RESEARCH: practices paying out more in employment costs


Law firms are employing more fee-earners per partner as a means of keeping up fee-income - but are facing higher employment costs as a result, research seen exclusively by the Gazette revealed this week.



A benchmarking survey of 158 member firms by the Law Society's Law Management Section (LMS) showed that partners' median fee income grew by a third in 2007, but net profitability was up by 'significantly less' at around 18%.



The survey showed that median fee income for other fee-earners had also increased - but by just 7% against a 9% hike in employment costs.



Almost half of LMS members are now limited liability partnerships, up 23% on 2006. Three-quarters of respondent firms employed a practice manager.



LMS Law Society Council member Simon Young said the substantial rise in partners' fee income reflected a shift in gearing. 'In 2006, most respondent firms had three fee-earners for every partner. The ratio is now four to one. The firms are getting more income in, but they are paying out a third more in employment costs - hence the significantly lower percentage increase in profitability compared to income.'



Report author Robert Mowbray, partner at accountancy firm MacIntyre Hudson, said that, for many firms, 'the penny had dropped' that LLP status was the way forward. 'But these same firms are now looking at adopting a corporate structure for life after the Legal Services Act. Outside investors will want to buy shares in a company rather than put money into an LLP,' he predicted.



Jonathan Rayner