A retainer agreement is a prolonged service agreement supported by continual compensation provided by a client in exchange for professional services. Whereas other contractor agreements commonly expire after a task or set of tasks is complete, a retainer can be executed by clients who wish to maintain the relationship with the service provider even if the provider is not constantly performing duties.
The benefits of a retainer are that the client has access to the hired professional if they need them for an established number of hours per pay period (i.e., per week, month, year, etc.). While being held on retainer could mean missing potential opportunities for the service provider, the advantages of this type of agreement generally outweigh the drawbacks. A retainer contract is advantageous because the contractor maintains flexibility and workflow stability while recording steady cash flow.
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A retainer agreement is a type of contractor agreement wherein a client pays a service provider in perpetuity for a specific job, a set of tasks, or ongoing professional advice or services. These agreements are also known as “work-for-hire” agreements, which are categorized somewhere between a single-use independent contractor agreement and an employment contract. An individual or company kept on retainer can provide services for others, but they are bound by their contract to perform a certain number of duties or work a specific number of hours for their client.
There are two (2) types of retainers – pay for access and pay for work. The type of retainer agreement used is dependent on the industry in which the professional works as well as the relationship between the parties.
A pay for access agreement is generally reserved for experienced professionals that clients hire to preserve their services and expertise over long periods of time. Payment will be made to the service provider regardless of whether or not their services are used in any given pay period. When their services are required, the fee has already been paid, and any additional hours worked will be billed using their normal rate. Typically, a client and service provider will already know and trust one another before entering into a pay for access agreement.
A pay for work agreement is not very different from any other independent contractor agreement in that the service provider will receive steady payments from their client in exchange for hours worked or a task performed. Where this type of retainer agreement differs from a contractor agreement is the perpetuity of the relationship and services provided. Once a payment period ends or the service provider completes a job, their services are still retained by the client so that they can delegate more tasks to them.
A retainer fee is the amount of money the client must pay the service provider upfront. It establishes the working arrangement between the parties before services commence and may or may not be refundable, depending on the situation. The amount of the fee also greatly depends on the type of professional services being rendered, the specific tasks to be performed, and other important factors.
A retainer fee will go towards the hours of work completed by the service provider, but it will not necessarily be the complete payment. If the provider puts in more hours than the retainer covers, the client owes more money. The reverse may also be true; fewer hours worked could result in some of the fee being paid back to the client (if the fee was refundable).
Whether the services provided involve legal counsel, consulting, advertising, or any other freelance work, entering into a retainer agreement with a client will provide a steady income stream, bolster the client relationship, and will help avoid risks of payment defaults.
A retainer can be proposed to a client at any point in time, but once a service provider finds themselves performing tasks on a more regular basis for a client, that could be a suitable time to introduce this type of arrangement. Another scenario in which a retainer can be introduced is after an assignment is successfully completed. If the client believes they received good value for their money, they will be more inclined to trust the service provider and invest in a prolonged relationship.
The professional providing their services must include all the tasks, duties, and other actions they will be required to perform for the client. This section will vary greatly depending on the industry, the service provider, the client, and the reason for hiring the professional.
The purpose of a retainer agreement is to maintain access to the service provider’s professional expertise, but the contract should still include a specific timeframe to establish the start and end of the relationship. The contract can end on a specific date or upon the date services are completed. The parties may also choose to continue in perpetuity until either of them provides notice to terminate.
The retainer fee should be included in the agreement, and the service provider should indicate whether or not this fee is refundable. In addition to the retainer fee, the service provider will demand their typical compensation rate, which might be an hourly wage, a per-job basis, commission, or another type of payment plan. The parties should also decide on how frequently the payments must be made.
Throughout the relationship, the service provider may be required to spend money on expenses directly related to their work for the client. It should be established in the agreement which party will be responsible for these expenses to avoid any confusion or distrust.
Independent Contractor Status
The status of the service provider in relation to the client is defined in the agreement for the purposes of ensuring the provider isn’t mistaken for an employee. Because the service provider isn’t an employee, they will not receive certain benefits that the client’s regular staff would receive. They are, however, entitled to provide services in the manner they see fit, in the timeframe they deem most suitable, and they alone are able to control and delegate their employees and other personnel. The service provider is also responsible for their own licenses, taxes, unemployment and workers’ compensation, insurance, and any other obligations related to providing their services.
In some cases, the service provider may be required to access and utilize their client’s confidential information. A non-disclosure clause is included in retainer agreements to prevent the misuse and dissemination of the client’s proprietary information. The service provider must relinquish all confidential information in their possession once the retainer agreement between the parties is terminated.