Retainer Agreement: Clauses, GST and How to Invoice a Monthly Retainer

A retainer agreement is a contract where a client pays you a set amount on a regular schedule, usually monthly and in advance, for ongoing work or a reserved block of your time. It should spell out what's included, the fee, when you invoice, what happens to unused hours and how either side can end it. If you're registered for GST, you charge 10% on each retainer invoice, and on the accruals basis the GST belongs in the BAS period you issue the invoice or get paid, whichever comes first.

What is a retainer agreement?

A retainer agreement is an ongoing service contract that trades a regular, predictable fee for a defined amount of work or availability. The client gets priority access and a known monthly cost. You get recurring income you can plan around instead of chasing the next project.

Retainers are common for bookkeepers, marketing and design agencies, IT support, consultants, copywriters, social media managers, virtual assistants and maintenance contractors. They work best when the client needs similar work every month and both sides can agree roughly how much.

One caution: law practices handle retainers paid in advance under specific trust account rules. This guide is for other service businesses.

What types of retainer are there?

There are three common types. A fixed monthly retainer pays for a defined scope of work. A retainer against hours buys a block of hours that you draw down. An availability retainer pays to keep you on call, with the work itself billed separately.

Retainer against hours is the most flexible but needs the most tracking, because you have to report hours used and deal with leftovers. A fixed monthly retainer is the simplest to invoice but needs a tight scope, or it quietly becomes unlimited work for a fixed price.

What should a retainer agreement include?

At minimum: the parties and their ABNs, the start date and term, the services included and excluded, the monthly fee and whether it includes GST, the invoicing date and payment terms, how extra work is charged, what happens to unused hours, and how to end or change the agreement.

Here is a clause set you can adapt. Have it reviewed if the contract is large or unusual.

Clause 9 matters more than it looks. Without a written right to pause work, stopping when a client falls behind can put you in breach. Clause 10 lets you raise prices without renegotiating the whole contract. If you're unsure what monthly fee to put in clause 4, work out your rate first with our hourly rate calculator and multiply by the hours included.

What happens to unused retainer hours?

Whatever your agreement says. The three usual options are use it or lose it, a limited rollover, or a refund or credit. A capped rollover is the most common middle ground, because it's fair to the client without letting a bank of owed hours build up.

• Use it or lose it: the client pays for reserved capacity, used or not. Simple, and fair if you genuinely turn down other work to keep the time free. Clients push back if they regularly use much less.
• Capped rollover: for example, up to 25% of the monthly hours roll forward one month, then expire. Rewards a quiet month without creating a growing liability.
• Credit or refund: unused hours are credited against future work or refunded. The most client-friendly, but it makes your monthly income less predictable and means more admin.

Whichever you pick, report hours used on every invoice. A client who can see "20 hours included, 17 used, 3 rolled to December" rarely disputes the bill.

How do I invoice a retainer?

Issue a tax invoice at the start of each period for the retainer fee, with the service period on the invoice, and bill any extra hours from the previous period on the same invoice in arrears. Use the same date each month and a sequential invoice number so the client's accounts team can match it.

Here is a monthly retainer invoice for a consultant on a 20-hour, $180-an-hour retainer, with 5 hours of overage from the previous month:

Because this total is over $82.50 including GST, it needs to be a tax invoice, and since it's over $1,000 including GST it must show the buyer's identity or ABN. Our guide to tax invoice requirements lists every field. Keep one numbering sequence for retainer and project invoices, as explained in how to number invoices.

Do I charge GST on a retainer paid in advance?

Yes. If you're registered for GST, a retainer is payment for a taxable supply of your services, so you charge 10% GST on it even though the work hasn't been done yet. The timing depends on your GST accounting method: on the cash basis you report the GST in the period you're paid, and on the non-cash (accruals) basis you report it in the period you issue the invoice or receive any payment, whichever happens first.

That rule comes from the ATO's guide to choosing an accounting method for GST. Businesses with aggregated turnover under $10 million can choose either method. Here's how it plays out when you bill a retainer early:

On accruals, invoicing a few days before the quarter ends pulls the GST into the earlier BAS, which is due on 28 October for the July–September quarter. If cash is tight, invoice on the 1st of the month instead. Also note that if a client pays before you've invoiced, the accruals rule still bites: the GST belongs to the period of payment.

A genuine security deposit that you hold and may return is treated differently for GST than a retainer that pays for services. If you take a refundable deposit, check the treatment with your tax agent. For one-off projects, see our guide to deposit invoices instead.

What is the difference between a retainer and a recurring invoice?

A retainer is the agreement: what the client buys and on what terms. A recurring invoice is the billing method: the same invoice sent automatically on a schedule. Most retainers are billed with recurring invoices, but you can have recurring invoices without a retainer, such as a monthly equipment hire or a lawn-mowing round.

For construction-style staged billing, see the progress claim template.

How do I set up recurring invoices and recurring billing for a retainer?

Pick a billing frequency that matches the agreement, fix the invoice date and payment terms, and set each invoice to show the service period. Then review each one before it goes out, because retainer invoices often need an overage line or a changed rate.

Doing this by hand works with one or two clients. Beyond that, InvoiceSonic prepares recurring invoices on a weekly, fortnightly, monthly, quarterly or yearly schedule for you to review before sending, and follows up automatically at 7, 14 and 30 days after the due date. Review-before-send suits retainers, because you can add last month's overage before the invoice goes. Short payment terms such as 7 days keep a monthly retainer from running a month behind.

What are the common retainer mistakes?

The most expensive mistakes are a vague scope, no overage rate and no record of hours. Each one turns a profitable retainer into unpaid work.

• "Ongoing support" as the whole scope. List the actual deliverables or hours.
• No price review clause. Without one, your rate is frozen until you renegotiate.
• Invoicing on different dates each month. Clients' accounts teams pay on routine; irregular invoices get missed.
• Not tracking hours on a fixed retainer. Even if you don't bill by the hour, you need to know whether the retainer still pays your rate.
• Letting unused hours pile up. An unlimited rollover can leave you owing a client weeks of work if they leave.

If you're new to billing ongoing clients, our guide on how to invoice as a consultant covers hourly and fixed-fee layouts too.

This article is general information, not legal, tax or financial advice. The clause set is a starting point and may not suit every business. For guidance specific to your situation, see the ATO and business.gov.au, or speak to a lawyer or registered tax agent.

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