Thinking about hiring an associate attorney? Before starting your search, answer four questions that can save you money and momentum.
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As a law firm owner, I have felt the urge to keep growing my law firm — whether it’s because I see my colleagues building larger firms, or just because I can. However, adding associates comes with extra administrative burdens, stress, risk, and cost. You’ll want to proceed with your eyes wide open and make sure you are making the best financial decision for your firm.
On the administrative side, you’ll need to devote time to onboarding and training the new attorney. These processes take more time than you might think. In my experience, it can take about six months for a new attorney to get integrated and fully utilized. The risk is that they do not always work out. If it’s not a good fit, for whatever reason, and the associate departs after a short period, you lose the time invested in them and have to begin again.
My advice: If you are thinking about hiring your first (or next) associate, start with these four questions.
1. Why Are You Expanding?
You may feel like you “should” grow. Looking at social media and at law firm advertisements, it can feel like firms keep getting bigger — absorbing practice teams, merging, expanding lateral hiring and bringing on more new associates. But one great thing about owning you own firm is that you get to do things your way. Don’t don’t allow what other firms are doing to dictate your plans. Focus on running your own race, and keep your growth goals as personal as possible.
Growing your business feels good. People congratulate you on expanding your firm, and that kind of attention can feel intoxicating. But ego is not a good reason to hire more attorneys and staff. Your reasons for hiring an attorney — whether to ease your burden, expand capacity, or to enter a new niche — should make sense both financially and operationally.
Figuring out why you want to grow your firm will keep you focused on your vision. You may even decide to stay at your current size, which is totally fine. Many firm owners add attorneys and soon regret it. They either hire the wrong person or can’t control the quality of work, and it becomes a huge headache.
If you are confident in your “why” and still want to hire an associate attorney, you’ll need to figure out the money.
2. Will Hiring an Associate Attorney Be Profitable?
You run your own law firm for many reasons — flexibility, lifestyle, autonomy, and to reap the financial rewards of owning your own business. So, before adding a new attorney or new practice area, do your financial homework to make sure you can afford to hire a full-time associate and aren’t putting your business at risk.
If numbers aren’t your thing, or you would rather spend your time elsewhere, bring in a solid CPA to break down the financial state of your firm and walk you through different scenarios for expanding your team — or not.
Running a law firm involves many moving pieces and sometimes it’s challenging to stay focused on your law firm’s financial picture. After reviewing your financials, you may learn you aren’t as profitable as you thought. Or, you may want to kick yourself for not bringing in extra help sooner.
(Review the “Quick Financial Checks” Worksheet at the end of the article.)
Obviously, if your firm is not financially healthy, adding another attorney could backfire. If you are in a good position to hire, the next thing to consider is compensation.
3. What Can You Afford to Pay a New Associate?
Before setting a salary and compensation package, here are some things you will want to consider:
- Do you know what salary you can comfortably afford to pay while you onboard a new lawyer? Confirm the numbers with your accountant or business advisor, factoring in overhead and benefits.
- What do comparable law firms in your market pay their attorneys? If you work with a recruiter to source your candidates, they can help you with market research.
- Can you offer a compensation package that provides base compensation along with other incentives? For example, if an experienced attorney wants to work for you, but you cannot afford the base compensation they want, would you be willing to pay based on a fee split or a performance bonus?
- Do you have the administrative capacity to manage alternative pay methods, such as a fee split?
Confirming the going rate compared to what you can afford to pay an attorney will help you decide if you’re ready to start your search.
Before moving forward, however, consider whether full-time help is what you need.
4. Do You Need Another Full-Time Employee?
Hiring a permanent full-time attorney isn’t the only way to expand your practice. You could add a part-time employee, a temporary contractor or bring in co-counsel for a specific case or matter. (Read: “Why Small Law Firms Need Flex Talent.”)
Look at your firm’s data and consider flexible alternatives.
