Law firm profits rise despite a decrease in claimed billable hours

updated on 14 March 2023

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Working from home may be damaging law firms’ productivity despite sustained levels of high profit, new research by the Law Society has revealed.

Its Financial Benchmarking Survey, which has run for 22 years, collected financial data from 155 small and medium-sized solicitor firms with a combined income of more than £1.1 billion, making it one of the leading surveys of its kind in England and Wales.

Undeterred by the current economic climate in the UK, with businesses facing rising costs, research shows that law firms have continued to invest in staff and maintain a focus on recruitment and retention.

Participants in the study reported an increase in fee-earner headcount of 3.2% and a 2.1% increase in support staff numbers, a figure that often reduces in tough economic times.

Meanwhile, total salary costs as a percentage of fee income also increased by 0.4%, from 58.5% in 2021 to 58.9% in 2022. This suggests that firms are still keen to attract and retain the very best lawyers, placing pressure on them to maintain attractive salaries.

However, the survey also revealed that working from home could be harming productivity. The report points out that fee earners should be charging at least 1,000 or 1,100 hours a year. However, in 2021/22, the median number of chargeable hours fell from 863 in 2021 to 841.

Eugene Farrell, mental health lead at Law Society partner AXA, wrote an article for the Leadership and Management Section of the Law Society on productivity and how it can be measured. Farrell wrote: “Productivity can often be confused with the number of hours that an employee is working. If someone is staying ‘logged on’ well into the evening, when everyone else has finished for the day, it doesn’t necessarily mean that they are working harder than everybody else.”

Evidently, law firms’ focus on productivity seems to be shifting away from the traditional measure of billable hours. The report comments on “the growing evidence that working from home is not always as beneficial to the firm as it is to the individual” with firms increasingly “calling their staff back to the office for at least some of the week”.