Contract Attorney and Paralegal Hourly Rates

First, let’s review the ethics rules…

The ABA Standing Committee on Ethics and Professional Responsibility and most jurisdictions allow firms to markup contract attorneys

• Most jurisdictions (with the exception of Texas and Maryland) allow for marking up contract attorneys so long as the firm works with them and bills them as they would other attorneys at their firm—there are nuances so always consult the rules in your state.
• The ABA Standing Committee on Ethics and Professional Responsibility in Formal Opinion 08-451 states that contract attorneys can be marked up if:

1. The markup is reasonable.
2. The attorney retaining the contract attorney and holding the client relationship remains ultimately responsible for the work product and ensuring other rules of professional conduct are followed.
3. If the firm bills the client for the contract attorney as a legal fee, not as a disbursement.

If you are having your own doubts about marking up contract attorneys, check out our overhead costs and considerations chapter here to better understand why the ABA and other lawyers feel this is justified and why contract attorneys are not without their own overhead costs to your time and your practice.

 

Now let’s review how contract attorneys can help your firm thrive…

How can contract attorneys and paralegals help your law firm to grow, become more profitable, and become a better place to work?

Here are 4 common ways that law firms are strategically utilizing contract attorneys to fulfill objectives that support profitability, growth, and a better experience for clients and other law firm team members.

1. Lean Law Tool:

Lean focuses on the voice of the client and eliminating waste. In law, your product is your people and there can be both waste and a suboptimal experience for your clients if your talent capacity isn’t matched to your client and business needs. Contract attorneys and paralegals have become the industry-favored “just-in-time” talent strategy that helps to match costs to business cycles and the right talent specializations to demand.

Having a bench of contract attorneys with the right expertise as needed by your clients allows for better results and client experiences than employing full-time associates that are generalists or experienced in a different practice area. When your clients have more niche or specialized issues that require deeper expertise, generalists or associates with expertise elsewhere learn on the job—and bill your clients for their education. For example, paying a highly-skilled specialist $200/hour who can complete the job in 3 hours will ultimately cost less than someone learning on the job at $100/hr who will take 10+ hours to potentially produce a less desirable result.

Contract attorneys can also allow you to keep your billable rates competitive and better implement alternative fee arrangements while maintaining or increasing profitability since you don’t have to shoulder the financial burden of full-time payroll for underutilized associates or paralegals.

2. Growth Strategy:

Growth is a challenge and opportunity presented to firms ranging in size from solos to 100+ attorneys. As business picks up, particularly in uncertain times (hello 2020s), you may have too much work for yourself and/or your current team. Still, this may not warrant another full-time employee and salary. Or you may be concerned that even if you could justify this for the coming weeks or months, it may no longer make financial sense in the longer term if business slows down or a major case wraps up or settles suddenly.

In these situations, you’re likely hesitant to take on the risk and payroll burden of a new employee—and to hire someone away from another full-time job when you’re unsure that business and your firm’s finances can support an additional employee in the future. This is where contract attorneys and paralegals can shine, and likely why about 1/5 of legal payroll spend is now spent on contingent talent and 77% of in-house legal departments with 50+ lawyers, 70% of law firms with 250+ lawyers, and 55% of all law firms utilize contract attorneys.

 

Contract Attorney Usage by Organization

A contract attorney or paralegal can allow you to meet your law firm or legal department’s growth where it is. You can expand the personnel hours that you pay for as your business grows to support them, rather than investing in a full-time hire before you have the consistent business and revenue to support them and their paycheck.

 

Payroll Dollars in the Legal Industry

3. Avoiding the Costs of Burnout and Talent Turnover:

Has your business ever picked up before you were able to make another hire? Did you respond by making yourself and your other team members work increasingly long hours? Did you and/or other team members get burnt out to the point that you ultimately became less productive or perhaps you lost a trusted employee to another job as a result?

Overworking yourself, associates, and paralegals versus committing to another full-time hire can be a logical reaction and can seem like the only solution to feast and famine cycles. These cycles are particularly stressful all around for law firm owners. During feast cycles, you and your team are run into the ground, during famine cycles firm owners may be up at night worrying about whether they can support themselves, their employees, and generally keep the lights on. Every extra person on payroll during a famine cycle ups the stress levels.

One of the most overlooked cost-saving opportunities with contract attorneys is sparing you and your team from the emotional and financial fallout of feast and famine cycles. Creating a work culture that doesn’t work your team into the ground can give smaller firms with smaller budgets an edge that attracts and retains top talent and in turn, helps you to attract and retain more clients.

In addition to lost productivity, a culture of burnout puts you at a high risk of losing star employees. The cost here is not just the time it takes to replace your star associates—and the loss of their billable hours and yours as you replace them—but also the risk of having some of your clients follow them to their next firm. Further, the loss of a superstar can make daily work life at your firm more difficult for you and your team while you look for a replacement— and risk the loss of further crucial employees. And, a replacement that isn’t of the same caliber or worse can actively bring down morale.