- Will hiring a new attorney fill the gaps and help fix the issues your analysis reveals? The last thing you need is to onboard an attorney and realize you don’t have enough work to keep them busy.
- Do you need help with a specific case or matter? If so, you may be better off seeking co-counsel or a contract attorney to assist with this temporary need.
- If you need help with more than just one case or matter, calculate whether you have enough work to support a full-time employee or whether a part-time hire would suffice.
- Are you missing opportunities for bigger, more profitable cases and turning work away? If you are determined to grow, adding staff may be worth the risk. Still, you might consider interim steps before committing to a full-time position.
After reviewing your finances and your caseload, you may decide that full-time help isn’t necessary right now. Or, you may conclude that the longer you wait to hire, the longer you will continue feeling exhausted and overwhelmed — and the longer it will take to reach your growth goals.
A Wrong Hire Can Be Costly
Whether you decide to hire a full-time associate or choose an alternative path, by thoughtfully considering these questions, you will enter the process with all the information you need to expand your firm in a smart way.
Worksheet: Quick Financial Checks Before You Hire
These calculations will help determine whether you are ready to hire an associate.
Target Utilization
Set a realistic billable-hours target for months 1–6 and months 7–12 (e.g., 60% ramping to 75% of 1,600–1,800 annual billables).
Then apply your expected realization and collection rates to determine your target utilization rate.
Breakeven Math
Fully Loaded Cost = Salary + Benefits + Payroll Taxes + Malpractice Insurance + Equipment and Technology Licenses + Recruiter and Onboarding Amortized
Monthly Cost = Fully Loaded Cost ÷ 12
Breakeven Hours/Month = Monthly Cost ÷ (Billable rate × Realization × Collection)
So, if $300,000 covers the fully loaded cost, your monthly cost would be $25,000. At a reduced billable rate of $180 per hour after factoring in realization and collection rates, your breakeven is approximately 139 hours per month, or 35 hours per week.
“Rule of Thirds” Check
The rule of thirds says that attorneys should bill and collect at least 3x their employment costs: One-third covers their base salary, one-third pays for overhead and one-third goes to firm profits. Can the new lawyer’s projected billables ultimately support 3× total compensation — enough to cover base salary, overhead and owner profit?
Cash runway: Can you maintain 6–9 months of the associate’s fully loaded monthly cost in cash or committed credit? Include 6 months of partial utilization during ramp-up.
Pipeline coverage: Do signed matters and likely lead conversions support the first six months of breakeven hours? If not, delay hiring or line up overflow contractors or co-counsel.
Sensitivity test: Recalculate the breakeven if utilization drops 10%, rates discount 10%, or collections slip 15 days. Don’t make decisions based on the best-case scenario.
FAQs: Hiring an Associate Attorney
You are likely ready if you have a consistent backlog of work, a healthy profit margin, and the administrative bandwidth to train a new hire for at least six months.
Many smaller firms, even solos, would benefit from memorializing their processes and preferences for handling work matters and administrative tasks. In addition to preparing basic SOPs, set aside time for orientation and training. Tip: As you explain various processes, ask the new lawyer to take notes and prepare a checklist you can edit and to create SOPs to add to your training manual. Read: “From Hire to Higher: 6 Ways to Improve Employee Onboarding” and “An Ready to Scale? Add More SOPs Before Adding More Employees” by Karen and David Skinner.
Most law firm owners find that associates reach full profitability once the new hire is billable at a rate that covers three times their total compensation package (i.e, the rule of thirds.) Some aim for four to five times. Numbers may vary based on practice area, rates and realization.
Direct and indirect costs of losing an associate commonly total 1.5x to 2x their annual salary when you factor in recruiting fees, signing bonuses, training time, lost productivity, write-offs, and client churn. Reducing early turnover through structured onboarding and clear expectations helps protect your investment in a new hire. Read “Protecting Your Investment: How to Realize a Robust ROI From Associates” by Wendy Merill.
Image © iStockPhoto.com.
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