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I am a software engineer that has several clients that need me to do simple ad hoc tasks throughout the year for various projects. I have began considering setting up a retainer-based service for them where they would pay money into a retainer account for a specific project, and if I don't bill enough time to earn all of the retainer, then I would refund the unearned portion.

My concerns:

  • do retainers typically go through a 3rd party the same way escrow does? or would I just manage the retainer myself in one of my own business accounts?
  • can retainers be used for purchasing supplies, renting servers, purchasing licenses, "business expenses" related to the project, etc. or are they only allowed for use w.r.t. billable time?
  • from a tax perspective, are there different tax rates, terms, forms, etc. that I would need to submit each year at "tax time" for operating this way (using retainers)?
  • any other caveats or pitfalls I should be aware of before going down this route?
Chris W. Rea
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hotmeatballsoup
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1 Answers1

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You aren't regulated like an attorney. You and your client can set up whatever arrangement is mutually convenient.

E.g., a $5000 up-front payment is required to start. You then invoice your hours and expenses to the client until it dips below $1000, at which point you notify them to pay another $5000. You agree to return unused deposited money whenever the client asks, of course stopping work at that point until a new $5,000 is deposited with you.

Orange Coast- reinstate Monica
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