Freelancer management system (FMS): Is it time to get one?

The world of work today is full of juxtapositions. 

On one hand, you have a booming freelance economy and rising interest levels in operating a globally-dispersed, agile, on-demand workforce. 

On the other, stories about the hardships of managing freelance teams are all too common. 

But few market opportunities remain unfulfilled for long — and soon enough, freelancer management systems (FMS) emerged as a possible solution. 

What is a freelancer management system?

A freelancer management system (FMS) is an all-in-one toolkit for onboarding, managing, and paying your freelance workforce. The main purpose of an FMS: consolidate, systemize, and streamlined repetitive HR tasks for distributed teams.

Think of an FMS as a virtual HQ for your remote freelance workers and independent contractors where you can:

• Structure freelancer recruiting process 
• Cross-sign legal documents 
• Ensure global compliance 
• Schedule cross-border payments 
• Manage invoices and expense reporting 

In other words: an app to shoulder the admin burden of managing a globally distributed on-demand workforce.

Freelancer management systems vs vendor management systems: the differences 

Freelancer management systems (FMS) are a simpler version of legacy vendor management systems (VMS) — another piece of software, designed for contingent workforce management.  

If ever saw that beast, you know that most VMSs are unnecessarily intricate, have rigid rules, and often don’t integrate well with other business systems (e.g. for cross-border payments or invoicing). 

VMS also often comes with inhibitive license/subscription costs:

• SAP Fieldglass deployment strategy and license costs are explained over a 19-page pricing guide (which still fails to state at least some budget range). 
• Oracle NetSuite has a $999 monthly licensing fee, plus a per-user fee that starts at $99 a month for its ERP/VMS products. 

The pricing alone makes advanced contractor management systems expensive for smaller companies. But even if you can stomach the costs, such systems may not always tick all your requirement boxes.

Most vendor management software was originally designed for managing temporary on-site workforce, rather than dynamic, remote freelance teams. Some solutions are also mono-market i.e. only support compliant hiring in one jurisdiction such as the US. 

In contrast, modern freelancer management systems are:

• Cloud-based
• Remote-work-first 
• Globally compatible 

…And they have just the right number of features to be equally helpful and easy to use. 

Benefits of using a freelancer management system

• No document madness. Keep stock of all things freelance ORG in one place — from freelance role descriptions to legal contracts and standard training materials. 
• Faster time-to-value. Expedite boring, but necessary KYC, legal, and tax onboarding stages to get to the good part — getting a job expertly done. 
• Non-negotiable compliance. No need to research local labor laws or tax compliance requirements. Or waste hours organizing your expense receipts during tax season. That part is set on autopilot. 
• Better project management. Contractual obligations, collaboration terms, and work scope documents are neatly stacked in one place. Plus, you can build a standard database of processual documents and share them with freelancers during onboarding and ongoing work.  
• Great freelancer experience. You are picking freelancers and freelancers are picking you too. If you are a handful to deal with, your best freelance hires will eventually move on to the next gig. FMS helps set up a smooth collaboration experience and retain your freelance workers. 

Core features of a freelancer management system to look for 

The (sales) pitch for freelancer management systems is simple: You get a convenient people management tool, purpose-built for freelance teams.

Buuut, how is this really better than spreadsheets or all-purpose HR apps? Let’s break things down. 

Freelancer-friendly recruiting & hiring tools 

Unlike regular employers, freelancers can jump on projects faster. That said: not all freelancers are in active client-hunting mode or available on short notice. 

You still need to “dive into” the vast freelance talent pool to find your *perfect* hire. These explorations can get overwhelming fast because you have to deal with:

• Multiple recruiting channels — freelance marketplaces, referrals, job posts, talent agencies, etc.  
• Multiple geographies — should you hire freelancers in the EU? Or maybe Southeast Asia? Or perhaps even Latin America? The world is your oyster.  
• Multiple compensation models — hourly contracts, fixed-price jobs, day rates, retainers, or even equity sharing, you have many ways to compensate the freelance folks for their effort. 

