Upwork is one of the largest freelancer platforms on the internet. The website serves as a hub for connecting employers and freelancers from across the globe. The platform itself is great, and many entrepreneurs run multi-million dollar businesses using talent from UpWork.
I’ve personally been using the platform for years. I’ve hired over 200 freelancers and paid out over $300,000. UpWork is a crucial part of my business, but they’ve made two very frustrating moves in the past few years.
The first move was on May 3, 2016, the second was on June 17, 2019, and the third was on March 28, 2022.
The First Greedy Move: Additional Fees for Freelancers and Employers
On May 3, 2016, UpWork announced a major change to their pricing model.
This change had two parts:
A 2.75% Credit Card Processing Fee for Employers
UpWork started charging employers an additional 2.75% fee on all payments made to freelancers. If you paid a freelancer $1,000, you would be charged an additional $27.50 in processing fees.
This meant a 2.75% increase in my payroll fees for freelancers hired through UpWork.
While I understand that credit card fees can eat into UpWork’s profits, this move was frustrating for two reasons:
- The fee was on the high end of the spectrum – Credit card processing fees generally range from 1.5%-3%, generally averaging about 2%. I would be surprised if UpWork is actually paying 2.75% and, if they are, they should negotiate a better deal.
- It’s distasteful to pass processing fees to clients – Every company that accepts credit cards will pay a processing fee but very few pass this fee along to the customer. It’s a cost of doing business. I run multiple online businesses where I accept credit card payments and PayPal and I’ve never passed this fee along to a client.
I’ve been charged over $2,000 in processing fees since UpWork implemented this change (more since writing the initial post).
UpWork deserves to make money, but credit card fees are not their only source of income – which leads to the next point.
A Tiered Commission Schedule for Freelancers
Before May 3, 2016, UpWork charged a flat rate of 10% on payments made to freelancers. This fee was charged to the freelancer, meaning if an employer paid a freelancer $1,000, the freelancer would receive $900.
While this fee is a bit steep, it can be considered a “commission” since UpWork provides freelancers with a lot of work they would not have received without access to the platform.
As of May 3, 2016, UpWork changed its commission structure to the following:
- 20% for the first $500 billed with the client
- 10% for lifetime billings with the client between $500.01 and $10,000
- 5% for lifetime billings with the client that exceed $10,000
There are a few ways to look at this change.
- It is favorable for long-term contracts
- It is unfavorable for short-term contracts
Many UpWork freelancers are hired for small jobs, such as fixing a website, writing a few articles, or designing a few graphics.
I’ve hired over 200 freelancers on UpWork and the majority of them would NOT benefit from this new payment structure. While I have a few long-term hires that exceed the $10,000 payment threshold, the majority of my freelancers would fall under the 20% and 10% payment thresholds.
While I don’t pay for these costs directly, they still have an impact on my business. Freelancers are aware of this pricing structure and they are likely to adjust their prices accordingly. If they don’t, they are eating the costs and getting paid less for the same work.
So, here’s what these two changes look like when dealing with a $100 project.
The Old Way:
- Employer pays $100
- Upwork makes $10
- Freelancer makes $90
The New Way:
- Employer pays $102.75
- Upwork makes $22.75
- Freelancer makes $80
The net result is that:
- Employer fees increase by 2.75%
- UpWork commission increases by 228%
- Freelancer commission decreases by 11%
It’s pretty clear who the winner is.
But this was two years ago, why bring it up today? Well, UpWork announced another change.
The Second Greedy Move: Increased Fees + Monthly Subscriptions
On June 17, 2019, UpWork announced another change to its pricing structure.
Once again, this change has two main parts.
An Increased Credit Card Processing Fee
As of today, UpWork will now charge a 3% credit card processing fee (compared to the previous 2.75%).
This is frustrating for the reasons mentioned above.
A Subscription Model for Employers
UpWork has started to experiment with premium subscription plans. UpWork employers can pay for premium benefits such as a dedicated account manager.
UpWork has been rolling out this feature over the past year, likely in an effort to compete with services like TopTal and CreativesOnCall, who act as account managers for employers who don’t have time to scout their own talent.
I see nothing wrong with adding this paid feature to UpWork. It adds value to certain employers who need these features.
The frustrating part is that UpWork moved some of its basic features into paid plans. “Basic” UpWork employers now have limited access to premium talent, limited search filters, and limited job invitations.
If you’re not willing to pay $49.99/month, you will miss out on a lot of UpWork’s key features.
For example, I check the “Weekly Report” regularly. It’s how I track expenses and get a quick snapshot of how much I’m spending each week. It’s nothing fancy – just a report of how many hours each freelancer logs and a summary of fixed payments. I went to access the report today and saw the following message:
UpWork wants me to spend $49.99/month to see how much money I’m spending through their platform.
