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Pick Your Paymasters

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Joan Woon, a Singaporean who hopped from city to city, had assignments for every newcomer on freelancer.com, the website that lists freelancing jobs. Claiming to be an IT expert and working full-time for an electronics manufacturing firm, he had assignments ranging from simple data-entry jobs to software testing, consultancy services and complex movement of hard cash across geographies. So when Woon (‘Joan Yeow’ is his email username) hired Mumbai-based Nirmal Raghunath as his virtual secretary, the latter was elated. Woon had hired 24-year-old Nirmal after ‘testing’ him on a few content-related assignments. Communication between them was mostly over chat or email; Skype was a strict ‘no-no’ for Woon. 
 
Woon and Nirmal started off with simple editing work, but as days passed Woon compelled Nirmal to open a separate bank account. The Singaporean’s idea was to transfer money to the new account, which Nirmal would withdraw and re-deposit into the accounts of other people. Since it involved movement of money across borders, Nirmal refused to be a part of the plan.
 
“I was sceptical from the start, but I joined him because he had many assignments. Woon stopped communicating with me the moment I refused his fund transfer offer. He is yet to pay me over $700 for tasks already completed,” says Nirmal, who is now an active — but very careful — freelancer.
 
Taking up jobs on the Net is fraught with risk, but that is not deterring people from signing up for freelancing assignments. Many see this as an opportunity to augment their regular income. The bolder and more skilled ones have even stopped going for regular office work. ‘Go solo’ seems to be the new mantra for the new-age ‘e-preneurs’. 
 
Quoting an international study, worknhire.com co-founder Kumar Mukul says Indian freelancers together earn about $500 million annually. “US freelancers top the earnings chart as their work charges are exceptionally high,” he says. “In terms of volume (of work done), Indian freelancers may be at the top. Only those from Bangladesh and Pakistan come close to Indian freelancers in this respect.”
 
International online freelance marketplaces such as freelancer.com, odesk.com and elance.com have a large number of skilled Indians on their rolls. Indian online marketplaces such as worknhire.com, freelancer.in, freelancerindia.in, wsession.com and creativefreelancersindia.com have a base of 40,000 to 1.2 lakh aspirants.
 
“The work culture in Indian offices is pretty rigid,” says Marut Bhardwaj, founder of creativefreelancersindia.com. “Skilled people find this rigidity repulsive, they do not get time to do their own stuff; that’s when they decide to go solo. Then there are mid- to senior-level managers who do not foresee growth in their careers. This class of skilled personnel offers strategic-level consultation to service buyers. Above all, it is the ‘entrepreneur’ bug that is driving people to take up freelancing assignments.” 
 
How It Works
There are a plethora of freelancing websites which post jobs for people with special skills. Generalists may take up data entry and transcription assignments. A typical online freelance marketplace has 400 to 800 categories of listed jobs. In fact, the success of a freelancing website depends upon the volume of jobs it contains and the skill base.
 
“Jobs are mostly in the software programming space,” says L.N. Agarwal, owner of freelanceindia.com. “There’s good demand for professionals who know programming, database management systems, graphics development, website management and content writing, with 70-80 per cent of jobs in these areas of expertise.” 
 
The reason for ‘concentration of jobs’ is probably the whole work-from-home culture initiated by the IT/ software development verticals. Over the next few years, Web marketplace owners expect more freelancing jobs in spheres such as landscaping, fashion designing, interior designing and mobile app development.
 
“Service buyers (companies, job providers) opt to provide jobs to freelancers to reduce their running cost,” says Mukul. Some businesses may want a lean structure; so, small and recurring jobs are given to freelancers. Even startups hire temporary hands to complete mundane tasks.”
 


Freelancing websites can be differentiated on the basis of two broad parameters. One, they can be Indian or international (mostly US or European) websites — the main difference being commission and the payout structure (discussed later). The second classification is on the basis of the site’s operational structure. A freelancing site can be lead-based or escrow-based. In a lead-based model, the freelancer pays a membership fee of Rs 3,000-6,000 per year and gets freelancing leads from the site managers. 
 
“Apart from memberships, we also have free entry registrations,” explains Agarwal of freelanceindia.com. “If you opt for the membership model, we help you with priority leads. We’re in touch with companies that outsource jobs. We present (them) your skills if you are a paid member. So you have a better chance of getting the project.”
 
The escrow model (or the bid model) involves freelancers bidding for a certain project. Once the service buyer (the company) and service provider (the freelancer) reach a consensus on pricing, a note (either using the website messaging interface or through email) is generated on payment schedules, milestones, project deadline and desired accuracy levels, among other modalities. 
 
Once the term-sheet is agreed upon by both parties, the service buyer is required to transfer the quoted project cost to the escrow account held in the name of the website. The website then releases funds to the freelancer at project milestones or as and when the service buyer directs the website to do so.
 
Sometimes the service buyer may not be happy with the task done by the service provider. In such cases, the service buyer may freeze payments to the service provider or seek a cutback in the money to be paid. This is when the website’s dispute resolution mechanism kicks in.
 
“In an escrow model, the site turns mediator for making payments and dispute resolution. Payment is almost guaranteed as the site handles the project fund,” says Prashant Pandya, founder of virtual workplace, scuhio.com. “In case of dispute resolution, we review the initial work-note, the actual work done and other email exchanges between the service buyer and provider. Once we reach a decision, we release funds to the justified party.” 
 
