What is a pay-as-you-go (PAYG) contract?

A pay-as-you-go (PAYG) contract is a flexible employment agreement where workers are paid based on hours worked or tasks completed, rather than a fixed salary. This type of arrangement is common in freelance, project-based, or temporary work and is designed to adapt to fluctuating business demands.

PAYG contracts are especially beneficial for businesses navigating fluctuating workloads or seeking specialized skills for short-term projects, such as hiring retail staff during holiday seasons, developers for app creation, or consultants for complex legal or financial cases.

How do PAYG contracts differ from fixed-salary arrangements?

The core difference between PAYG contracts and traditional fixed-salary arrangements lies in payment structure and employment terms.

• Payment structure: In PAYG contracts, workers are paid only for actual hours worked or tasks completed. This is in contrast to fixed-salary roles, where employees receive a consistent monthly or biweekly paycheck regardless of workload variability.
• Work hours: PAYG contracts often lack the standard 9-to-5 schedule. Hours are typically irregular and determined by project timelines or client needs.
• Benefits: Fixed-salary employees usually receive benefits like health insurance, paid time off, and retirement plans. These benefits are generally absent in PAYG arrangements, placing more responsibility on workers to manage their financial and health needs.
• Job security: PAYG contracts are often temporary, providing no guarantee of continued work once the project or task is completed.

Typical scenarios where PAYG contracts are used

PAYG contracts are versatile and suitable for a wide range of employment situations. Common use cases include:

• Freelance and gig work: Writers, designers, and developers often work on PAYG contracts to deliver creative projects.
• Seasonal work: Retailers, event organizers, and hospitality businesses rely on PAYG contracts during peak seasons, such as holidays.
• Project-based roles: Companies undertaking specific projects, like website development or marketing campaigns, use PAYG contracts to hire experts for defined scopes of work.
• Temporary staffing: Businesses facing unexpected surges in demand, such as during product launches, can onboard temporary workers through PAYG contracts.

These scenarios highlight the adaptability of PAYG contracts, making them a popular choice across industries and for varying business needs.

Benefits of PAYG contracts for employers

Employers find PAYG contracts attractive due to the flexibility and cost control they offer. Key benefits include:

• Cost efficiency: PAYG arrangements allow businesses to pay workers only for the hours worked or tasks completed. This eliminates the need for fixed monthly salaries, making it easier to control payroll costs.
• Workforce flexibility: Companies can scale their workforce up or down in response to demand. For example, during peak periods, businesses can bring on additional PAYG workers without long-term commitments.
• Access to specialized talent: PAYG contracts attract skilled professionals who value the freedom to work on diverse projects. This enables employers to tap into a broader talent pool, including freelancers, remote workers, and consultants.
• Trial opportunities: PAYG contracts can serve as a trial phase for companies considering workers for long-term roles, allowing employers to evaluate performance without committing to a permanent hire.

By using PAYG contracts strategically, businesses can align labor costs with revenue fluctuations, avoiding the overhead associated with traditional employment models.

Key differences between PAYG and traditional contracts

To fully understand PAYG contracts, it’s helpful to compare them to traditional employment contracts:

While both models have advantages, PAYG contracts are better suited for companies needing short-term flexibility and for workers seeking varied opportunities.

Measuring the effectiveness of PAYG contracts

Employers should regularly assess the impact of PAYG contracts on business performance. Key areas to evaluate include:

• Cost savings: Compare payroll expenses under PAYG versus traditional contracts. PAYG should reduce fixed costs by eliminating payment for idle time.
• Productivity: Analyze how much work is delivered relative to the cost of PAYG workers. Use metrics like cost-per-deliverable or hours-per-completion.
• Flexibility: Evaluate how effectively PAYG contracts allow your workforce to scale up or down in response to market conditions. Look at time-to-hire rates and seasonal staffing capabilities.

Key performance indicators (KPIs) like project completion rates, worker satisfaction, and cost efficiency provide insights into the success of PAYG contracts.

Legal and compliance considerations

PAYG contracts come with legal and compliance responsibilities that employers must address:

• Worker classification: Misclassifying contractors when they qualify as employees can lead to serious penalties and reputational damage.
• Wage compliance: Adhere to minimum wage laws and ensure timely payment for hours worked.
• Statutory obligations: Some jurisdictions may impose requirements, such as holiday pay or termination notice, even for PAYG workers.

Employers operating internationally must account for regional variations in labor laws. Using tools or legal advisors to manage compliance can help mitigate risks.

PAYG contracts and remote work

Remote work is a natural fit for PAYG contracts, particularly for project-based or freelance roles. Key considerations include:

• Communication: Leverage tools like Slack, Zoom, or Asana to maintain clear communication and track progress.
• Oversight: Use project management software to monitor deliverables and timelines, ensuring accountability despite geographical distances.
• Challenges: Address potential issues like time zone differences and lack of team cohesion with structured onboarding and regular check-ins.

PAYG contracts enable companies to hire skilled professionals globally while maintaining cost efficiency and operational flexibility.

Create PAYG contracts with Deel

Deel supports creating Pay-As-You-Go (PAYG), milestone, and fixed-rate contracts for independent contractors.The platform guides you through selecting worker types, entering personal and role details, setting payment rates, and uploading agreements.

You can also include benefits and extras before finalizing the contract with e-signatures. Deel ensures compliance and streamlines contract creation, so you can focus on scaling your workforce.