The question is, “Why?”
Why Did UpWork Make This Change?
My first thought after receiving today’s update is, “why?”
Why would UpWork want to limit the ability of employers who will ultimately be the ones generating revenue for the company? Remember, UpWork takes 3% processing fees and 5-20% commissions on all payments through the platform. Why would they want to do anything that could potentially limit the amount of revenue generated on the platform?
While I can’t speak to the exact thought process behind UpWork’s decisions, the only answer I could come up with is greed.
It seems UpWork wants to pressure long-time employers into upgrading their accounts. UpWork went public at the end of 2018 and is under pressure to meet the market’s expectations.
It would seem that UpWork is trying to squeeze every penny out of the employers who use the platform. I noticed something similar with Fiverr, as the company increased processing fees leading into their IPO.
I’m all for profit maximization, but I don’t condone price-gouging customers. UpWork continues to increase employers’ expenses whilst simultaneously eating into freelancers’ incomes.
For now, the company is in a position of power, as many freelancers make a full-time income from the platform, and many employers build their teams using UpWork.
The company is taking advantage and it is bad business. Simple as that.
March 2022: The Shenanigans Continue
I originally wrote this post in 2019 as a response to UpWork’s pricing changes between 2016-2019. I have since coughed up the $49.99/month payment, mostly so I could pay via ACH and avoid transaction fees when paying my contractors.
It is 2022 and UpWork is at it again…
On March 28, 2022, UpWork announced yet another pricing change. You can find the email announcement below:
There are three key changes worth noting:
- The Monthly Subscription Fee is Going Away
- The Base Payment Fee (for credit card payments) is increasing from 3% to 5% (2% increase)
- The ACH payment fee is increasing from 0% to 3% (3% increase)
The first change is an “undoing” of the 2019 change I wrote about. UpWork subscriptions are going to be eliminated and replaced with higher transaction fees for employers.
UpWork claims this change is intended to create an “exceptional experience for customers,” even though it does the exact opposite. They also attribute the change to some of the new features they’ve launched in the past few years (none of which I actually use).
In reality, this is a greedy (and lazy) way to extract more revenue out of the company’s most active employers.
If you use UpWork for the occasional ad hoc project, this change is merely a nuisance. The 2-3% increase in fees is not likely to impact your business.
If you use UpWork to build a team of international contractors, this pricing change may have a very real impact on your business.
If your monthly payroll on UpWork is $10,000, you just incurred an additional $200-$300 monthly expense with no additional benefits ($2,400-$3,600/year). If your monthly payroll is $100,000, you just incurred an additional $2000-$3000 monthly expense ($24,000-$36,000/year).
In case the problem this change creates isn’t glaringly obvious, let’s break it down further.
UpWork is NOT a product or services marketplace. It is an employment service. UpWork connects contractors/employees who are looking for work with employers who are looking for talent. This isn’t a B2C business where unwarranted fees are begrudgingly accepted (shoutout Ticketmaster). This isn’t even Fiverr where your jaw drops from a ridiculous transaction fee that you reluctantly accept for a one-off project. This is a people business where pricing changes directly impact incomes (not just corporate “bottom lines”).
UpWork now charges 5-20% to the employee/contractor AND 3-5% to the employer. Could you imagine if a competing employment service utilized similar fee structures? Would employees use Indeed or Monster to find jobs if they knew they had to sacrifice 5-20% of their lifetime wages? Would employers use these marketplaces to scout talent if they knew they’d owe 3-5% in perpetuity on the salaries they provided?
The numbers are ugly. Here’s the breakdown for hiring a full-time employee at a $60,000/year salary.
- Employer Fee: $1,800-$3,000/year ($2,400 average)
- Contractor Fee: $3,575 for the first year and $3,000/year in perpetuity
Using the average employer fee and the second-year contractor fee, this is how it breaks down:
- Employer pays $62,400
- Contractor receives $57,000
- UpWork collects $5,400
See anything wrong with that equation?
First off, UpWork receives $5,400/year for simply connecting contractors and employers. This fee is paid for the lifetime of the contract. Compare this to Monster or Indeed, both of which offer free job listing and premium options as low as $5/day (that only apply during the hiring process).
Second, there is now a $5,400 differential between what the employer is paying and what the contractor is receiving. This is problematic, as the employer and contractor are assessing the “value” of the employment agreement from different perspectives. The employer feels like they are paying $62,400 and the contractor feels like they are receiving $57,000. This gap can lead to issues with talent recruitment (i.e. finding the right talent for the price) and job satisfaction.
Once again, UpWork has proven to be an untrustworthy company that should not be depended on by small business owners looking to grow a remote team.