Case Study: How We Saved Money on Payroll for Our Distributed Team

Case Study: How We Saved Money on Payroll for Our Distributed Team

Running a business without spending money is impossible. Regardless of company size or the industry they are in, business owners all share a common thought: “How can I save my company money?”

As a business owner, knowing how to reduce costs is essential. You need to have a complete understanding of your business — from finances to your team capabilities — so that you can make the right adjustments to save money.

In this post, we’ll show you:

Where to start in reducing costs? Working remotely

If you’re leading an office-based team, you’re already spending a good amount of money on overhead costs alone. On top of that, you’re likely paying your team members a fixed amount monthly, regardless of whether they did a lot of work or none.

As for your team, they’re spending money as well: on the commute, parking, or on fuel. Not to mention that traveling to work can waste a lot of time and energy.

One of our secrets to minimizing the costs of running Hubstaff is working remotely. The cost savings of flexible work arrangements are considerably high, and it comes with several benefits.

Working remotely means you don’t have to pay anything because you don’t have a physical office. You only have to pay for what your team has accomplished. The salary costs of remote employees are generally lower than office employees as well, as professionals are willing to take a pay cut for complete working freedom.

It greatly benefits your team as well: they can work anywhere they want, whenever they feel most productive, and they can focus their energy on getting work done.

A real-life example: How we utilized remote workforce to improve our cost effectiveness

At Hubstaff, we have a team of nearly 50 remote workers spread all over the world. Unnecessary fees can accumulate and form major expenses, which would be much better sent on growing your business.

We save money on payroll by using PayPal Payouts to send payments to our team. In fact, we can save even more money if we sent payments monthly rather than weekly. To top it off, all of our payroll processes are fully automated so no time is wasted on admin work.

PayPal Payouts isn’t the simplest solution, but it’s convenient and affordable. It’s a great platform for growing startups that need to make use of cost-efficient solutions.

Here’s why it’s the best way to pay contractors:

We pay our virtual team for less than $200 monthly. And we could reduce it to less than $60 if we paid once a month instead of once a week. To top it off, all of our payroll processes are fully automated so we don’t waste any time with low-level admin work.

Masspay isn’t the simplest solution, but it’s not too hard, either. The convenience and affordable pricing won over our bootstrapped startup. As the screenshot below shows, we’re growing rapidly, but we’re still small enough that we need to find and use the most efficient and affordable solutions.

Our payment philosophy

We have a few principles that we follow when hiring and arranging payments:

  • Pay by the hour
  • Avoid retainers
  • Pay weekly

Why we pay by the hour

  • Almost all of our contractors are on hourly contracts and I believe that the days of fixed cost relationships are slowly coming to an end (more on why we hate retainers in a bit).

The main reason we pay by the hour is because we don’t want to pay for time that contractors aren’t working on our projects. This is the least stressful and most fair arrangement for both parties that we have found.

We build relationships with our contractors so they can work when (and where) they want to work. We pay them for their valuable time when they work for us. This provides them a lot of freedom.

That being said, when we find an outstanding team member, we have a conversation with them. We tell them that we’d love for them to transition 100% of their time to Hubstaff work. Generally, we do this by simply scaling up their work.

We rarely hire someone full-time upfront.

When paying contractors, time is money

We have a slightly different thought process for our developers. We try to get them to work on our projects full-time in order to capture 100% of their mental activity. This is because in development, it’s difficult to switch gears from project to project.

If we have a team member that we want to limit to a certain number of hours per week, we use the budgets feature in Hubstaff.

Sometimes we do this because we only have a certain amount of money that we want to allocate. Other times, it’s because we don’t want that person spending hours on tasks that aren’t important to our business at the current time.

Since we pay most of our people by the hour and only pay for the amount of time that is worked, Hubstaff automatically performs all the computations for us.

Streamline payroll with Hubstaff

Automated team payments on multiple platforms

We set up the hours limits for the week, the set pay rate for that person, and they track time while working. Once the pay period ends, we can review and approve timesheets, and send payments automatically. This is ideal for both the company and the team, as payments are fast and consistent.

