An associate in a large American firm can expect a billing target of 2,200 hours a year. If a young lawyer is working 49 weeks of the year the target works out to 45 hours a week. The challenge comes in reaching the target while dealing with the administrative details of practice, firm meetings, continuing professional development hours and other non-billable office time.
If an associate such as Adams meets the target (close to a euphemism for requirement) he will have billed $1,045,000. It is an impressive sum for a new lawyer.
With a salary of $200,000 it potentially means the firm has available for expenses related to Adams and distribution to other partners the sum of $845,000.
What few works of fiction delve into is the collection of billings. Small firms to big firms can have problems collecting all fees billed. Firms evaluate how much is received versus how much is billed. From a business perspective the target should be based on collectible hours. Few firms want to disclose the extent of their challenges in collecting accounts.
For a young lawyer under the direction of partners the issue of collectibles is more a question for more senior lawyers at the firm.
For discussion let us say $145,000 is non-collectible leaving $700,000. If the expenses related to Adams total approximately $200,000 there is about $500,000 available for distribution.
For the senior partner, Lyons, he is likely to bill the same number of hours and bring in substantially more money. If he bills $1,000 per hour for 2,200 hours he bills $2,200,000 for the firm. Considering his status and his focus on paying clients let’s estimate the firm receives $1,900,000 from his billing. We need to subtract expenses related to him which will be a little higher than Adams. I shall say $250,000 bringing his personal net collectibles to $1,650,000.
In the book he is paid by the firm $3,500,000. Since he brings in $1,650,000 there need to be about 3.5 associates to make up the $1,8500,000 he has not brought into the firm.
The post over-simplifies associates as senior associates are far more valuable than neophyte lawyers. The older associates will bill closer to the totals of partners as they strive to achieve partnership status.
For this post we will omit a discussion on big firms discounting rates for important clients so their billings are less than what you would expect from their published rates.
Big law is very demanding in hours and very lucrative.
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Zunker, Chad - (2020) - An Equal Justice
There was a case in the UK recently where a senior partner in a law firm charged a client a high rate and off-loaded much of the work to a junior colleague on a much lower salary. Does that often happen the USA or Canada?
ReplyDeletePresumably lawyers who are expert in particular areas of law can deal with cases more quickly than other lawyers - would such a lawyer charge by the case, or on a notional hourly rate or by the actual hours worked?
Roger: Thanks for the comment.
DeleteI cannot comment how often your example occurs. Firms I know and deal with are careful to specify which lawyers will do what work and the costs of all lawyers involved. Many firms, large and small, have teams of lawyers. We do our best in our small firm to work with clients on how lawyers in the firm can best work on their files.
As I am a general lawyer with the majority of my work in litigation I disagree specialists can deal with cases more quickly. I expect they are of a different view. I consider I bring perspectives to a case from different areas of law.
Charges will vary with the firm and nature of a case. Some are by a contracted fee no matter the time involved, others are charged on hourly rates and yet others are paid on a contingency basis that the lawyer is only paid if they win the case.
Thanks, Bill, for explaining how the whole issue of billable hours works. I'd guess most firms wouldn't want to reveal how many of their billable hours get paid, and how many don't. It's clear, now you lay it out, that it big law takes up a lot of time - but the results can be very financially rich indeed.
ReplyDeleteMargot: Thanks for the comment. I think Big Law has unreasonable expectations concerning hours and work load for students, associates and partners. Enough lawyers are satisfied with the conditions and income to keep the big firms fully staffed.
DeleteFascinating! The book you reviewed already sounded appealing, and I am always interested in the realities of charging and billable hours. Thank you for a great clear illustration and example!
ReplyDeleteMoira: Thanks for the comment. As with most people lawyers think a lot about money. I hope the "target" for billable hours is lowered for the next generation of lawyers.
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