What is a Retainer Fee, and How to Create a Retainer Agreement
When you are looking to hire a lawyer, the subject of retainer fees may come up. It is a common practice for most lawyers to require a retainer fee. Other professionals, such as consultants or freelancers, may also insist on a retainer fee or agreement for certain projects.
Before signing a retainer contract or paying any retainer fee, it is essential to understand what you are signing. Both parties have responsibilities in an agreement like this, so ensuring you can live up to your end of the bargain is vital. Breaking an agreement, failing to deliver on your responsibilities, or avoiding payment of an agreed fee is the same as breaking any other contract and can lead to severe, long-lasting repercussions.
What is a Retainer Fee?
The definition of retainer fee is an amount of money that needs to be paid to a professional for services that they are going to provide at a future date. The purpose of the payment is to cover the initial costs they incur to set up the working relationship.
For example, in the legal profession, every case requires some initial work from the lawyer to be familiarized with the situation and file paperwork. This is what the retainer fee covers. It is essential to understand that a retaining fee does not guarantee that you are going to win your case. Any easy way to understand the retainer definition is to consider the retainer fee as a down payment.
Most retainer fees cover a predetermined number of hours that the lawyer is expected to work on a case. The attorney may not reach that number of prescribed hours, where earned retainer fees and unearned retainer fees come into practice.
How Does a Retainer Agreement Work?
When the retainer fee is paid, the funds go into a specific retainer account. They remain there until the services have been fully delivered. Until then, it is considered to be an unearned retainer fee.
The lawyer must perform the work necessary to convert unearned retainer fees to earned retainer fees. Along the way, as hours are billed, they are considered to be earned retainer fees, and therefore moved out of the retainer account. Sometimes the release of retainer fees is based on a minimum number of hours have been billed or when a specific milestone has been reached.
If the legal service provided to the client does not meet the amount of hours agreed in the retainer, the unused portion is returned to the client. This is a fair practice to ensure the final charge is equal to the services rendered. At the end of a transaction, the retainer account should be cleared out.
It is essential to recognize that if the services provided go above and beyond the retainer fees, the client may have to pay an additional fee equivalent to the extra service.
Who Are Retainer Agreements For?
Anyone who is rendering services to a client can consider insisting upon a retainer fee and agreement. Since it outlines the expected services and payments to be exchanged, a retainers fee agreement can protect all parties involved. They also clearly lay out expectations, so everyone understands what is being agreed upon.
Some freelancers choose to lay out their retainer fees on a case-by-case basis. For certain types of projects that require a lot of upfront work, retainer fees are better than hourly billing.. Any services completed beyond the retainer fee should be billed out at a per hour rate, for which payment is delivered after the services have been rendered.
Should You Have a Lawyer on Retainer?
Not every client needs to have a lawyer on retainer. Companies or individuals who are likely to need regular legal work may want to consider having a lawyer on retainer. When a client has a lawyer on retainer, they pay a nominal fee to use their lawyer's services regularly. This is usually for a client who has a lot of casework but cannot hire a lawyer full time.
If the client does not need a lawyer's services regularly, it is best to pay the per hour fee on a case-by-case basis.
Importance of a Retainer Fee for Freelancers
Retainer fees and agreements are most often used by lawyers. However, they are growing in popularity in other professions too. One reason for this is the increasing popularity of freelance or contract workers. It is a way for freelancers to guarantee an ongoing job and payment for a certain number of hours worked. These contracts should function in the same general process; any monies paid upfront are considered unearned retainer fees and become earned retainer fees when the required work is done.
A retainer fee is often helpful for freelancers when a client is disputing the work being submitted. Freelancers do not have a typical business or job to back up their claims, which means that they should consider ways to provide personal protection strategies.
What Does It Mean to Be on the Retainer?
Being on retainer means a client has paid you a specified amount of money for work to be completed as a freelancer. Your retainer fee agreement should outline the parameters of the services you are going to provide. For example, are you expected to complete a certain number of work hours or complete a specific deliverable? Also, what happens if the project requires additional labor? Are you going to be paid for that time, or is your effort included as part of a milestone?
Any retainer fees you receive as a freelancer need to be documented, as does any services you complete for the client. Though it does not happen in every case, there can be disputes about whether the commissioned labor has met the outlined criteria.
Types of Retainer Fees
There are two basic setups for retainer fees: work retainers and access retainers. When you charge a work retainer fee, you complete specific tasks for the client. They send you your ongoing retainer fee for the tasks you agreed to complete.
The retainer fee for access retainer is different. Here, you are being paid for the hours you put in, rather than the tasks you complete. Often, this is considered the ideal model for freelancers, as your charges cover your time. Not all clients are open to paying this way; it is usually used between parties that have built a certain amount of trust between them, or with freelancers who have built sufficient reputation.
Depending on your contract history, you can organize your retainer fee agreements to include a balance of the two types of retainer fees.
What Should be Included in a Retainer Agreement?
When entering into a retainer fee agreement, there are several factors you might want to consider. For example, all of the parties involved need to be explicitly named. This is true whether you are working for an individual or a business. Think of your retainer fee and agreement as a form of insurance. You want all possible parties disclosed in case an issue develops with your client.
Secondly, outline the purpose of the agreement. This refers to what the fee a retainer covers is to be spent on. It is also important to outline the dates the retain fees begin and end. The actual amount paid for a retainer fee is sometimes included in the agreement, but not always.
Finally, the attorney's or freelancer responsibilities need to be outlined, like those of the client. Everyone needs to understand and agree on their part. This clause is essential, just in case the relationship goes sour.
Example of a Retainer Agreement
A basic retainer fee agreement between a client and freelancer or lawyer may look like the following example. The more complex the expectations, the more complex the agreement will be.
- Parties in the agreement. This agreement begins as of [Month] [Date], [Year], between John Smith (consultant) of [address] and Jane Doe (client) of [address].
- Purpose. The consultant is to provide [marketing and social media management] to the client.
- Duration of agreement. The client authorizes consultants to provide services for [three consecutive months], beginning on the date of this contract.
- Consultant responsibilities. The consultant agrees to [manage the social media accounts of the client. Including posting articles and managing comments. In addition, the consultant agrees to create marketing documents with the purpose of driving traffic to the client’s website].
- Client responsibilities. The client agrees to [(a) give the consultant pertinent information and access to social media, (b) respond to messages and questions promptly (c) compensate the consultant with the agreed fee by an agreed date(s).]
A retainer fee and agreement can be a complicated document. This is especially true when attorneys or court cases are involved. The complexity of the agreement also affects the associated fee. Freelancers should consider requesting retainer fees and proposing retainer agreements to guarantee the smooth functioning of client relationships where appropriate. Even the most basic retainer fee can go a long way in terms of ensuring job security.