, expect a high turn over of designers if you go this route (see frwagon's comments above). You might want to consider using a service like 99Designs if you want to do things this way. IME its more typical to have a single designer do 3-5 different designs for a set fee or a single design with x number of revisions included in the price.

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?
No. What if your client refuses to pay? Are you going to refuse to pay your contractors? Its not fair for you to take issues with your clients out on your subcontractors. Take enough up front to cover your contractors costs.

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?
Unless your clients are also paying hourly, paying your contractors hourly is an easy way to end up over budget (I've seen it happen, another reason why its not ok to pay only if/when your client pays. I had a client who quoted his clients without consulting with his subcontractors then requested changes on an hourly basis and the total ended up greater than how much he charged his clients and couldn't pay). Your contractors will probably have a preferred method of billing.

5) Is some sort of retainer customary in this situation?
No, but if you can guarantee a steady stream of work, a retainer agreement should work out cheaper for you. I have one client who I work for on retainer, its a win-win really, I get a steady income and he gets his work done far cheaper than my regular hourly rate.
posted by missmagenta at 2:38 AM on March 23

By the way, is "comp" a regular and accepted term? In my experience, it usually means a freebie for a client from the business, like a "comp" room at a hotel -- short for complimentary.

I'm a web developer / software engineer and I hear this term from web designers all the time too, often used used interchangeably with "wireframe". I get "wireframe" but like you polexa I don't understand where "comp" could have come from etymologically.

sideshow, this is my philosophy on the "spec work" thing: it's really just general business risk as is dealt with by insurance companies and investment houses. Sorta like the time value of money, risk is regarded as a fairly tangible nowadays.

You expose yourself to risk when you engage in sales activity - it's a "loss leader" or whatever the business school term is. If your subcontractors allow you to pass some of that risk on to them by doing work they might not be reimbursed for they deserve to be compensated for taking that risk and they ought to get a higher cut of whatever profits do or don't shake out of the sales process. It's a bit like they're participating in the sales activity themselves (but not too much like that - if sales was that easy they'd be out there on the phone or pounding the pavement themselves.) I don't think there's anything wrong with looking for web designers to work with who will share business risk with you - after all, if the potential customers that everyone's making money off of are insisting on spec work, why shouldn't the same be asked of the designer? - I just think it needs to all be above-board and taken into account when you're arranging pricing.

Conversely, if your arrangement with your subcontractor is serving to insulate them from business risk, and they're just getting a stream of orders from you and they're getting paid on time, you deserve to get a bigger margin on the work you're passing to them than you would in the risk-sharing situation. Like Fiasco da Gama says, I'd want to get paid no matter what your circumstances - both customers and business partners always want you to take all the risk off their hands; make sure you get paid for it when you do so. (Like the "max hours / max rate" contracts that frwagon mentions - yeah, that would be the customer trying to cap their risk by offloading the long tail of it onto your shoulders. NEVER accept those sort of terms in a project that is genuinely consulting / advisory work rather than fixed and specified deliverables - like if you're directing the client's programmers / IT guys in building a web site themselves "hands on" - unless you are really being paid to clear your whole schedule and work like someone else's project manager employee... and even then...)

(Let me also mention also that I try to avoid subcontracting design work to others as much as possible and because I've got a consulting specialty and street cred for it - CMS systems - I've historically been able to avoid projects that require design work beyond my meagre creative capabilities.)
posted by XMLicious at 2:47 AM on March 23

Look, if I contract with you, and you're the principal, you owe me. I don't care, and I don't want to have to care, what you're doing about billing the client or otherwise finding the money to pay for my hours. If I wanted client risk I'd be working directly for them myself, right? You get me to do work, you pay me, or else I go elsewhere, and warn my colleagues off working for you too.

The key thing here is you're not supposed to work in a vacuum of understanding. You need to spend time working out from the client's needs and statements (and they can, at least at first, be contradictory or vanishingly vague) what they want, and transmit that to your contractor. Then when I get to work I'm not thrashing around trying to come up with something on spec, but am working to a defined target of some kind.

When this kind of relationship and chain of communication works well, it's profitable for everyone (largely because time is not wasted on dead ends) and can even be fun, but you have to make an effort to communicate well in the first instance, or all bets are off.
posted by zadcat at 5:22 AM on March 23

I was a fulltime medical writer for a few years, now a freelance writer. I've found my own answer to some of your questions in a painful way....

1) What would be the best setup for paying for comps? Should I tell the designers "Here's what the client wants, spend x hours on an idea"? Or, is there some sort of industry standard "Comp Price"?

