Retainer Fee

What is a retainer fee?

A retainer fee, or retaining fee, is an amount paid to engage the professional services of consultants, advisors, or most commonly, lawyers before the work commencements.

After the approval of a retainer agreement, the retainer fee is deposited in an account separate from the receiver’s account to ensure the money is not used for other purposes.

Businesses leverage billing software to track and monitor retainer fees and other expenses incurred during the case. The technology can be integrated with case management systems to record relevant case information, track time, and manage clients.

Importance of a retainer fee

Lawyers or service providers ask for retainer fees to compensate for their time, expertise, and reputation.

• Provides service availability. Some cases do not require active legal engagement, but rather an attorney on a retainer basis or standby. Retainer fees in this situation act as payment to the lawyer for not taking up other work to remain available when needed.
• Secures against uncertainty. Retainer fees protect lawyers and legal professionals from unforeseen situations, such as clients failing to meet their obligations. Having a retainer fee allows the professional to earn some money beforehand, instead of asking for more money in the future.
• Maintains reputation. Clients want to ensure that they have the best attorney to help them win their case during legal situations. Choosing the right attorney can often have more substantial implications, such as getting the chance to settle outside of court.

Types of retainer fees

Retainer fees are often calculated based on hours worked, including case preparation, phone calls, faxing, and maintaining records. Two types of retainer fees exist within the client-provider relationship.

• General retainer: Fees requested for a specified time, instead of for a service or project. These are used by attorneys hired on a retainer basis.
• Special retainer: A flat rate that is charged for a particular service.

How to calculate retainer fee

Here are two examples to understand how retainer fees are calculated in different scenarios.

Example 1:
A business that is looking to remodel its office and re-paint walls hires a painter on a contractual basis. The painter charges a retainer fee of $5,000 and $50 for every additional working hour.

Therefore, the retainer fee covers 100 hours of work. If the work is completed in 50 hours, the painter owes the company $2,500, since the retainer fee overestimated services cost.

Example 2:
A consultant charges a $200 retainer fee for their services, and the estimated time is 5 hours (or $40 per hour). If the consultant works for 10 hours more than expected, they will now charge an additional $400 since the retainer fee is depleted.

How do retainer fees work

Retainer agreements can be best understood with the example of a legal service provider. 

1. The client pays a retainer fee to engage the attorney’s services. Upon successful upfront payment, the attorney will provide a detailed retainer agreement outlining the actions that they will take in case of fee depletion. This payment will be deposited into a separate account to be used only for case activities.
2. The client will then receive an invoice at the end of the month, after which the lawyer will transfer the money into their account. Technology like legal billing software ensures accurate payment completion.
3. In case of any differences in estimated and actual time taken, the client will pay more money or receive a refund of the excess.
4. On termination of the agreement, the client has the right to claim the remaining balance of the retainer fee. It is important to note that clients can end legal representation during the contract. If the agreement includes a non-refundable retainer fees clause, the attorney must address it.

Benefits of retainer fees

Retainer fees are advantageous to both the client and servicer. Here are the essential benefits of having a retainer fee in place.

• Secures the client-servicer relationship. For legal practices, paying the lawyer a retainer fee proves that the client wants to proceed with their help.
• Establishes trust. Retainer fees ensure an understanding between both parties and a sense of confidence. This is important to maintain ease of communication and get desired results throughout the contract.
• Guarantees transparency. Since the money is placed into a retainer account, it secures against the misuse of the retainer fee. Additionally, clients can account for project budgeting once the retainer fee is decided and agreed upon.

Best practices for retainer fees

Working with third-party service providers can be difficult. Maintaining certain standards and best practices can make the process easier and hassle-free.

• Be detailed. When dealing with retainer agreements, it is essential to write everything down. Having detailed information keeps both parties protected by law and provides clarity on the work parameters.
• Mention names. Always include the names of the people involved in the process. These include client names, service providers’ names, and other stakeholders.
• Practice clear communication. It is imperative to work with the utmost clarity and communication to avoid potential confusion and conflicts. All terms of the agreement should be read thoroughly by both parties before signing the contract.

Earned retainer fee vs. Unearned retainer fee

Earned retainer fees refer to the amount earned by the service provider after the successful transfer of money from the separate account into their operating account. These fees are calculated according to the retainer agreements and paid every month until task completion.

An unearned retainer fee is the amount deposited in a retainer account before work begins. The payment guarantees commitment to work on the service provider’s part, and they cannot claim the fee until the job is completed. Unearned retainer fees are subject to refund to the client if not used.