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LEGAL DICTIONARY

Retainer Fee

What Is a Retainer Fee?

A retainer fee is an advance payment for a professional service before the work is performed. As a down payment that sets the cost and helps ensure the completion of the job, a retainer agreement benefits both parties.

Although retainer fees are most commonly associated with hiring an attorney, they are becoming popular with consultants, advisers, paralegals, and other freelance professionals requesting them when they accept a job.

What Are the Different Types of Retainer Fees?

Typically, retainer fees are based on the professional’s hourly rate and the number of hours they expect the job to take. The individual will estimate how many hours a project will take to calculate the fee. The two main categories of retainers are access and work retainers.

  • Access retainer: With this type of retainer, the professional bills a client for specific hours and receives payment only for those hours. This arrangement provides a set schedule for the professional and a firm payment amount from the client.
  • Work retainer: With a work retainer, the professional outlines specific tasks they agree to perform for the client and the fees associated with those tasks. The client pays the professional for each task (often called a milestone) as it is completed.

What Is an Example of a Retainer Fee?

We’ll use the hiring of an attorney as an example of how a retainer fee works as a service agreement. Let’s say the attorney has an hourly fee of $300. They estimate that it will take them 40 hours to prepare and present a court case for a prospective client. Therefore, the retainer fee for this work will be $12,000.

If the work takes longer than the estimated time, the attorney bills the client for the additional hours after the completion of the project. Payment is not based on the court outcome of the case, and if the case is resolved in less time, then the attorney will refund the appropriate amount.

Get a Service Agreement Template Here

What Is an Unearned Retainer Fee vs. an Earned Retainer Fee?

By its nature, a retainer fee is “unearned.” It is an upfront payment for work that has yet to be completed.

If a consultant completes the job in less time than expected in their consulting agreement, they will repay a specific number of hours’ worth of work or deposit the money in a bank account to pay for a future project.

In the attorney example above, the retainer fee is seen as unearned until the court case is closed. After that time, any unearned retainer fees can be returned to the client.

On the other hand, the distribution of retainer fees can be based on the completion of a series of tasks or milestones. For example, an attorney might receive 20% of the retainer fee after they complete the pre-trial process. In this arrangement, the professional has actually “earned” the money.

What Are the Benefits of Using a Retainer Fee?

A retainer fee has advantages for both the hired professional and the client. The client knows how much they will have to pay for the service, and the professional knows they will receive payment for the services they provide.

Just like hourly fees, retainer fees vary from profession or profession and according to geographic location. Some businesses pay retainer fees on a monthly or yearly basis. This type of ongoing arrangement might be used to keep an attorney’s services available when they are needed. This type of retainer fee is usually often non-refundable.

Helpful Resources:

Cornell Law - Retainer

MasterClass - Retainer Fee: How Retainer Fees Work

What Is a Retainer Fee?

A retainer fee is an advance payment for a professional service before the work is performed. As a down payment that sets the cost and helps ensure the completion of the job, a retainer agreement benefits both parties.

Although retainer fees are most commonly associated with hiring an attorney, they are becoming popular with consultants, advisers, paralegals, and other freelance professionals requesting them when they accept a job.

What Are the Different Types of Retainer Fees?

Typically, retainer fees are based on the professional’s hourly rate and the number of hours they expect the job to take. The individual will estimate how many hours a project will take to calculate the fee. The two main categories of retainers are access and work retainers.

  • Access retainer: With this type of retainer, the professional bills a client for specific hours and receives payment only for those hours. This arrangement provides a set schedule for the professional and a firm payment amount from the client.
  • Work retainer: With a work retainer, the professional outlines specific tasks they agree to perform for the client and the fees associated with those tasks. The client pays the professional for each task (often called a milestone) as it is completed.

What Is an Example of a Retainer Fee?

We’ll use the hiring of an attorney as an example of how a retainer fee works as a service agreement. Let’s say the attorney has an hourly fee of $300. They estimate that it will take them 40 hours to prepare and present a court case for a prospective client. Therefore, the retainer fee for this work will be $12,000.

If the work takes longer than the estimated time, the attorney bills the client for the additional hours after the completion of the project. Payment is not based on the court outcome of the case, and if the case is resolved in less time, then the attorney will refund the appropriate amount.

Get a Service Agreement Template Here

What Is an Unearned Retainer Fee vs. an Earned Retainer Fee?

By its nature, a retainer fee is “unearned.” It is an upfront payment for work that has yet to be completed.

If a consultant completes the job in less time than expected in their consulting agreement, they will repay a specific number of hours’ worth of work or deposit the money in a bank account to pay for a future project.

In the attorney example above, the retainer fee is seen as unearned until the court case is closed. After that time, any unearned retainer fees can be returned to the client.

On the other hand, the distribution of retainer fees can be based on the completion of a series of tasks or milestones. For example, an attorney might receive 20% of the retainer fee after they complete the pre-trial process. In this arrangement, the professional has actually “earned” the money.

What Are the Benefits of Using a Retainer Fee?

A retainer fee has advantages for both the hired professional and the client. The client knows how much they will have to pay for the service, and the professional knows they will receive payment for the services they provide.

Just like hourly fees, retainer fees vary from profession or profession and according to geographic location. Some businesses pay retainer fees on a monthly or yearly basis. This type of ongoing arrangement might be used to keep an attorney’s services available when they are needed. This type of retainer fee is usually often non-refundable.

Helpful Resources:

Cornell Law - Retainer

MasterClass - Retainer Fee: How Retainer Fees Work