In my industry we don't do comps, but we may do an outline for a manuscript - a rough outline of the material to be incorporated that may also require a bit of research and prep time, but not as much work as a full blown paper. I do expect that the author or client will add and remove things. Do tell me what the client wants (I am even willing to be on a phone call, I hate doing something only to find out the client gave clear directions that were not given to me). Do not tell me how many hours to spend on it, as I can do some things faster/slower and I also look at how much I will be paid. Just give me the directions/what you want/pay.


2) Is it acceptable to only pay for a design that the client chooses?

What? Didn't I just do work? Even though all the work at a fulltime place of employement is not billable, they don't stop your paycheck.

You can offer a project rate for an initial design - but pay everyone for the work (making up a number - $500 for a rough project design - pay your 3 contractors $500 for the designs they turned in.

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?

Arrange with the contractor how you will pay. Some companies have told me up front "net 30" or ""after this prints on date X/net 30 within that time"

Please don't make the contractor/writer chase the $ - and some people do this. I don't think it is a nice/ethical way to treat someone. I've had big companies do this, believe it or not.

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?

Preference of company and/or writer. I prefer by project. I know some designers who work by hour. However, there are conditions. For me, one round of revisions. If you want another round of revisions, you pay for that.

Be very clear as to what you want, write it down and both the writer and you should have a copy of epxectations. I'll be honest and say that I once gave another round of revisions for free becauase the client wanted more. The client that requested a rewrite did not base it on anything said before the project - I will revise for free because I want the client to be happy, but I won't work for that client on such a proect again, either. You don't go to a restuarant, give a clear order for 10 sandwiches with peanut butter and jelly -- and then when you get the sandwiches look at the person and ask why wasn't your pizza and 3 sodas delivered and expect that I should do it for free. I have done it, though, but again, I won't work for you again.

5) Is some sort of retainer customary in this situation?

If you offer a constant flow of work and have good practices (pay on time, are polite, not unreasonable), I don't need a retainer, I will come back. Some companies will make arrangements to keep you (I have a "temporary employee" arrangement for a company, others set aside X hours per week with a company and sign contracts saying that they will continuously work with you).

Good luck. Perhaps I should send this to one of my clients.
posted by Wolfster at 5:33 AM on March 23

3) no. you will need to pay developers, designers and writers as soon as you get the invoice. anything else is something you need to make very clear in advance and you will lose the more talented people because they simply can find jobs that do pay on time.

personally, such a proposal would be a huge red flag for me. I would assume the likelihood that I'd not get paid significantly larger than you made it seem. I'd be very suspicious of you trying to scam me out of my time. the only reason for me to do this would be if you were a friend I trusted.

it is reasonable to demand a free advance i.e. when using stock photography because it already exists and requires no work just for you. the same cannot be said for a writing or development job, which is only done for you and if it doesn't work out they are shit out of luck or at least get a significantly diminished return on their investment.

one way you didn't consider is making them partners. that means sharing the total revenue generated and not just promising the standard day rate.
posted by krautland at 6:39 AM on March 23

I don't think you are in a position to hire contractors. Sorry. They get paid for all the work they do, it doesn't matter if you don't have the money for this.
posted by shownomercy at 7:18 AM on March 23

I hire contractors and I've done contract writing for advertising agencies.

1) What would be the best setup for paying for comps? Should I tell the designers "Here's what the client wants, spend x hours on an idea"?

For designers, that sounds good to me, but I'm coming at this from a writer's point of view. If you want real headlines to go with your lorem ipsum copy placeholders, you could tell a writer something similar: "Here's what the client wants. Please come up with X headlines for...and don't spend more than Y hours."

2) Is it acceptable to only pay for a design that the client chooses?

No. Pay all the contractors for their time. In the same vein, don't offer writers a "kill fee" if the client completely rejects their copy. Avoid rejection by making sure contractors know what the client wants--let them talk directly with the client to hear the client's view, and then speak privately with the contractor if there's a particular client message that you want to emphasize.

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?

It's acceptable to pay on an installment basis, but it's not acceptable to delay payment because your client hasn't paid you. Make sure you have enough cash on hand to pay your contractors on time whether or not your client pays you on time.

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?

That depends on the contractor and project. I tend to hire contractors on a project basis because then they're rewarded for working quickly and it's easier for me to budget. For that to work well, the project has to be very, very clearly defined, in writing, so everyone agrees on what is in scope.

5) Is some sort of retainer customary in this situation?