As a result, something as inconspicuous as posting an open call for freelancers on LinkedIn can leave your team boggled down with extra work: 

Here’s how a freelancer management system reigns in the hiring folly: 

• Record workforce skills gaps and create a matrix of required skills/roles 
• Create and store standard freelance role/project descriptions for easy sharing 
• Set up a freelance team matrix to complement your org chart 
• Add hiring budgets/spending caps for different freelance positions 
• Curate a database of vetted or pre-qualified freelancers for this or that 

Some FMS even go a step beyond the above and provide access to a pre-vetted marketplace of freelance talent (which makes hiring even faster!). 

Read more about building a lean hiring process for freelancers with tips from other founders. 

Onboarding system 

Onboarding helps integrate new hires into your organization and “indoctrinate” them on how things work at your pond: What’s the big picture behind your business? How do you prefer small things to get done? What are the goals for the role/project at hand? 

Employees and freelancers should get answers to these fundamental questions. Or else they struggle to get successful in their role and meet the set expectations. 

And yet, freelancer onboarding is an area where most companies come short. A 2022 Microsoft-backed study analyzed how work experience differs for full-time knowledge workers and their freelance peers. 

Unsurprisingly, the external workforce extensively commented on various inefficiencies they regularly face: 

• “Freelancers reported working independently and in isolation, with no immediate assistance other than the individual client. This, in turn, shaped freelancers’ expectations that the client ought to know and be able to specify what needs to be done”.  In reality, many clients struggle to properly brief freelancers on the task and put their expectations in concrete terms. Freelancers aren’t clairvoyants — we can’t read your mind (sadly), so proactive communication is key.  
• “The burden of knowing how work is done — and providing support for that work — is transferred largely from the client to the individual freelancer”.  Freelance consultants are there to find and fix your problems (or at least suggest how you can approach them yourself). But freelance executioners — your marketer, app developer, or designer — shouldn’t be tasked with solving wider operational issues you don’t know how to handle yourself. 

• “Freelancers described an asymmetry in which ‘getting a task done’ was perceived to be a collaborative effort for freelancers, but an ‘overhead’ for clients”. The entire purpose of onboarding is to educate your new hires about your processes, standards, and expectations. Freelancers shouldn’t carry the mental and monetary cost of instructing your company on how to best manage them. 

Your goal should be to help freelancers better understand your company as a whole (its goals, mission, strategy) and through a lens of a particular project (processes, metrics, expectations). 

Therefore, you should look for an FMS that can: 

• Expedite and standardize the administrative onboarding tasks — contract co-signing, “scope of work” definition, business details exchanges, etc. 
• Reduce information asymmetry by providing access to standard operating procedures (SOPs), training, playbooks, checklists, and other helpful materials for new hires. 
• Educate freelancers about communication, reporting, and overall performance standards, associated with their role or project. 

Read more about building a potent onboarding process for freelancers and independent contractors.

Compliance features 

Hiring independent contractors is less admin-intense than dealing with payrolled employees. You don’t have to: 

• Create a jurisdiction-specific employment contract, compliant with local labor laws
• Have a local legal entity or be an employer of record (EOR) for cross-border hiring 
• Get all set up to pay employer taxes, social contributions, benefits, and other perks 
• Conduct extensive background checks or employment record verification (unless that’s required in your industry). 

Still, you must do some basic due diligence to stay on the good side of global tax and employment laws (which are complex). This includes:

•  Following local laws around independent contractor classification
• Signing legally binding freelance contracts and SoW statements (if applicable) 
• Collecting freelancer company details and payment information (including data for tax purposes) 

Sadly, the world of the legislature is yet to catch up with the new world of on-demand, distributed, digital work. Even organizations like the United Nations (which has much more pressing global matters to deal with) couldn’t resist commenting on the issue: 

“[Regulators must] shift away from one-size-fits-all solutions to more tailored policies that consider the unique opportunities and challenges of different types of new forms of work. Better data, policy experimentation, and more evidence-based policy analysis are required to help existing labor regulations and social protection systems to adapt and accommodate changes in the world of work”.

