Upwork

Fixed-price vs Hourly payment on Upwork

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Upwork provides two payment option for a job: hourly when freelancer track time via Upwork Desktop App and client pays him weekly, and fixed-price when a job is divided into milestones and client pays partially or for a whole project. Anyway, Upwork gives money protection for both types.

Many of my friends like to work hourly. This option is simpler, more stable and less risky. If you spend more time than originally planned, there will be fewer problems. If client wants to change something in the project requirements, what was not in the original job, you just track more hours and get payments for them.

When working on fixed-price project, payment depends not on the number of hours spent, but on freelancer efficiency. I like this variant because I can complicated job quickly and earn more.

I suggest you to try both options, each of them has own pros and cons. In the end, you choose the most comfortable option for you depending on your specialization, goals, and style of work.

Fixed-price

On a fixed-price project on Upwork client pays freelancer partially by milestones. Platform reserves (freezes) client’s money for each stage and transfers it to freelance once client confirms a positive result of freelancer’s work on each stage. If work is not finished correctly, Upwork may return money to the client.

Milestones system

A job is divided into milestones at fixed price projects. Any fixed-price work has at least one milestone. Client creates budget and deadline for each stage, as well as task descriptions for a freelancer, which should be done during this milestone. As soon as the client creates a new milestone and specifies the budget, Upwork tries to freeze the required amount of money from clients bank account. This is a guarantee that the client will pay money for freelancer’s work.

Upwork milestones

If freelancer and client have dispute Upwork operates as a judge. If support service decides that freelancer has done his job correctly, then frozen money will go to the freelancer. Do not expect that getting your money will be easy. In most cases, Upwork support service will be on the client side,  especially in cases when it is not clear who is right.

Therefore it is better to secure yourself in advance. I suggest to discuss deadline and budget and all possible problems before the start of the project or next milestone. Then it will be easier for Upwork support to understand the situation and see who is right. But not always Upwork can freeze money (for example when a client bank account is empty), so it is necessary to check the description of the milestone. If you find the words “XXX $ funded” in it then money is frozen.

Also, I want to warn you, even if you get money after a dispute, the client still has the option to give you feedback (it is likely to be negative after a dispute). So it is very desirable to solve all conflict situations peacefully without a ticket to support. The client starts checking your work once you have sent results via Upwork special form. Client can ask for changes or confirm successful completion of the stage and transfer money to your account. But money will not appear in your account instantly, it will be in the pending mode for one week. This is additional security to give client time to reject payment if something is wrong with work results.

Only one milestone can be active at a time, so money will only be frozen for one stage (client can immediately freeze money for all the stages, but it does not mean anything to a freelancer, as at the same time freelancer can only work on one stage). If the client has not confirmed the fulfillment of the last stage and asks to start work on the new one, then freelancer has no guarantee that client will pay for this work.

Why do I prefer fixed-price?

I like when a client pays for the results and benefit that I give to his business, not for how much time I spent on it. If I can complete a task in 1 hour which other freelancers can do for 3-4 hours, I would like to get paid for 3 hours of work of an average freelancer. And maybe even more, because fast work speed is very important and costs more.

But the problem is that a small amount of clients understand it and won’t pay high hourly rates. A lot of clients on Upwork will not pay more than $30 per hour and sometimes more than $50 per hour.

Besides, there is a lot of things that depend on your niche. The same time the rate of $20-$30 is not very big to many clients from the USA or Europe. When I propose a budget for a fixed-price project, I estimate this project based on the number of hours I will spend. For example, my hourly rate in profile is $30 per hour, and I estimate that it will take me 10 hours to fulfill the task, so the budget is $300.

So, to estimate budget I need to estimate time in hours. I didn’t simply make rough estimation and add 10%-20% (for unpredictable problems). I prefer to research market and understand how much money and time freelancers spent on a similar job and base estimation on these numbers. In most cases, I even overestimate time and budget that I need for a job because other freelancers spend more time for similar tasks.

The biggest plus of this strategy is that in the end, everyone is satisfied. A client gets a good result and pays real job cost. I can make the task in the most effective way and earn more money in less time. It is necessary to go on tricks so a client will not think he overpays you. But there is a problem in this approach. There is a very big risk of incorrectly estimating terms. In such cases, I work more than I say to the client to save my reputation.

By using this strategy I receive $40-$50 per hour for a job from Android development category. It is possible only when a client pays fixed-price. I have no idea how to regularly sell Android development skills on Upwork more than for $30 per hour on an hourly basis.