That depends on the amount of work you have. If you find a contractor you like and you have enough work, putting that contractor on a retainer could be a good idea. Of course, if you don't use the contractor for the full amount of the retainer, you don't get a refund.

In the contract you use with subs, you'll want to make clear that this is work for hire. Once you pay them, you own the copyright. There are boilerplate subcontractor contracts on the net; basically, you need to make clear "You are not my employee, I won't withhold tax," etc.
posted by PatoPata at 7:35 AM on March 23

1) What would be the best setup for paying for comps? Should I tell the designers "Here's what the client wants, spend x hours on an idea"? Or, is there some sort of industry standard "Comp Price"?

Coming up with initial design ideas is design work, no different from fine-tuning a nearly-finished design. You pay the same for it that you do for any other design work. (This is up to the designer, but most will charge by the hour.) It's fine to suggest a budgeted number of hours, but if you underbudget be prepared for some designers to need more time. (Good ones will be able to tell you this up front; inexperienced ones won't realize it until they've already expended the number of hours and still have only half a design.)

2) Is it acceptable to only pay for a design that the client chooses?
No. In absolutely no way is this even remotely acceptable.

3) Is an accepted practice to pay the contractors when I get paid by the client (50% deposit up front, 25% at half way point, 25% at completion)?

The payment schedule you describe is fine, if the designer agrees to it -- but it should not be dependent on your client's paying you. If the client pays late, you still pay your subcontractors on time. If the client fails to pay at all, you still pay your subcontractors on time. You are the one hiring the subcontractor; you are the one responsible for paying the subcontractor on time. The client has nothing to do with it.

Yes, this means that if your client bails out on you you lose money on the deal. This is part of the risk you assume when entering into a subcontract deal.

4) Is it best to pay by project (with exceptions for client changes or changes that I might ask for) , or just keep it a straight "by the hour" type deal?

I always strongly recommend billing by the hour, because it makes negotiation over client changes and scope creep much simpler. But this will depend on who you're working with; some people prefer project bids.

5) Is some sort of retainer customary in this situation?
No.
posted by ook at 8:53 AM on March 23

you'll want to make clear that this is work for hire. Once you pay them, you own the copyright.

That would be: Once they write it, you own the copyright and whatever payment obligation goes with it.
U.S. Copyright Office definition
posted by TruncatedTiller at 9:00 AM on March 23

Seems to be a pretty good consensus here about most of the issues. Really, I would say the best advice is simply to have a clearly agreed upon contract with all of your subcontractors. As long as everyone knows in advance what's happening and it OK with it, you can choose the business practices that you're most comfortable with.

According to industry standards, subcontractors should be paid for all of their work (not just what the client chooses) and paid in a timely fashion regardless of what your arrangement with the client is.

I wasn't clear from your question, but I would definitely recommend against sending the same design brief to multiple subcontractors. I would say pick one and if the client doesn't like the comps, then you can pay that designer for their time and try someone else. Putting your subcontractors in competition with each other seems like an unwise business practice.

If I were creating this kind of setup, I would try to make a decision about the designer before you have your initial meetings with the client and then bringing that designer in to the meeting, rather than having to serve as the intermediary for all of the comments, questions, and suggestions.

Also: I hear this term from web designers all the time too, often used used interchangeably with "wireframe". I get "wireframe" but like you polexa I don't understand where "comp" could have come from etymologically.

"Comp" is a term that comes from print design -- it's short for "comprehensive layout" and it generally refers to a set of possible designs that are handed off to a client for their review so they can choose what they like. It's quite different than a wireframe. "Mock-up" and "dummy" are often used as synonyms for comps.
posted by camcgee at 9:26 AM on March 23 [1 favorite has favorites]

To follow up on camcgee: "wireframe" is something else entirely -- it's a no-design prototype of the site structure, used to work out the kinks in the functionality and the 'information architecture' of the site. A lot of people (including many designers, unfortunately) conflate the wireframe with the design mockup, which causes all kinds of problems: generally it means that the IA gets done by accident, since everyone spends all their time discussing the colors and the icons.
posted by ook at 9:32 AM on March 23

you'll want to make clear that this is work for hire. Once you pay them, you own the copyright.

"That would be: Once they write it, you own the copyright and whatever payment obligation goes with it."

My lawyer-approved contract says that I own the copyright of anything I write for hire until I am paid for that work. When I'm paid, the copyright transfers to the organization that paid me.

If this transfer weren't contingent on payment, then a business could simply tell me to write something for them and claim that they own the copyright even though they never paid me.
posted by PatoPata at 9:44 AM on March 23