Different types of costs for law firms

The expectation is that staff costs are the largest part of expenditure for organisations providing legal services. However research from 20061 looked at major drivers of the costs of advice service provision, in order of levels of influence (highest first):

  1. mode of delivery (eg face-to-face advice from one individual to another individual; telephone advice from one individual to an individual; face-to-face advice from one individual to a group; and, advice via written correspondence);
  2. availability of resources (advice givers);
  3. salaries of advice providers;
  4. the number of people actively seeking advice;
  5. type of advice provided (i.e. category of law advice provided within); and
  6. status of advice providers (professional, voluntary, unqualified)

Salaries is ranked as third in terms of influence . Staff costs encompass a number of different elements2:

  • Office equipment and stationery costs
  • Accountants fees (if client money is held)
  • Training and continuing professional development costs,
  • Professional indemnity insurance for solicitors and compensation fund contributions
  • Practising certificate and other regulatory costs.

An annual survey3 of 200 solicitor firms reported that, “a third of fee income is spend on non salary overheads. The median amount per fee earner is £35,551 compared to £41,959 in 2009. The combined costs of overheads and salary means that an average fee earner still needs to bill more than £76,000 before they cover their individual costs and begin to contribute towards support staff salaries and eventually profit.”

With regards to costs a 2007 survey of barristers, that achieved a 35% response rate, found, “that overheads and expenses accounted for between 11% and 30% of barristers turnover. Median billings were between £100,000 and £125,000 with 20% billing less than £80,000 and 20% more than £200,000 in the year. About 13% bill more than £300,000, and 11% less than £40,0004.” In 2009 it was reported that overheads at chambers are around 35% of turnover5. In 2010 it was reported that: “The ratio of overheads to total fee income in specialist commercial and civil sets was circa 8-14%. In more middle of the road mixed common law sets the ratio was circa 15-22%. In family sets the ratio was 18-25%. In criminal sets the ratio was circa 18-30%. The figures exclude individual barristers‘ expenses such as travel and professional insurance6.”

Salaries of legal professions

While the RIR has found no data on actual salaries for individual members of the professions, utilising a variety of published sources of information we can build a picture of salary costs.

Surveys undertaken by the Law Society show that salaries of assistant and associate solicitors, salaried partners and equity partners increase as the number of years PQE rises, and the longer an individual has worked in a firm. Salaries also vary by grade, location, size of firm, and type of work undertaken. This work also found that Salaries generally also increased by 1.2% for every one-year increase in PQE and by 0.8% for every additional hour worked per week; and decreased by 4% for every additional casework area undertaken – in each case, holding all other factors constant7.

This compares to salaries currently being offered to solicitors employed in the public
sector and not for profit sectors which tend to be in the region of £24–34,000 a year.

Additionally salaries vary by type of contract: “Key part of competitive advantage is recruiting and retaining good people. That is achieved through paying fee earners 70% of the fees they generate and they are self-employed8.

The variation in turnover by size of firm (size measured by number of partners) is reflected in the variation in salaries earned and the location of employment: “Practitioners working in firms with just one solicitor earned 114% less than those working in firms with 170 or more solicitors, those working in firms with between 41 and 170 solicitors earned 25% less than those in the largest firms. Assistants and associates earned 71% less than equity partners and salaried partners around 41% less. Sole practitioner earnings, however were not significantly different to other equity partners. Earnings outside London were lowest in York and Humberside and the North West: practitioners in these regions earned 46% and 40% less than those in London. The salaries of solicitors in Wales and the Eastern region were closest to those in London: on average Welsh solicitors earned 27% less, and Eastern solicitors 28% less, than London-based practitioners9.”

Higher earnings are associated with those working in Business and commercial affairs. This shows that an assistant solicitor working in this category can expect to earn 48% more than working in Family law.

For Licensed Conveyancers:

“Salaries for trainees start at around £15,000. After qualification and three years’ experience, the salary range is around £25,000 – £40,000 and salaries for senior management posts are £35,000 – £55,000. Partners or owners of conveyancing firms may earn £60,000 or more.10

For Legal Executives:

“Latest salary surveys found jobs for up to £92,000 a year were being offered in London for legal executives who qualified with ILEX. While salaries will vary according to location and your chosen specialist area of law, starting salaries are usually up to £14,000 a year, while fully qualified Legal Executives can expect to earn around £35,000 on average across England and Wales11.”

For Barristers

The minimum pupillage award at chambers in 2010 was £10,000 per pupil12, but was due to increase to £12,00013 from September 2011.Other staff costs are limited as each barrister is self-employed so in effect salaries are fee earnings less chambers fees.

For other legal advisers

Available information suggests that there are a large number of unauthorised persons employed in legal practices. However it is unclear what the salaries of these persons are.Recent research highlights the increasing recruitment of paralegals in place of trainee solicitors, describing, “an increasingly sizeable legal periphery of paralegals and other unqualified fee-earning roles which exists outside the official professional career structure and constitutes a reserve labour force, employed on lesser terms and conditions.” 14This reports that wages are substantially less than those for trainee solicitors. A Law Society survey in 2002 supports this view, reporting that the predominant view across firms of, “all sizes was that they were a net cost during the training period and that they were not profitable until after qualification15.”

Other commentators noted that the cost of employing certain legal staff in India was ten times less than that in the UK, driving the business case for more LPO16.

Research into the cost of advisers in NfP agencies were estimated to cost £60 per hour for advisor,plus overheads17. Surveys into the publicly funded advice sector reported that, “workers in the Not for Profit and statutory sectors earn significantly less than those in private practice, irrespective of whether they work part or full-time18.” This reports that 20.4% of NFP advisors earn between £25,000 and £39,000, and 40% earn between £17,000 and £24,999.