While a freelancer management system can’t change the world for the better, it can make a global difference to your company. 

A good FMS has to streamline: 

• Tax, ID, company documentation  exchanges, and verification 
• Legal contracts signature — work contracts, SoW, NDAs, etc. 
• Partnership model management in terms of hours, compensation, and classifications.
• Baseline anti-money laundering (AML) and know-you-customer (KYC) checks 

P.S. Did you know that Xolo also helps freelancers to stay compliant? We allow anyone to start billing clients as a legal entity (using Xolo GO infrastructure), which makes compliance easier for both sides!

Learn more about how Xolo manages compliance processes in the background.  

Payment processing 

Paying a globally dispersed workforce is arduous. Dollars, francs, pesos, or euros — there’s no shortage of currencies freelancers may use for billing. Yet, currency conversion fees, paired with high wire transfer costs, can magnify project costs by another 5% to 35%. 

Next comes the question of payment terms and conditions. 

On-demand work warrants on-demand pay. Yet, larger organizations are used to having extended payment cycles (90+ days). This doesn't sit well with most freelancers. 

Some companies also use a limited number of payment methods (e.g. local bank transfers or *gasp* paper checks) which don’t work for cross-border payments. 

At the same time, almost 40% of SMEs admit that their funding and accounting structures aren’t set up to handle continual payments to freelancers. 

Finally, there’s a variety of freelancer payment models you might need to accommodate (often simultaneously):

• Hourly part-time and full-time contracts based on timesheet reporting 
• Fixed-price projects with shorter payment terms (NET 0/7/15) 
• Recurring subscription payments or retainers due by a fixed date 
• Day/week/monthly rates, charged on a rotating basis 

To make all the money matters less messy, look for an FMS with the following payment features: 

• Bulk and scheduled payment support 
• Cost-effective cross-border payouts 
• In-built VAT tax collection 
• Streamlined invoice management 
• Secure and compliant data storage 
• Payment analytics and budget management 
• Integration with your bank and accounting software

Read more about how to pay your freelancers fast and compliantly. 

Steps to use a freelancer management system

We can’t say for all FMS, but if you choose Xolo, the setup process is deadpan easy. 

1. Complete an intake form, so that we could learn more about your business 
2. Get your virtual space set up — connect payment methods, upload corporate documents, fine-tune the workflows 
3. Invite freelancers to work with you via a link. We’ll onboard them in 10 minutes (or less). 
4. Agree on the project scope, sign all the contracts, and exchange business details. 
5. Once the work is done, receive or generate invoices for your freelancers and pay everyone in a click. 
6. Optional, but recommended: Bask in the glory of working smarter, not harder!
   

Beyond software: How to better manage freelancers and contractors 

Treat any type of technology (FMS included) as a means to an end, not an end-all-be-all solution to whatever issue you have. 

You still have to do the actual job of managing freelancers and independent contractors. That's where many new managers stumble (which is OK). 

Once you’ve set up the software part, switch to tuning up the “social” side of freelance team management.

Battle information asymmetry 

Information asymmetry means that you (as a client) have disproportionally more information than the other side (your freelancers). 

You already know:

• How things are done at your company
• What goals and priorities you have atm 
• What worked (and didn’t) in the past 
• Where your company is heading in the future 

Your goal is to tilt the scale in freelancers’ favor and even out your knowledge during onboarding and subsequent collaboration.

You’ve got many remedies for that:

• SOPs and checklists
• Training videos or short video memos 
• Style guides, brand guides, project references 
• Technical and product documentation 
• Software and product demos 
• Meeting notes, reports, team wiki pages, etc.