What are the problems with fixed-price projects?

The biggest challenge is to properly estimate budget and timing. In most cases, clients expect estimation from a freelancer. If you are making the wrong estimation for a budget, you earn less money and that’s it. Wrong time estimation can lead to loss of reputation and nerves.

Almost all clients are good people and will discuss new budget or term if you are mistaken. But if this is repeated constantly or your mistake makes significant harm to the client’s business, then it will be difficult to avoid a bad review.

The next big problem is clients who try to change the original job requirements, add new functionality etc and do not want to add time and budget for new tasks.

Milestone Due date

Missing due date will not have a direct impact on your reputation. At the moment there are no Upwork algorithms that consider this property. It is just a reminder for client and freelancer about agreement. But client will not like missing deadline and most likely he will leave bad feedback.

Can client pay more than the original budget?

Yes, milestone budgets may exceed the original budget. Moreover, almost all my fixed-price projects exceeded the budget, as during the work process client added new tasks and created new milestones for them.

Money Pending Mode

There is a security pending mode during a week after client confirmed the end of the milestone. For example, the stage confirmed on January 1, then you will get money on January 8. During this time you’ll see it in a separate pending column in your account and money will not be counted as your funds, so freelancer can’t withdraw it.

How to protect from fraud?

It is very important to discuss with the client what you should do as much as possible before project start. Especially describe exceptional situations and violation penalties.

Usually, I make two deadlines for the current task:

  • An optimal time to complete the project normally;
  • The maximum time to complete the project with a lot of problems.

Usually, they differ by 20%-30%  and I always explain to clients possible problems examples. In 90% of cases, I am able to do the work on optimal time estimation and I target clients to it.

If you are mistaken in time estimation, you are probably mistaken in a budget. Since this is a freelancer error, I usually don’t ask clients to increase the budget. It is more important to show yourself as a professional for a client and make a long-term partnership. If a client thinks you are professional who make everything within a deadline, he will be willing to hire you again and even pay more in the future (of course you should ask for more money).

Hourly

Upwork recommends freelancers to use hourly payments due to good protection for this payment method. Freelancers track work hours via Upwork Desktop App. Each Monday Upwork freezes money for the next week from a client’s bank account, then freelancer does work and tracks time and finally, client checks work diary at the end of the week and releases money to freelancer.

Upwork hourly payment

How does the hourly payment work?

When you work hourly clients pay you a pre-agreed amount of payment per hour. Freelancer tracks working hours through a special application Upwork Desktop App and receives money weekly on Wednesday.  But it is worth remembering that this is not payment for the last week. Client have to check freelancer’s work diary until Friday after the end of the working week. Client can start a dispute in case of disagreement. Then comes the “security” period until next week’s Wednesday, after which money is transferred to freelancer’s account.

For example, freelancer worked 10 hours for a week from 01 January (Monday) to 07 January (Sunday). Client has time to check freelancer’s work diary from 08 January to 10 January (Wednesday) and if everything is ok freelancer receive money on January 17th.

Can I manually add hours to my work diary?

Freelancers can manually add working time but it is possible only if client has allowed it in the project settings.

Can I track my offline work?

Upwork Desktop App can be used offline but for a short period of time. The application caches information about tracked time (up to 30 work minutes) and sends it to the server after connecting to the server. Such offline time-tracking has no differences from online in the online development diary on Upwork.

Is it possible to exceed the limit of hours per week?

Hourly projects have hours limit. Many people take a limit on the minimum number of hours needed to be worked out per week and it is wrong. A freelancer cannot work more time per week than client has allowed. Upwork Desktop App will simply not let you track new hours if the limit is exceeded.

Client can increase this limit at any time. If you received a message about reaching the limit and the task has not yet been done, just write to the client about it and discuss problem.

Can I track time which I spent for study?

It all depends on the arrangements with the client. Most often I do not track the time for training, so it is easier to show myself as a professional for the client and request a large hourly rate. But most of my clients were willing to pay for the time spent on training (within reasonable limits). I personally tracked this time only when it was necessary to study the technology that the client did not mention in advance at the start of the project. In any case, it is very important to discuss this point in advance.

Can the client pay bonuses in addition to the tracked hours?

Yes, as with fixed-pay projects, client can pay an additional bonus to a freelancer.

