Hain: Challenging environment for recruitment
The healthy state of the legal market, with law firms expanding their range of services, is leading to a talent war and rapidly rising salaries, new research has found.
Accountancy group MHA said 85% of firms it surveyed were planning to increase staff numbers this year, with average salaries across all ranks rising by 5% at a minimum to attract new talent and to adapt to higher inflation.
There was new work flowing in across all disciplines, it said, and further growing demand for legal services.
Along with other overhead pressures and strategies aimed at profit improvement – which may take some time to bear fruit – MHA predicted that 2022 would be “a tough year for profitability”.
Using data from 120 firms of all sizes, the benchmarking report found firms intended to grow their existing offerings, while around a quarter planned to expand into new practice areas.
These were focused particularly on regulatory services, “due to an increased regulatory environment across such sectors as professional discipline and data security”.
Beyond this, property litigation was a major growth area as more clients looked to invest in real estate as part of their private wealth and retirement plans.
“Contentious probate services are also seeing strong demand as clients become more aware of how to challenge the contents of a will.”
But the “critical issue” was staffing given there was “a diminishing pool of prospective employees”, with lawyers either going in-house for greater job-security and more flexible working patterns, or leaving the law altogether following a Covid-related rethink.
This was even though virtually of those polled expected to offer staff agile working, with “a real push to be more accommodating of flexible hours and part-time contracts”.
The survey said salaries were already trending upwards: in 2021, the cost of employing a fee-earning lawyer ranged between £85,000 and £105,000, up from between £82,000 and £95,000 in 2020.
“The pace of change is only likely to increase in 2022. Law firms may need to conduct two pay reviews during the year just to keep up with staff expectations.”
The survey found that equity partner capital has risen across all firms. “One of the reasons for this is that lock-up has also increased. The cash demands of the business were being met by partners, rather than funders, in part due to the difficulty of obtaining finance in early days of lockdown.”
Lock-up has risen among all firms except sole practitioners. “This is due to work in progress taking longer to bill, rather than unpaid client debts.
“During lockdown, many firms found it challenging to complete work assignments to billable stages, and then to actually get a bill prepared and delivered to clients.”
Six in 10 firms aimed to improve lock-up in 2022 by directing resource to credit control practices on the debtor side, and also requesting fees on account from clients.
“Then for work in progress (WIP) to be billed faster, there are plans to change WIP reporting procedures, interim bill more, and provide assistance on unbilled time reviews.”
Average WIP has increased by 10 days over the year and by £197,000. MHA said that, if the billing period was shortened by just one day, then £18,500 on average would be released from WIP into debtors, where firms do not have difficulties in collecting bill payments.
Karen Hain, head of professional practices at MHA, said: “While it’s highly positive to see many firms are executing growth plans in 2022, this year will be a challenging environment for recruitment…
“To best position themselves to retain and attract the best talent, firms should undertake staff surveys and review competitor offerings to understand what is important to employees and create dynamic employment packages, rather than simply focus on a salary increment.
“Firms should also consider concrete steps such as ensuring client charge-out rates are reviewed in relation to salary rate increases, and take simple steps to reduce overheads such as adopting greater automated internal systems to add further money to their recruitment pot.”
The report added that the financial results it had analysed showed an ever-widening gulf between sole practitioner firms and other sizes of practices.
“The regulatory burden increases, but the financial benefit does not. To be a sole practitioner now seems to be more of a lifestyle choice.”
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