Create a standard roaster of materials you’ll share with freelancers in a new role. For example, for a freelance writer you might want to prepare these documents:  

• Writing style guide 
• Content formatting tips 
• Verified marketing claims 
• Experts/company sources to use 
• Product demo videos 
• Customer case studies 
• Sample / reference materials 

Sounds like a lot? In the early stages of freelancer collaborations, you should over-communicate. There’s a scientific reason behind why repeating an important message several times works: 

“Repetition or multiple exposures modulate different types of memory over time. The results showed that after learning the objects three times, both item memory and contextual memory improved. The recollection, rather than the familiarity, contributed to the repetition effect”

In other words: Provide information upfront, repeat the most important pointers several times — and have ‘em in writing too for easier reference. 

Understand freelancers’ workstyles

As a remote team manager, you need to factor in the nuances of autonomous, async work. 

This includes basic stuff like adjusting for the time zone differences or replacing face-to-face meetings with text updates. 

But you should mind the bigger picture too: If you exert too much control over how or when your independents work, you risk losing them (and possibly facing compliance issues). 

To avoid such scenarios, you need to understand how your freelancers work: 

• They have more than one project and need to relentlessly manage their freelance work schedule. Don’t expect freelancers to always handle “last-moment change in scope” or “tiny, urgent request (which it is not)”. Such things cause havoc on their calendar — and result in tensions on both ends. 
• Most prefer async communication. When you start collaborating, ask which communications channel the freelancer prefers and how they update client’s on their project. For example, use email for project detail exchanges and Slack for in-the-moment questions. Also, remember that phone calls and video meetings are non-billable hours for your freelance team members (unlike full-timers). So many would be protective of their time. 
• Personal quirks and preferences. Some people prefer to block mornings/afternoons for deep work and switch all notifications. Others don’t mind having virtual coworking sessions. Learn how your virtual team does their best work — and give them the opportunity to do so. 

And most importantly — listen to your freelancers. We treat most projects as collaboration opportunities, not a “boss → employee relationship”. 

Create freelance-friendly workflows 

Unlike employees, freelancers don’t have the luxury of dealing with ambiguous, incomplete, or conflicting instructions. 

As Elisa Silverman commented in a Zapier blog: 

“If it takes [an employee]  five tries over one month to get something done? Again, not productive, but that's a leadership or company culture issue, not the employee's issue. They get paid either way. But freelancers are not.” 

We are expected to deliver results — and get frustrated when faced with a wall of “corporate red tape”, and “please follow-up later on this” replies. 

Because of this fundamental difference in compensation models and collaboration preferences, you should make your standard workflows: 

• Mostly asynchronous 
• Well-scoped and documented  
• Less dependent on multiple people 
• Scalable (i.e. can be done in parallel)
• Standardized (i.e. it’s easy to train another person to do the same)

In practice, this often translates to having three clear phases in every freelance collaboration: 

• Scoping + briefing aka when you get aligned on what has to be done and how it should be done. 
• Autonomous work — sufficient “headspace” for a freelancer to do their best work independently and keep you updated if necessary. 
• Delivery + feedbacking with subsequent hand-off to other in-house team members and payment processing. 

Once you’ve made the full circle, start it up again. You can create such standardized freelance workflow cycles for different freelance roles — design, marketing, software development, etc. 

Doing so can also make your employees more productive. By creating clear-cut, well-mapped workflows you make everyone’s job easier to understand and execute. 

Create a “soft” system for your freelance partnerships 

Freelancers naturally feel the distance from in-house teams and clients which is a “given” for the profession. But this distance shouldn’t translate to exclusion. 

Freelancers are a satellite to your business. They must stay in your close orbit — or else you risk facing: 

• Poor talent retention
• Inadequate team management 
• Ho-hum collaboration results 

A freelancer management system is a software tool to streamline admin aspects of collaboration — and provide extra room to focus on social interactions and relationship building. 

Want to find out how a streamlined FMS like Xolo can make onboarding, managing and paying your distributed team of freelancers the easiest part of your day? 

Book a commitment-free demo with one of our teams experts.

About Elena

Elena Prokopets writes content for tech-led companies & software development businesses, marketing to them. Her empathy for the customer, expertise in SEO, and knack for storytelling help create content that ranks well and drives industry conversations.

Elena uses Xolo so she can focus on her solo B2B content writing business without stressing over the compliance and admin overhead.