Some contractors like to work on retainer. That’s fine with us, but we still ask for an hourly rate that corresponds with time tracked in Hubstaff.

For example, if a contractor asks for $2,000 a month and we agree on an hourly rate of $20/hour, we would like to see approximately 100 hours tracked in Hubstaff every month.

When we have a setup like this, we set payment frequency for once a month at a fixed rate of $2,000. In this scenario, we could use PayPal Payouts to transfer money and avoid fees (which we’ll get to in just a moment).

We avoid contracts wherein a contractor asks for a specific retainer with no accountability. We’ve seen freelancers try to work for several different clients at once and effectively double their hourly rate because they work for two clients at the same time and collect a retainer.

Retainers can be great for the party collecting the money, but not so much for the sender.

We have lost a considerable amount of money because we paid retainers, only to never hear back from the contractors. This is why we generally avoid retainers as much as possible.

Another downside to retainers is that you constantly have to feed work to the contractor. It feels like you have to work extra hard before or after a vacation because once you leave, your contractor on retainer is going to continue to get paid even if there’s no work to be done.

Why we pay weekly

We pay weekly because it’s what our contractors prefer. We’d rather pay them for their services now instead of through biweekly or monthly payments.

Our work week runs from Monday at 12:00 a.m. to Sunday at 11:59 p.m. Once the week ends, Hubstaff automatically calculates contractor payroll and sends the funds. For those interested, the Hubstaff app also offers timesheet approvals as an added layer of security before payments are issued. For us, contractors are paid on Monday evenings.

How Skyrocket saved 30% on contractor fees

James Agate | Hubstaff time tracking case studyJames Agate is the founder and CEO of Skyrocket, an SEO agency with offices in the US and UK. James was kind enough to share his experience implementing Hubstaff in his business, resulting in savings of up to 30% in contractor payroll as well as greater insight into their profitability. If you are frustrated with not knowing exactly how much time each project takes or with how expensive it is to pay your contractors, then this is a must read.

About Skyrocket

Skyrocket logo | Hubstaff time tracking case study

James first learned about SEO while working on personal projects, but as he started getting serious results, people continuously approached him for help. He started off freelancing, but as the demand grew he established his agency, Skyrocket, in 2010. Skyrocket originally offered traditional SEO consulting, but transitioned their focus to link building in 2011.

Skyrocket focuses their SEO strategy around creative content production, smart content promotion, and targeted link building. They while-label their services to other agencies and also work with entrepreneurs and founders of digital businesses to help them grow their search traffic and build their business.

Today the Skyrocket team is composed of 120 staff and contractors spread across 10 countries, with headquarters in the UK and a client support branch in the US. Getting to this point wasn’t easy, and it presented an entirely new set of problems James and his team had to tackle.

Increasing costs

James had a large team based on Upwork, but he became increasingly frustrated with the platform as his team grew. His team often found it to be buggy and unreliable. James also found that since Upwork charged a percentage for simply using the platform, the cost continued to increase as his team grew; and this fee was becoming significant to Skyrocket’s bottom line.

“Here we were spending thousands a month on the platform and yet we couldn’t get proper support from anyone at Upwork. It felt like it was me on one side and the contractor and Upwork on the other because their interests were aligned, but not mine, so juicing up the time tracked made sense for both of them. When you multiply that across dozens of team members, the extra X minutes here or there really adds up,” said James.

Beyond the support and the cost of the service, another key area of frustration for James was the lack of clarity they were given. Every week they would simply get a big bill, but it wasn’t broken down into detail so they weren’t able to determine which projects were most profitable for them, or were a waste of time.

Skyrocket saves 30% in contractor costs by using @Hubstaff instead of Upwork Click To Tweet

Thousands of dollars in savings each month

Right away, the switch to Hubstaff saved Skyrocket thousands of dollars every month. Instead of paying a set percentage of every project, they now were paying a low, flat fee. In addition to the cost savings, Hubstaff’s activity tracking saves them money by no longer having to pay for idle time which translated into massive savings. Overall, James estimates that Skyrocket is saving up to 30% on contractor payroll when compared to Upwork.

