In today’s competitive legal marketplace, legal organizations can no longer prosper by just raising billing rates. Finding sustainable growth has become more challenging. In addition to providing quality legal services, law firms must provide value and cater to clients who are increasingly monitoring how they spend their financial resources. Law firm service providers, who 18 months ago were questioning if they had enough staff to generate more profits, now must question if overstaffing is causing profits to sag. This impact can be seen in other service industries such as advertising, accounting, engineering, investment banking, consulting, banking, to name a few examples. These same industries have been laying off professionals and reducing hiring over the past year. This article will explore the costs to a law firm of carrying under-utilized professionals as well the role temporary staffing can play in improving sagging profits.
To analyze the costs of excess workers, we have run several analyzes based on the average cost structure of large and small law firms compiled by national legal consultants Altman Weil and modeled by Legal Network in StaffRite and ParaStaff software packages. Legal Network developed these tools, with the support of national legal consultants Altman Weil to assist law firms in evaluating appropriate staffing levels.
In the chart below, the StaffRite model shows that law firms with professionals who are only billing 1,000 hours to 1,200 hours a year are ALL generating substantial losses when salaries, benefits and overhead are factored in.
The size of these losses might surprise some lawyers, but they are no surprise to the effective law firm administrator. This explains why law firms, just like other professional services firms described above, have been cutting staff in reaction to diminishing work needs. However, by cutting employees too quickly, law firms lose the institutional knowledge of past experiences which the displaced workers take with them. Further, the same law firms may lose the ability to quickly staff up when a large project materializes or sustainable growth prospects return.
Instead of maintaining a staff level necessary to handle these peak loads, the law firm which deploys interim staffing solutions can handle those peak periods while improving profitability. Temporary professionals in many scenarios can be a very effective strategy to obtain profit opportunities without adding costly overhead, benefits or underutilized salaries. A StaffRite analysis shows that law firms with 600 – 800 hours of work over the next five months could generate anywhere from $30,734 to $98,267 in profits with interim attorneys and $10,820 to $43,776 with interim paralegals. The ultimate profits depend on the size of the firm involved and how a law firm wants to bill for interim personnel.
There is no doubt that paralegals represent an integral part of any cost containment strategy. In addition to having lower salaries and benefit packages than attorneys, according to ParaStaff, paralegals at larger firms can generate $45,000 in profits by billing 1,800 hours annually. But can paralegal staffing on an interim basis work as well as interim attorney staffing? The answer is a qualified yes, but there are some things clients should consider with interim paralegals.
SPECIAL SHORT TERM PROJECTS
For smaller projects, it is not difficult for a staffing agency to identify a skilled paralegal to fill a staffing gap caused by increased workload. Interim paralegals on specialized projects have a strong track record for success for a number of reasons. Because this work can be more specialized, these assignments offer more interesting work for the interim worker than pure document review type projects. Another benefit in the use of interim paralegals is with a paralegal placement, temp to perm arrangements are an effective way to profitably hire new paralegals. This is because not only can the law firm evaluate the cultural fit of the candidate, they have the chance to evaluate the work product and amount of workflow in the pipeline before making a hiring decision while making a profit with the paralegal. The opportunity to be hired becomes an effective motivating factor which a law firm can use to get an interim paralegal to do the best job they can. As a result, this is an area where interim hiring makes complete sense.
LARGE DOCUMENT REVIEWS
The use of interim paralegals on larger projects can sometimes present issues for some. First, it is often hard to find a large team of interim paralegals who can maintain uniform levels of quality when compared to teams of interim attorneys on a large project. This is because paralegal projects compete with the general job market including full-time positions which give interim paralegals more job opportunities to consider. Therefore turnover can be higher. In contrast, interim attorneys are generally not as interested or distracted by positions listed in the general job market. Secondly, contract attorneys have more legal training and being licensed professionals can perform not substantive reviews. As a result, while interim attorney rates might be 30% – 50% higher than interim paralegals, the contract attorney can perform more types of reviews on documents at higher quality levels and create more value for the client. However, not all projects require higher levels of professional staffing. For instance, projects such as objective data coding and database entry, preparing filings for submission, and sorting and retrieving documents represent excellent projects for the interim paralegal. Here support staff can be very effective to control costs and boost a law firm’s profits. Further quality issues on interim paralegal projects can be minimized by (i) evaluating the coding process being followed by the coders, (ii) providing some form of quality checking and performance monitoring, (iii) considering a reward system based on the type of outcome sought, and (iv) providing a promotion path for longer projects to encourage higher levels of performance. Of course, some staff turnover should be expected as well as encouraged as these types of tasks are sometimes painfully monotonous and one disgruntled paralegal can spoil team morale and performance on these types of projects. In conclusion, while there are some risks with larger interim paralegal projects, effective project management can limit these risks and keep the project very economically successful.
II) Legal Secretaries
While legal secretaries do not generally directly add profits to a law firm, they are in many cases indispensable for law firms. Secretaries enable written work to be typed quicker, answer phones for attorneys and to help attorneys manage their time effectively. However, just like attorneys and paralegals, underutilized legal secretaries can cost a law firm money as their salaries, benefits and overhead costs can create a drag on law firm profits. Therefore, can Legal Secretaries be hired in interim positions to control a law firms expenditures? The answer is it depends but there are challenges here. For years there has been a shortage of quality legal secretaries. Consequently this has reduced the pool of available interim legal secretaries. Some firms managed the shortage of secretaries by becoming more efficient with technology and secretary sharing ratios to deal with the legal secretary shortage. Further, as a result of the recent economic slow down fewer firms have hired new attorneys and paralegals. Consequently the downsizing that has occurred may have helped some firms deal with the shortage of legal secretaries.
Based on the above, is there a need for interim legal secretaries? The answer is a qualified yes. Peaks in workflow that require periods of intense typing, staff absences and training secretaries for a position create a market for interim legal secretaries. Firms that do a good job at this can see some financial improvements that flow to their bottom line. Agencies can help if the agency has a pool of quality legal secretaries available. However, for a strong experienced legal secretary, who can work with senior partners, the more practical avenue for hiring is still traditional permanent placement which can involve hiring an agency to try and attract a top legal secretary away from an existing position.
The economic analysis, as illustrated by StaffRite for attorneys, and ParaStaff for paralegals, demonstrates a real value in the use of more interim staff. It just costs too much money for law firms to carry full-time staff in areas where the staff is underutilized when interim personnel can quickly add substantial profits.
* Karl Schieneman, Esq. Managing Director and Karen Catanzaro, Support Staff Recruiting Director for Legal Network, a Pittsburgh based legal staffing and consulting company.