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Cost of Practicing for a Small Law Firm

Posted on:5/25/2012
A member of www.NAPIL.com, who runs a law firm of 4 associates in Southern CA, has posed some questions about the averages for his practice in the industry.


A member of www.NAPIL.com, who runs a law firm of 4 associates in Southern CA, has posed some questions about the averages for his practice in the industry.

Can you help formulate a response. (Once I get a response, I will forward it to those who give me an input)

In a firm of 4 associates,  How many  hours  is each associate expected to bill? 

How is the market pay pay scale for each associate?

Do you pay the associate Base pay only? Base plus bonus? What other method? Do you subtract  offices expenses, including his own salary, from the bill amount before paying bonus?

If you pay a bonus, on what basis do you pay the bonus?

These questions were posed to our Members in CA. Here are the answers:

Answers by Stuart:

In a firm of 4 associates,  How many  hours  is each associate expected to bill? 

We are a plaintiff’s firm – and work strictly on contingency cases.  We do not keep hours per se – other than on class action cases.  Our associates work about 45-55 hours per week.

How is the market pay pay scale for each associate?

In Los Angeles, entry level associates at plaintiffs’ firms are paid anywhere from $55K to $100K – and cap out at about $175K as a senior associate.

Do you pay the associate Base pay only? Base plus bonus? What other method? Do you subtract  offices expenses, including his own salary, from the bill amount before paying bonus?

Bonuses are not guaranteed, but are generally paid.  The average year end bonus appears to be about 1 month worth of salary.  Many plaintiff shops also pay their associates special bonuses if they bring in cases (usually a percentage of the fee the firm gets).

If you pay a bonus, on what basis do you pay the bonus?

Bonuses are based upon merit, hard work, bringing in cases, writing articles, being active in bar associations, etc. 

 

Answers by Donald:

In a firm of 4 associates,  How many  hours  is each associate expected to bill?  Demanding a minimum number of hours is difficult. But 150 per month is somewhat norm. This is not "billable" hours but hours worked. Timekeeping should include the work performed, meetings attended, business promotion, etc. Everything goes into hours for the firm.

How is the market pay pay scale for each associate?  This I really don't know. At my last firm, although a partner, I did not get involved with associate's salaries. What is the determining factor is the years of experience. I know some 15 year lawyers making $60,000/yr and others over $150,000/yr.

Do you pay the associate Base pay only? Base plus bonus? What other method? Do you subtract  offices expenses, including his own salary, from the bill amount before paying bonus?  The approach I am most comfortable with and that seems to work smoothly is a base salary (plus benefits offered), and bonus depending upon outcome. A bonus should never be guaranteed. That would make it a bonus. But if a case does really well, then a bonus is not uncommon. A bonus is paid when the money is received from the source. If paid on a contingency matter or when the client pays the hourly billing. If the case was brought to the firm by the associate he/she should receive money (10-30%) of the proceeds as a bonus for bringing the case and incentive to being a rain maker. On hourly matters, if the billing reaches a particular level, a bonus of 10-20% of the billing amount (paid quarterly0 is not uncommon. What the firm wants to avoid is a lawyer working on those cases that generate a bonus and not working on the other cases, too.

If you pay a bonus, on what basis do you pay the bonus? See above.  At my last firm (25 lawyers) I received a percentage the fee of contingency cases I brought to the firm (before I was a partner) regardless of who worked on the case. I earned a percentage of hourly billings based on hours billed over 150 per month. The reason for paying in this manner is that the money does not come out of the firm's pocket. It comes from the proceeds. Nothing lost.

If you have additional questions or wish clarification of my comments, fell free to drop a line or give a call.

Answers by Lawrence:

We don’t do billing so I can’t answer…but most large firms the billing is between 1,900 and 2,100 per year.

Answers by Adam:

As a sole practitioner, I do not have these issue come up. One thought I had was I used to work for an attorney who paid me a 1/3 of the fee for any case I settled. The theory was a 1/3 for him, a 1/3 for me, and a 1/3 for over-head (it was his office).

 

On the question of a bonus, maybe to the extent that a 1/3 of the associates fees from his/her settlements exceed their salary, part or all of that could be their bonus.

Answers by glc:

my practice has been exclusively a contingent fee practice for the last 32 years.  Consequently, I am of no help with most of these questions.  Our associates are paid a salary plus a small percentage of cases they actually bring in to the firm.  The salary varies extensively.  We pay bonuses based on performance, Christmas and at times when the firm has a particularly good result.  Generally bonuses run from a half a month's salary to a full month's salary.  This applies to our staff as well.  Our numbers are generally consistent, I think, with the other PI firms in the county, as we periodically will ask our buddies what they are paying for similar services.
 


Answers by Rick:

In a firm of 4 associates,  How many  hours  is each associate expected to bill?  There are no artifically set required billable hours, we are a general practice firm with an emphysis on personal injury cases on the side of the injured party.  Attorneys are expected to stay until their work is completed and return all calls within one day.  It is expected that there will be up and down months.
 
How is the market pay pay scale for each associate?
Young associates are started at a base salary.  Bonus are given based on a significant recovery or income over a period of months.  After each year a review is made to reward good net earnings.
 
Do you pay the associate Base pay only? 
Yes and no.  A base is established, bonuses are not guaranteed but are given. Base plus bonus?  Yes, net income is a factor, however, an associate will assist on cases of the primary partners, when that case results in a good recovery the associate is created with a percentage of the income to increase his/her net income for bonus consideration. What other method? Do you subtract  offices expenses, including his own salary, from the bill amount before paying bonus? The costs of operation of the firm, ie secretary expense, rent, library costs are factored into the consideration of the net income of all attorneys.  It is expected that a partner will cover his percentage of the overhead, as for an associate he/she must cover the cost of his/her salary, this/her secretary and 1/3rd of the costs which are applied to the partners.  At the end, a bonus is discussed and agreed upon.
If you pay a bonus, on what basis do you pay the bonus? See above

Answers by  John

In our firm we do not have a billing system to keep track of hours.  Since we are a PI firm and handle contingent fee cases exclusively, it is more important to us to measure what an associate accomplishes rather than how long it takes them to do it.  We expect all of our associates to generate at least three times their salary in attorney's fees (minimum production level).  Generally, our attorneys are working about 50 hours a week, when not traveling and more when on the road.

 

Our associates' base depends upon many things but ranges from $75K to $200K.

 

Our associates also receive bonuses based upon production.  If they make their minimum production level they also get an ocean view suite in Maui for a week, a rental car and two plane tickets.  After their minimum they can earn cash bonuses as well.

 

The bonuses are based upon cases brought into the office, fees over and above minimum production level and general contribution to the profitability of the office.



 


  
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