Use Hubstaff to manage your contractors

Time tracking and payments, free for 14 days

The accurate data from Hubstaff led James to realize that the average cost across clients isn’t enough to fully understand the profitability of individual services. Even if the cost of delivering a service should be the same, in reality the costs can vary massively.

With Hubstaff, James was able to easily calculate what their costs have been at a project and client level, allowing them to quickly identify which projects — and clients — weren’t bringing in money. Focusing their efforts exclusively on profitable clients and projects has been a crucial step for moving Skyrocket forward.

James also added, “To top it all off, Hubstaff’s support has been great. Whenever we have problems we can speak to someone (and continue to speak to the same person) to get things sorted. Hubstaff understands that this is a business we are talking about so it is critical that things are sorted ASAP. Something that companies like Upwork fail to understand.”

How Skyrocket uses Hubstaff

Moving a large team to any new system is a daunting task, and it inevitably leads to questions, frustrations, and frankly some hassle. Surprisingly, there was only one day of getting the team up to speed on Hubstaff and it has been smooth sailing since then.

Hubstaff helps minimize the overhead associated with managing a remote team by making it quick and easy to access all of the data you need. Here is the 3-step process Skyrocket follows to incorporate Hubstaff into their business:

Skyrocket Hubstaff workflow | How an SEO agency saves up to 30% in contractor fees by using Hubstaff

In his own words

“Hubstaff offers great support and it feels like a partner for my virtual team management, not a company there to suck me dry. I started building a virtual team because I felt it was more productive and efficient all around, but Upwork and the other platforms were starting to take me on the wrong path. Hubstaff has corrected this! I recommend Hubstaff to anybody else building a virtual team on a platform that charges you a percentage based fee.”

How we use Hubstaff to pay our team

Hubstaff is a productivity solution designed to help businesses easily record work hours and save money It’s also what we use to pay our contractors. Why? It’s cheap, automatic, accurate, and we invested a lot to build it well. There are two ways to pay your team in Hubstaff.

Method 1: Sending manual team payments

The manual payment option allows you to go into Hubstaff, mark team members as “paid,” and then process the payment in your chosen platform. All you have to do is set the rate for a contractor, the date range you’re paying for and hit “Send payment” on the bottom right of the screen.

Hubstaff sending payments

After you mark these users as paid for that date range, you’ll have to process the payment with your chosen payment solution. This can be done through the regular PayPal web payments option above, MassPay, or any other system that you want to use.

Once you process the payment and mark your team as paid, you can export the payment for Paypal Payouts, Payoneer, Excel, Quickbooks, or Transferwise.

Hubstaff will also keep reports for your records, so you can come back to view the payment, payment dates, who made the payment, and the amounts.

The manual payment option is the most flexible option that Hubstaff provides. Here are its main features:

  • You can choose from several payment platforms, like PayPal and Transferwise.
  • If you have a pay rate set for the user, Hubstaff keeps track of the amount you owe them, as well as how much you’ve paid them.
  • If you’re using the regular PayPal web payments option, PayPal will send the payment to your contractor. Maintaining a balance in PayPal isn’t required. It will draw from your credit card or bank account.

Method 2: Automatic payroll

For automatic payments, Hubstaff supports four platforms: PayPal, Bitwage, Payoneer, and TransferWise.

With Hubstaff’s automatic payroll option, payments will be processed without any work required on your part. All you need to do is connect Hubstaff to your payment account, Then set up each contractor with their own specific payment settings.

The options you can set are:

  • Payment method: automatic or manual
  • Pay period: Weekly, twice per month, bi-weekly, or monthly
  • Rate type: hourly or fixed
  • Pay rate: open to whatever hourly rate you agree on

Once this is set up, Hubstaff will process the payments automatically on the schedule that you have set for each contractor. You can access a record of your payments in Hubstaff, just like with the manual method. You can also turn on timesheet approvals if you choose.

What about taxes?

