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From Panic to Profits

Your Law Firm’s Employees Cost Too Much to Lose

By Brooke Lively

What does it cost to replace an attorney in your law firm? In the end, more time than you realize. Let’s look at the financial breakdown and the cost of employee turnover.

cost of employee turnover

Most of the lawyers I know feel like their employees fall into one of two categories. They are either walk-on-water incredible or a pain in their rear. The latter ones suck up lawyers’ time, need help, and don’t do their job all that well. Sometimes it seems it would be easier to do the work themselves.

In the past, there was high turnover among the second group because it was easy to replace them. There was always a new paralegal that could be hired or another lawyer graduating from law school. Since the pandemic and the Great Resignation, that has changed.

The Power Has Shifted to Employees

Despite the news of Biglaw layoffs, we are no longer in an employers’ market. For one, fewer students are entering law school, and not all recent graduates are ready to practice. Recently one of my clients told me that her newest hire didn’t pass the bar exam. By all the usual markers, she should have. She was top of her class and law review. But the most recent graduating class is the one that spent the most time in law school during the height of the pandemic. And it seems to be showing in bar passage rates. This reality along with the Great Resignation and talent war, means the talent pool is shrinking and power has shifted to the employees.

Employees have the power and can choose where they want to work.

Why You Should Care About the Cost of Employee Turnover

From a financial perspective, I’m concerned about the cost of replacing an employee. Most people just look at the hard costs. According to the Society of Human Resources Management (SHRM) those costs are about $4,700.

However, the incoming chair of the SHRM Foundation estimates that the replacement cost of employee turnover for a professional is closer to three to four times their annual salary.

For small firms, I believe it could be even higher.

Wow.

What Does It Cost to Replace a Young Attorney in Your Law Firm?

Let’s consider replacing a $ 75,000-a-year attorney. Keep in mind this is a third- to fifth-year attorney, so not even that experienced.

The scenario is one you might have experienced. Your attorney quits, so you have your office manager put a job ad on Indeed, LinkedIn, some law school alumni websites, and probably the bar association’s job board. She spends hours wading through resumes before finding four that might work. She brings them in for a chat and decides that two are worth your time to meet. You offer the job, but the candidate has a better offer and turns you down.

Alternatively, you meet the candidate and think, “I’m desperate but not that desperate” and send your office manager back to the drawing board. She starts the process again, and this time you manage to find somebody. The person interviews with you and a paralegal. You hire them and wait a month for them to start while they give notice at their current firm. When they finally come on board, it takes them about two months to get up to full billing speed.

In the end, you realize it took seven months from the time you put out the ad until they were fully productive.

The Financial Breakdown

Here’s a potential breakdown of the money, time and opportunity cost spent finding that new attorney.

The Cost of Employee Turnover

ActivityPersonRate/HrHoursCost
Write and Post Job DescriptionOffice Manager$30.001

$30.00
Indeed Listing$2,000.00
Go through applicationsOffice Manager$30.006180.00
First round of interviews (4 people)Office Manager$30.006180.00
Second round of interviewsOwner$450.006$2,700.00
Discuss candidatesOffice Manager$30.00130.00
Discuss candidatesOwner$450.001$450.00
Don’t find any good candidates and start again
Indeed Listing$2,000.00
Go through applicationsOffice Manager$30.006180.00
First round of interviews (4 people)Office Manager$30.006180.00
Second round of interviewsOwner$450.006$2,700.00
Discuss candidatesOffice Manager$30.00130.00
Discuss candidatesOwner$450.001$450.00
Second Interview (2 candidates)Owner$450.003$1,350.00
Second Interview (2 candidates)Paralegal$175.003$525.00
Discuss candidatesOffice Manager$30.00130.00
Discuss candidatesOwner$450.001$450.00
Discuss candidatesParalegal$175.001$175.00
Background Check$450.00
Set up new hireOffice Manager$30.003$90.00
Lost revenue during search (3 months)$300.00600$180,000.00
Ramp up/adjust to new firm (½ billing for 2 months)New hire$300.00120$36,000.00
TOTAL COST OF HIRING$230,180.00

HOLY COW! $230,000 to replace a $75,000 attorney?

These numbers tell us it is in our best interest to retain our talent and stop the constant turnover that seems to afflict small law firms around the country.

The reply I usually get to that is, “Hey Brooke, that sounds great, but how? I don’t have enough money to pay much more.”

Have you ever heard the expression, “When all you have is a hammer, you tend to see every problem as a nail”? Attorneys think their only tool is a hammer called money. And that simply isn’t true.

According to a 2022 survey by Glassdoor, the majority of employees said that workplace culture is more important to them than salary.

Sit with that a moment.

Firm Culture Is Your Best Weapon Against Turnover

Your culture is more important to your employees than what you pay them (within reason, of course). Culture can 100% be controlled, and it only costs time, not cash.

What are your firm’s core values?

Are they generic “inspiring” words that sound like you ripped off some poster from Etsy — just empty promises? Or are they real and tailored to your firm?

I was working with a client recently who discovered that one of their core values is, “Solve the problem nobody else can solve.” They go on to talk about being creative, looking for what others are missing, asking questions and being curious. This is personal. This is specific. This is about them. This is a true core value.

Are you using them?

Do you use your core values when you hire, fire, promote, reward and recognize people? How often do you talk about them, acknowledge people in the firm for living them, and share them with clients? Until they become part of your daily language, you aren’t actually using them.

Your lack of leadership skills may be chasing away good people.

There is a great saying that goes, “People don’t quit a job, they quit a boss.” One of the biggest problems we see in the firms with whom we work is the lack of leadership skills among attorneys. Improving your firm’s culture also means giving those in a leadership position — including you — the help they need to become the leaders the firm needs them to be.

Your leaders are running off your staff. And at $230K a pop, you can’t afford not to invest in their ability to teach, train and manage the people working with them.

What are you doing to ensure you have happy employees that want to stay with you for the long haul?

Image © iStockPhoto.com

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Read more from Brooke Lively:

“Law Firm Overhead — What It Is and What It Isn’t”

“How Are Law Firm Owners Paid? Total Compensation vs. Salary”

“Funding Growth: Are You Starving Your Law Firm?”

“Understanding Law Firm Profits and What to Do With Them”

“Building a Law Firm That Pays You First”

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Brooke Lively Brooke Lively

Brooke Lively is the CEO and founder of Cathedral Capital, a team of CFOs and profitability strategists who help entrepreneurs turn their businesses into profitable companies. After earning her MBA, Brooke built a seven-figure company in under two years. As a Chartered Financial Analyst, she and her team work with Hall of Famers, Inc. 5000 businesses, CEOs and small business owners. She has been named a Top 25 Women to Watch, 2016 – 2020 Diversity Journal Women Worth Watching, and to Fort Worth’s 2016 CFOs of the Year. She is a highly regarded speaker and author of several books. Follow her on LinkedIn.

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