Payroll inflation is taking its toll

The legal sector is enjoying a period of expansion and a greater demand for services has led to a higher demand for staff.   

There are also many lawyers planning to move roles or leave the legal sector altogether (the IBA Young Lawyers Report 2022 surveyed 3000 lawyers under 40 and found 54% were ‘likely’ to move, and 20% were considering leaving). This is a theme seen across all sectors as part of the ‘Great Resignation’.

When combined with inflationary pressures across the economy it is less surprising that salaries are increasing rapidly, with the base for a newly qualified lawyer tipping over £100k for the first time (MHA Legal Benchmarking Report 2022). As salary costs typically represent around 50% of fee income, this puts significant pressure on profitability for firms.

While many firms have increased profits over the last few months, salary costs may well reverse the trend, and firms should bear in mind that raising salaries alone may not be enough to tempt existing staff to stay.

If only there was a way to mitigate the impact of  significant salary increases and recruitment costs and also benefit  customers and staff experience.

Taking a step back from the challenge

Hiring more staff is the obvious solution to an increase in demand though it’s not always best to do it in isolation. As we have seen, in a situation where salaries are being driven up significantly, this can represent a financial challenge.  There are also additional problems to this approach:

  • From our work we have seen that only 35-45% of fee earner time is actually spent on billable or value-adding work (see the graphic opposite for an average fee earner week in Residential Conveyancing)
  • The rest is spent on non-legal activity such as admin and chasing updates from internal teams
  • Every new lawyer will also end up spending this much time on these activities if working practices and structures remain the same
  • For a lawyer on £105k (base), this represents over £58k of their annual salary on non-billable activities
  • In addition, one of the issues raised by lawyers around reasons for leaving firms was technology (or lack thereof) (IBA Young Lawyers Report 2022) – not addressing that admin time is likely to cause internal friction and is often a source of complaints amongst the fee earner community

While hiring new talent may be required for expansion (particularly where new expertise to manage new types of business is needed), there is often a significant opportunity to invest in the capacity of existing staff as well.

An alternative response

There are three steps that can be taken to explore this option:

  1. Understand where people spend their time
  • Staff time needs to be surveyed or recorded to understand the activities that cost the most. (Note that this needs to be much more granular than the broad groups of activity commonly seen in time or billing information, and each activity must be assigned a ‘Red, Amber or Green’ rating according to whether they are part of the core process)
  • Make sure that the firm knows where all time is spent, not just that of the fee earners, but support staff as well
  • Mapping  core processes will support identification of core legal activity can be used to understand the  teams and systems involved at each step and the value added by each
       2. Identify activity that can be removed or reassigned
  • Look at the time spent by key staff and identify that which can be:
    1. Removed completely (e.g. through process automation or redesign)
    2. Reassigned to alternative staff
    3. Made more efficient (e.g. using effective application of technology, or redesign of processes
        3.  Trial changes before implementing them and check the impact made
  • Trial  changes first to see if the capacity freed up allows greater capacity to be managed without the need for as many additional staff
  • Note that the larger the firm, the greater the attention that will be needed on:
    • Change management and significant engagement of existing teams as roles and processes will change – make sure your HR teams are also involved
    • Potential hiring of additional staff in supporting teams to manage any change in roles and responsibilities

Conclusion

Making better use of existing staff feels an obvious solution, so why isn’t it done more often? In our experience, it is because doing this work takes time and effort and can be difficult to get right 

But the long term benefits are clear – firms save money, and also improve the workings of their business. Plus, if it’s done well, it can improve employee engagement (who doesn’t want less inefficiency and frustration?), which also improves retention.