Since all of our people are hourly contractors with other clients, we send them 1099s. I run a simple report in Hubstaff or Xero that shows me how much money I paid them for the year. I only do this once a year and it doesn’t take more than 30 minutes of work to run all the reports and process my team’s 1099s.

One of our secrets is that we use a service called Greatland, which will send your contractors a physical copy of their 1099, store a digital record for you, and file a copy for only $5.95 per contractor. All you need to do is have a system that keeps track of how much you paid each contractor for the year, plug that number into Greatland and hit submit.

This convenience is great for us and the service is important to our business because it’s important to stay on top of your taxes, even if you’re a remote worker. There’s no accountant needed for this process, but an accountant can also do this for you pretty cheap (usually around $100 per contractor).

Since we’re based in the United States, we only have to send 1099s to U.S.-based contractors. We don’t file anything for the majority of our international team.

Mobile phone with mobile wallet

Using Hubstaff to save money on payroll

Now that you’ve seen how much time, money, and effort we save by automating our payments, you’re probably wondering how you can do it yourself. Paying your team is the final step in the remote work process. To streamline your business process, it would be best if you used the same platform for paying contractors as you use for managing them.

If you want to organize your entire workforce using a single dashboard and service, Hubstaff is an optimal choice. It’s a remote staff management app with time tracking, reports, timesheets, invoicing, proof of work, and payroll. Hubstaff helps business owners pay contractors online, automatically and on time, every time. You’ll have complete control and detailed insights into the entire work process — regardless of the team size — allowing you to see exactly what you’re paying for.

Hubstaff’s desktop app provides thorough and effective time tracking by taking periodic screenshots and recording activity levels  You can easily track how much work your team has accomplished without needing to ask them.

While time is being tracked, the app automatically generates detailed timesheets and comprehensive reports filtered by project, worker, or date. You can view paid and unpaid time and pay your employees based on selected date ranges.

For your convenience, Hubstaff can also manage your payroll through the automatic payroll feature. All you need to do is set up your team, select your payment preferences, and relax. With Hubstaff, you pay for exactly what your contractors have worked.

To access Hubstaff’s payroll feature, select “Payments” in the main menu, followed by “Payroll”, to set a new payment account via your preferred method of payment.

  • If you use PayPal to compensate your remote workers, just enable payments for them. Hubstaff’s automatic payroll through PayPal currently requires PayPal Payouts ($1 fee/worker).
  • If you choose Payoneer as your method of payment, your workers will have to add their payment accounts.

Once you complete this step, you are all set to make payments.

View a step-by-step guide to setting up automatic payments on Hubstaff and learn how to pay a contractor the simple way.

How to export payment data for employee payments

After marking a team member as “paid”, Hubstaff will prompt you if you want to export the payment data. You can export to a CSV file, or to payment systems like PayPal and Transferwise. It will lead you to this screen:

Hubstaff exporting payment data

If you want to export payment data for a payment you have already made, click “Past” under “Payments” option in the main menu. Under the “Actions” drop-down, select “Export/Pay”. It will lead you to the same screen above.

Managing contractor time with add, edit, and delete options

Hubstaff allows you add to or modify the time worked by your contractors. This is useful if you feel like someone in your team is stealing time, or has actually worked but forgot to track time.

To do this, you simply have to click on “Timesheets” in the main menu, then you’ll see the new options on the right hand menu.

Hubstaff add edit delete time

Adding time is as easy as inputting the time you have started working, and until when. Editing and deleting time entries can be done under the “Actions” drop-down. You can edit the start and end times, or directly modify the duration of your work.

How do you handle your team’s payroll?

Here at Hubstaff, one of our priorities is to make sure that no money is wasted, and sent to where they should be: to our team members who have earned it. Hubstaff’s payroll feature, combined with our remote culture, guarantees this.

How about you? Do you have any tips or approaches to reducing the payroll cost in your team? Let us know in the comments below.

Walkthrough video

Want to see how it’s all done? Check out the video below:

This post was originally published May 26, 2017, and updated May 2019. 

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