Hiring a traditional law firm associate has always been costly, and these costs have only increased in recent years. Many solo attorneys and small firms often delay hiring due to the intimidating expenses, even when they desperately need help. While salary constitutes a significant portion of an associate’s compensation, there are other costs involved that need consideration. Let’s delve into these costs.
SALARY
The National Association for Law Placement (NALP) provides data on starting salaries for first-year associates in the private sector. Their latest report shows that the median first-year base salary as of January 1, 2023, was $200,000, reflecting a 21.2% increase from 2021. This rise is substantial, especially given the inflationary pressures law firms have faced recently.
One might assume this increase only affects big law firms, given the media coverage of salary wars in larger firms. However, NALP reports that the highest percentage growth in salaries was actually in the smallest firms, which make up the largest sector of the legal industry. For firms with fewer than 100 lawyers, the median first-year salary rose from $120,000 in 2021 to $155,000 in 2023, marking a 29.2% increase.
Geographical location also plays a significant role in salary variations. NALP found that across 26 cities, median first-year salaries ranged from $145,000 to $215,000, with eleven cities having a median starting salary of $215,000, including major legal hubs like New York City, Los Angeles, and Washington, DC.
Practice areas and experience levels further influence starting salaries. For example, firms specializing in intellectual property or commercial litigation may offer higher starting salaries than those focused on personal injury or family law. Additionally, hiring a more experienced attorney will naturally incur higher costs, with the median salary for an eighth-year associate being $307,500 as of 2021.
Despite the salary increases, associate turnover rates have reached record highs, perpetuating a cycle of rising salaries and turnover that threatens the sustainability of modern law firm business models. Therefore, firms need to explore alternative staffing models to maintain adequate client representation.
TRAINING
New lawyers often require significant training and professional development, which translates to time and costs for the firm. This training typically involves senior attorneys dedicating substantial time to mentor and supervise new associates, which can be frustrating if the associate later leaves for a competitor. On the other hand, hiring more experienced associates can bring their own challenges, such as needing to unlearn bad habits or adjust to the firm’s standards.
BENEFITS
In addition to salaries, benefits can quickly accumulate. According to the U.S. Bureau of Labor Statistics, as of December 2022, benefits accounted for 31% of employee costs. For a first-year associate with a median salary of $165,000, benefits could add another 30% or more, covering health insurance, retirement contributions, and other perks.
Health insurance alone is a significant expense. The 2022 Milliman Medical Index reported that the cost of healthcare for a typical American family of four covered by an average employer-sponsored plan was $30,260, with employers paying 73% of the annual premium. Other benefits include dental insurance, disability insurance, life insurance, FICA contributions, and possibly additional benefits like commuter allowances and gym memberships.
MALPRACTICE INSURANCE
Associates need to be covered by malpractice insurance, typically costing around $2,500 to $3,500 per year, but this can vary based on factors like practice area and prior claims.
BAR DUES & CLE
Law firms usually cover associates’ annual bar association dues and continuing legal education (CLE) expenses, which can vary by state but often amount to at least $1,000 per year per associate. Joining local or specialty bars can also be beneficial for networking and professional development.
OFFICE & EQUIPMENT
Associates need access to office equipment, whether working in-office or remotely. This includes laptops, printers, office supplies, and possibly office furniture and cell phones. Software needs may include practice management tools, research accounts, and specialized software for specific practice areas. These costs can easily add up to around $2,500 per year per associate.
UNDER-UTILIZATION
Law firms often experience fluctuating workloads, which can make it challenging to justify a full-time hire. The 2020 Altman Weil Law Firms in Transition report found that 84.4% of surveyed law firms had under-performing lawyers, with nearly a quarter reporting that more than 10% of their lawyers were under-performers.
THE BOTTOM LINE
Considering all these expenses, the total cost of hiring a first-year associate can reach around $296,600. To generate a profit of $200,000, the associate’s work needs to bring in $496,600 in revenue, requiring an hourly rate of $275 if billing 1,800 hours annually. This rate may vary depending on practice area and market rates.
Associate Investment | Costs |
|---|---|
GRAND TOTAL | $296,600 |
Salary | $200,000 |
Benefits – Health Insurance (31% of salary) | $62,000 |
Retirement Contributions (3.4% of salary) | $6,800 |
Disability insurance ($2,000 to $5,000) | $3,500 |
Life insurance ($250 to $500) | $500 |
Employer contributions to FICA (7.65% of salary) | $15,300 |
Malpractice Insurance | $3,000 |
Bar Dues & CLE | $1,000 |
Computer & Office Supplies | $2,000 |
Software subscriptions | $2,500 |
HIRING OPTIONS
There are more affordable and flexible hiring options available. Contract lawyers, freelance lawyers, or remote associates can be a smarter staffing solution, avoiding overhead costs like benefits, insurance, and equipment. Freelance attorneys can provide assistance as needed, without the commitment of a full-time hire, and often bring years of experience, reducing the need for training.
CARDAM LEGAL IS HERE TO HELP
At Cardam Legal, we understand the complexities of hiring associates. We offer various tools to help busy attorneys manage their workloads efficiently. Have questions? Contact us at info@cardamlegal.com or call 860-579-1775. You can also book a consultation to discuss your firm’s needs by clicking HERE.