Hourly payment problems

The main problems on hourly projects are the same as for fixed-price projects. The main reason for problems is the not detailed agreement before the start of the project. One of the advantages of hourly payment is that you do not need to limit the budget and development time in advance. Client can easily change requirements and it is not necessary to approve the new budget and terms. But this advantage can also be the main source of problems. Working on hourly projects, I prefer to warn the client in advance about possible problems and estimate the amount of time/money for the whole project in any case.

Also, for me a big problem is Upwork Desktop App tracking rules. Freelancers should stop tracking for each period not related to work, like making a tea. Otherwise, the client will see a lot of incomplete segments (10 minutes) in your work diary so he may have questions. Therefore it is necessary to remove some parts of time and not to receive money for them to appear professional who does not waste client’s money. It is necessary to work in a rhythm which the Upwork Desktop App dictates. I’m not comfortable with this. On the other hand, for many people, it can be a plus because of help with discipline.

Number of hours in profile

It used to be important to have more than 100 hours spent on Upwork, as very often clients set a limit by the number of hours. There is no such restriction now, but the number of hours is still displayed in a separate graph in the profile and attracts clients’ attention. Thus, hourly projects give a little more effect to your reputation than fixed pay.

How to protect earnings on hourly projects?

Upwork guarantees payment for all hours that are tracked by Upwork Desktop App on hourly projects. Even if a client gives you new tasks, you simply turn on the tracker and get the money for the work. But the difficulty is to maintain a good relationship with the client. If you spend a lot of time on the job, and the client is not satisfied with results, then he is likely to quickly finish contract with you and write a bad review. So on hourly projects It is very important to monitor client’s reaction to current progress.

Payment protection

Upwork guarantee payment protection for freelancer and client if they follow Upwork guidelines: use milestones for fixed-price projects or track working time via Upwork Desktop App for hourly projects. Platform freezes money before the start of each stage and transfers money to a freelancer or returns to a client if something goes wrong.

Freelancer protection

Fixed-Price

There is a milestone system on fixed-price projects that force client to divide the entire project into milestones (at least one) and specify a separate budget for each one. Before freelancer starts working on a task, client must activate milestone and freeze (fund) money for the current task. Thus Upwork takes money from client bank account in advance. But if freelancer does not perform the task client can make a dispute and Upwork may return funds to the client. To avoid a situation when a client returns his money through a dispute, it is necessary to create a very detailed specification before starting a project.

Hourly

On hourly projects, Upwork guarantees payment of work tracked by freelancer via Upwork Desktop App, but the number of hours should not exceed presented in the project (usually 30 hours per week). Freelancer will simply not be able to exceed the limit because time tracking program refuses to start track more time when this limit is reached.

Guarantee of payment works only when freelancer does not violate the agreement with client. If freelancer will watch movies instead of work and work diary screenshots will show this, then Upwork will not provide guaranteed payment.

Client protection

Some freelancers on Upwork are surprised if client sent money, but it does not appear in the total available funds at once. It only displayed in financial statistics with pending status (security period) during the week.

Money on Upwork can have the next statuses:

  • Work in Progress – how much you will get for hours already tracked during the current week;
  • In Review – appears when a freelancer has sent milestone for review or ended hourly work week;
  • Pending – client has confirmed milestone or hourly work diary and money is in security week period now;
  • Available – freelancer can withdraw this amount from Upwork.

Automatic Payment Schedule

There are also many questions regarding the forced automatic withdrawal of funds from Upwork. All earned money on Upwork does not automatically transfer into your bank account or Payoneer account. It accumulates on a special account inside Upwork and automatically withdraws on a certain schedule (once a quarter, once a month, twice a month, once a week). Freelancer also can decide to force money withdrawal at any time.

You can specify in settings whether any amount of money should be automatically withdrawn on the specified schedule (minimum is $100, maximum is $1000). When the next payment time comes (the longest period is quarterly), money will be withdrawn automatically only if the balance exceeds the previously selected limit.  Amounts less than the chosen limit (from $100 to $1000) can be stored for as long as you want.

If it is time to pay and the amount exceeds the limit you set but withdrawal method is not selected, then your money will not disappear, but your account can be suspended until you withdraw money from your account.

In addition to the withdrawal of funds on schedule, freelancer has the ability to withdraw any necessary amount of money at any time. The minimum amount for withdrawal does not exist but it must exceed the Upwork fee for withdrawal (usually around $1, but can be up to $30). There is no maximum amount for a single withdrawal.

Mobile developer from Ukraine. Work on Upwork from 2013. Share experience about freelance from 2014 (jff.name blog in Russian). Wrote book about remote work "How to freelance on Upwork" and free eBook "Upwork Tips & Tricks"

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