Law Practice Management and Technology

The Bottom Line Volume 34, No. 1, February 2013

The True Cost of Hiring – and Terminating – a Lawyer

By Edward Poll

As ongoing economic hard times make law firms look hard at their revenue and cost structure, it is apparent that the most critical cost factor for client service is staffing levels. Before the Great Recession began, most firms believed that the simplest staffing arrangement, a direct hire of an associate when needed, was best. However, this is only a feasible option if the overall business health of the firm supports it. There will be expenses incurred beyond the salary and benefits of the new lawyer, from additional liability insurance costs to overhead for staff and equipment. There is also the practical issue of whether the firm’s office space can accommodate a new body.

“All associates can determine their own personal balance sheet if they plug in the right numbers.”

The issues here relate directly to leverage – hiring and using associates as a cost-effective way to do billable work while boosting partner profitability. In the past, law firms with lagging profitability turned to associates to do more of the work, which instantly adjusts the staffing leverage. However, leverage is only effective when associates are effective and it is profitable for the firm to keep using them. While associates may not earn more than they cost the firm at the start of their careers, at some point that situation must change. The economics of hiring new law school graduates can no longer be taken for granted, given the time and expense of the process required to get them up to practice speed.

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