Should You Work on Retainer?
 By B.J. Addington

The self-employed generally are paid in direct relation to how much work – or how little work – they actually perform for clients. But creative types, consultants and other small-business service providers can enjoy a regular paycheck’s security, at a price. They can work on retainer.

A retainer can take many forms, all negotiable. But essentially a retainer involves a client paying a periodic fee in return for a service provider being on-call to perform a set number of hours of work.

On the plus side, the fee is paid whether the hours are worked or not. On the minus side, the retained party must usually agree to discount the fee.

The retained party – you – gets a measure of security, a fairly regular paycheck. The party retaining you gets a guarantee you will be available whenever needed.

The key to making a retainer agreement work is to make it benefit both parties. A one-sided agreement will quickly get old for the party on the short end. The blessing – or the devil – is in the details.

Here are six guidelines to help you decide if working on retainer is right for you.

1. You must usually agree to receive less per hour than your normal rate. This is one incentive you offer clients to enter the agreement. Your incentive in return is the guarantee of receiving a timely check for your fee every billing period.

The details: If you commit many hours to working on retainer at a reduced rate, when you could be billing other clients at your full rate instead, you may make less money overall. If however, you have the hours to devote to a retainer client, you may generate fees, although discounted, that you otherwise would never receive.

2. You will have to commit a set number of hours to be on-call and give priority to the retainer client whenever you are called.

The details: If being required to drop everything and respond to immediate requests disrupts your regular schedule, maybe a retainer isn’t for you. On the other hand, if the number of on-call hours is manageable, such an arrangement can be profitable.

3. You should build in safeguards to prevent clients from abusing the on-call relationship. Simultaneously, you should make it clear that even if not called upon once during a billing cycle, you will still receive a check.

The details: This is where retainers flourish or fail. Clients must feel they receive their money’s worth or they will terminate the agreement. You must not allow yourself to provide 20 hours of service at your discounted fee when your agreement calls for only 10 hours.

One safeguard is to itemize hours on each invoice so clients understand exactly what was provided for their fee. In cases when you worked fewer hours during a billing period, your invoice should remind the client to “get what you’re paying for” and encourage the client to call upon you more often. This mitigates ill feelings clients may harbor about not getting their money’s worth, and shows you are concerned for their welfare.

4. Beware of overtime.

The details: Make provisions that after the agreed-upon number of on-call hours are fulfilled in a billing cycle, additional hours are paid at your regular rate. You can always revise the agreement to provide more hours at the discounted rate, if both sides desire. But it’s bad practice to provide services at a reduced fee beyond the agreed-upon number of hours. You could soon find yourself working a full week for four day’s pay.

5. Because success or failure is in the details, consult with your attorney when creating the written agreement. Written agreements are necessary because most disputes result from misunderstandings of respective requirements. A straightforward, clearly written contract eliminates uncertainties.

6. Final tip: Protect yourself with a termination clause in your contract.

You probably won’t take on additional work that that could interfere with your on-call availability. Therefore, when a retainer agreement is prematurely terminated by the client, it’s reasonable for you to request a termination fee. Consult your attorney for specific wording in your contract.

(Posted September 2006)

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