Around 80 percent of companies in Germany regularly work with external employees. The use of freelancers, consultants, service providers or temporary workers will increase significantly in the coming years. Many companies are already reacting today and are actively looking for technological solutions to effectively manage their external staff.

Managing external employees with Excel spreadsheets can work well for 10 or 20 contacts. However, once 100 or even 1,000 freelancers have to be managed, classic tables have become obsolete. Companies then have to ask themselves the question: Should we develop our own IT solution for managing our freelancers in-house or should we buy an existing freelance management system from an external provider?

Before deciding to develop your own administrative system, the following questions should be answered:

  • Would I have a competitive advantage if I had my own solution?
  • Do I have the technological know-how to build an efficient management system?
  • Can I realize this IT project quickly enough?

If the answer to all of these questions is “yes,” developing your own system can be the way forward.

However, most companies probably answer them with “no” and decide to buy an existing freelance management system instead. There are already suppliers on the market who sufficiently cover the requirements of most companies with their products. The decision against an independent and perhaps tedious development of a separate solution is therefore quite understandable.

Short Definition: Freelance Management System (FMS)

An FMS helps companies manage their external workforce by optimizing all processes, from recruiting to project management and payment.

FMS help companies find the right external partners for a job, commission them, work with them on projects, track the project’s progress and to receive, approve and pay invoices. In addition, an FMS stores all the necessary information needed to work with external partners in one place, thereby ensuring efficiency and transparency.

If companies do not have structured processes to manage external resources, administrative problems and productivity losses are unavoidable beyond a certain size. Whether developing your own or buying an existing solution; an FMS brings order to chaos.

Developing your own Freelance Management System

There are three ways for companies to develop their own FMS:

  • First, a system can be developed from scratch. At best, this will result in a tailor-made and perfect solution that may take months of development, requires coordination with many participants and consumes a lot of resources.

  • Second, a solution can be developed using multiple already existing systems. This will create a technological base to then integrate applications such as Excel, email services, communications solutions and payment services. This way, a lot of development work can safely be skipped. However, a solution constructed from many applications of different suppliers does not guarantee a smooth use of the system in everyday working life.

  • Third, companies can use modified versions of other systems. This might be adjustments to systems such as Salesforce, Asana or Zendesk. The third option is not recommended, as you can hardly develop a powerful FMS that meets all the requirements for the efficient management of external employees this way.

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The risks of developing your own FMS

Why companies decide to build their own FMS can have different reasons. It is often assumed that only a newly developed solution can adequately serve the company-specific requirements. Or that piecing together or modifying existing systems is much easier and less expensive. Sometimes, the knowledge is simply lacking that there already are freelance management systems that actually fulfill exactly the same functions that a company is looking for.

In most cases, developing their own FMS is not beneficial for companies. Efficient FMS are complex systems that cannot be developed quickly and easily. The costs can rise quickly and the giant project can tie up IT resources that could be put to better use elsewhere. However, when an FMS really is developed in-house and implemented quickly, there is often a lack of scaling, compliance or integrations of new applications that will be needed later.

As a rule, buying a professional FMS is therefore an advantage. Not least because, when developing their solutions, the providers have focused on precisely the problems companies want to solve.

Before buying – choosing the right FMS

A powerful FMS should fulfill five core functions:

  • Easy, fast, flexible and legally watertight onboarding of external employees
  • Central management of all information about external partners
  • Easy contracting and monitoring of the project’s progress and budget
  • Easy approval and payment of bills
  • Possibility to integrate with other systems

Is the FMS scalable?

In addition, a purchased FMS should be easily configurable and be able to be put into operation quickly. It should relieve IT, HR and the legal department alike. Internal as well as external employees must be able to work together effectively via the FMS and have all necessary tools provided. Finally, an FMS should ensure the best possible transparency and enable smooth scaling.

Does the FMS improve compliance?

When contracting external partners, legal certainty is of crucial importance. The more freelancers are deployed or the more comprehensive a job is, the greater the risk of false self-employment. Unpaid social contributions can then lead to severe penalties rather quickly. Freelance management systems support a legally compliant commissioning and management of external personnel. E.g. dynamic questionnaires allow the examination of the (tax) status of external partners. The external employees can also update changes in their legal status at any time in the system.