Business, Payouts
Escrow-model websites charge 5–6 per cent as commission on bid (project) cost. International websites may charge 8–12 per cent as commission. Freelancers need to keep in mind commission payable to the website while bidding for a project. 
 
Freelancers using lead-based websites get an advance payment — about 20 per cent of the project cost — before starting the project. The remaining is paid upon completion of the project. The mode of payment is different for Indian and international freelancing websites. A bank account is good enough to receive your remuneration for work done for Indian firms. The service buyer will transfer funds at milestones or upon completion of the project. 
 


Payouts tend to get complicated in the case of international websites. The freelancer has to know about forex and currency conversion costs. Mostly, banks swap currencies at deep discounts (2–4 per cent lower) to market rate. Payouts usually happen through digital money transfer, PayPal or the Swift network (bank-to-bank wire transfer). 
 
Freelancers should do adequate research before signing up for assignments. They should check service buyer reviews and ratings before accepting projects. The terms of the contract must be explicit and in written format.
 
“Payments can be a problem if you accept jobs from unscrupulous service buyers. Be wary of African and East European jobs; many of them are fake,” warns Agarwal.
 
Membership fee, commission, leads fee (paid mostly by the service buyer) and onsite ads form the revenue streams for a freelancing website. 
 
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This business of matching skills and jobs online has low entry barriers. Once a skilled freelancer establishes himself, he can accept jobs from the service buyer directly without going through a platform.  
 
Anyone can start an online freelance marketplace with an initial investment of Rs 80 lakh-Rs 1.2 crore. Once the site is up and running, the entrepreneur incurs mostly server costs and advertising expenses. “Business is good… We’ve got a freelancer base of over 10,000 members since March this year,” says Pandya. “We’ve got a good line-up of job listings too; most of them are startups and SMEs. Over the next few years, large firms will also start outsourcing projects to freelancers.”
 
Skills And More
Freelancing is competitive; it’s difficult to get good assignments. At any time, there are more freelancers than the number of jobs posted. This is where rare skills stand out. “While low-skilled generalists are paid as low as $1 per hour, those with rare skills earn $50-$60 per hour,” says Mukul.
 
Freelancers with ‘new technology’ skills — mobile app development, database management, iOS-based mobile app development — are in demand, say site managers (see table).
 
“Being skilled is not good enough,” says Marut Bhardwaj of creativefreelancersindia.com. “They should be able to finish projects on time and market themselves well. An articulate graphic designer may earn up to Rs 40,000 for designing one simple brochure.” 
 


Likewise, for a simple content writing job, freelancers may charge about Rs 200-500 per web page (350 words). If the content is exclusive, the project would be priced on a ‘per-word’ basis — Re 1 to Rs 5 per word. A good quality two-page resume may be billed as high as Rs 5,000 while a statement of purpose or recommendation for admission to a foreign university comes at Rs 1,000 a page.
 
“Money is not a problem if you are skilled, but freelancing cannot promise you a regular income,” says Bhardwaj. “Some months you do well, others you don’t. If you are an established freelancer, you will get co-working assignments, where you will be part of a team finishing a project.”
 
Tax Matters
As per Indian tax laws, the term ‘business’ has been given a broad meaning so as to cover every facet of an occupation carried on by a person with a view to earning profits. The earnings of freelancers are taxable under the head ‘profits and gains of business and profession’. For resident freelancers, their worldwide income is taxable in India. Earnings of Indian freelancers from services rendered to foreign entities are subject to tax in India.
 
Tricks Of The Trade
Things to keep in mind if you want to be successful as a freelancer
  • All communication with job providers should be on email. Terms of contract should be explicitly stated
  • Decide milestones prior to starting the work. Method of output measurement
  • should be clearly stated
  • Consult the job provider in case of ambiguities. Do not go by your instincts. Show your work to the job provider at every stage
  • Try to network with your job provider. Stick to schedules and deadlines. Be ready to
  • accept suggestions. These qualities will help you get more projects
  • Service user reviews are important. Try to get in a good word. It always comes in handy on your next assignment
  • Beware! There are a lot of fake job providers on the prowl. Do not take up assignments which involve movement of money across borders. Check service buyer reviews before accepting tasks

“While computing the income on which tax is to be paid, the total of all incomes earned by a freelancer is taken into account. Income tax is not payable on total revenue earned, but on total income earned,” says Jiger Saiya, partner at MZSK & Associates Chartered Accountants.
 
“Even in cases where freelancing activities are undertaken part-time (along with a full-time job), the income from rendering freelancing services is taxable. Income-tax is computed as per income slabs. When a freelancer receives payments (exceeding Rs 30,000 in a year) from Indian entities, the payer will deduct tax at source at the rate of 10 per cent. Such TDS is then available as a credit against the tax liability of the individual. Any excess TDS over the income tax liability can be claimed as refund and any shortfall will have to be paid before filing of the relevant tax return,” he explains.
 
There is also a service tax element to taking up freelancing assignments. This is more so for those taking up consulting jobs for firms.
 
“Where the value of taxable services during the earlier year exceeds Rs 10 lakh, service tax liability will have to be paid at 12.3 per cent of the value of taxable services,” adds Saiya. “No service tax is payable where services are provided outside India.”
 
The Bottomline
Quitting a high-paying job to take up freelancing assignments may not be a good idea for most people. The better option would be to take it along with your regular job (provided your regular job allows you to freelance); such a strategy will help you augment your income. 
 
If you want to make a living off freelancing, you should be real-skilled, willing to work hard and a great believer in luck. 
 
(This story was published in BW | Businessworld Issue Dated 12-01-2015)


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