The often unconsidered cost of a bad hire is staggering—which is a risk with any hire. According to The U.S. Department of Labor, the average cost of a bad hire is equal to 30% of their annual salary. Research in Organizational Behavior estimates the average time to replace a bad hire is 30 days and that bad hires result in an estimated 30-40% drop in team performance and morale. Further, high-performing employees are 54% more likely to leave when working with a toxic employee.

 

Unconsidered Costs of a Bad Hire

Avoiding the cost of a bad hire should be considered when using contract attorneys or paralegals for a temp to perm hiring strategy and determining the value of their hourly rate.

4. Hiring Strategy

Contract attorneys can also be part of a permanent hiring strategy to help you test out and make the best hire when you are ready for a full-time hire—and avoid the cost of a bad hire. You’ll avoid making a permanent hire that kills your firm culture. The ability to quickly and easily cut ties if a relationship isn’t working out without the risk, liability, obligation and cultural fallout of firing a permanent employee is one of the benefits of the “date before you marry” arrangement that contract attorney relationships accommodate.

With this strategy, you’ll have insight into the work product and the knowledge of whether an attorney or paralegal who begins working with you as a contractor is a good fit; an insight you don’t have when hiring an employee in the traditional manner. And, you’ll also reap a return on your investment in hiring and onboarding a contract attorney with whom you’ve established a good working relationship since you won’t have to invest the time and energy into hiring and onboarding again. All of these reasons are likely why about 1/5 of Hire an Esquire’s contract lawyers and paralegals end up being converted to full-time employees.

In summary, utilizing contract attorneys and paralegals effectively can be a way to scale your law firm or legal department without the risk and financial stress of a full-time employee on your payroll. Contract attorneys can also help you to improve your client experience and attract new clients through better cost structures and arrangements. Strategically working with contract attorneys and paralegals can also help you to build a strong work culture that supports the mental health of you and your team—and creates a place where everyone is excited to work.

1. Time and Money Invested in Sourcing & Vetting

Investing time in sourcing and vetting is crucial to ensuring you have the best talent. The fallout from making a bad hire (even on a contract basis) will cost you in both the time it takes to manage a suboptimal hire and/or redo their work product in addition to any amounts you agree to pay the contractor to settle up the relationship. And of course, the time you invest here should be averaged into the true cost of a contract attorney or paralegal’s hourly rate. When thinking about the cost in dollars of the time you spend to bring a contractor on board, you should think about what your time is worth based on your own billable rate. Since, on average, an attorney bills 2/3 of the hours they work, we suggest viewing the hours you spend on hiring at a value of 2/3 of your billable rate.

Here are the average time and costs to consider when sourcing and vetting an attorney based on whether you choose a DIY, traditional agency, or Hire an Esquire approach to hiring contract attorneys or paralegals.

 

Average Hours to Hire Contract Attorneys and Paralegals

 

The time and cost of sourcing should be considered when determining how much a contract attorney or paralegal’s hourly rate actually costs.

THE DIY APPROACH

The DIY approach to hiring a contract attorney or paralegal takes an average of 11.5 hours with a large part of this sunk into initial sourcing and vetting. Other time commitments not included in this estimate are tax and employment compliance paperwork and verifications as well as researching and putting together a good set of interview questions to ensure you are getting the most predictive value out of the interview and uncovering a candidate’s maximum potential... or potential red flags.

On average, from surveying our own small law firm client and legal department clients, they spend ~11.5 hours and $100 on paid job boards per contract attorney or paralegal role when they run their own hiring process. Time spent hiring at large organizations varies widely and often takes longer due to how much process, bureaucracy, and people are involved in the process.

If you choose the typical DIY contract hiring process, you should expect to create a job description and to post it on a variety of paid job sites, and/or reach out to your own networks through LinkedIn, professional organization listservs, and/or emails. You should also expect to spend time sorting through and determining the legitimacy of applications, asking follow-up questions to applicants, and further researching their backgrounds online and their standing and disciplinary history with the state bar. Other tasks include responding to and scheduling interviews with potential applicants as well as people in your own network who reach out to you with leads (that are sometimes irrelevant but still can necessitate taking a call with a potential applicant as a courtesy). This part of the process takes an average of 10 hours. Then, the average client will interview 3 candidates per role and spend 30 minutes per interview.

 

While your contract hiring process can and should be more lightweight than your permanent hiring process, if you don’t already have one, you’ll want to come up with a list of standardized questions to ask applicants to assess whether they have the right expertise and soft-skills for the role. There is research and science behind how to hire and best predict candidate performance. While no method can provide a 100% guarantee of the perfect hire, research on hiring practices provides insight into how to increase your chances of success and decrease the likelihood that you’ll have to shoulder the costs of a bad hire.

Asking all candidates the same questions will help you to best compare and assess their answers and fit for the role. You can check out our tips on how to assess a lawyer’s soft-skills and guidance on research-backed structured hiring processes and their success at predicting performance.

 

Using a structured, research-backed hiring process can increase your chances of a good hire and help you to get the maximum ROI on the hourly rate that you pay a contract attorney or paralegal.

 

The advantage of the DIY contract attorney hiring process is that you own the relationship and pay no markup on the hourly rate as you would through an agency or other service to find a contract legal professionals. Note that you may be responsible for payroll taxes, insurances, and benefits, as discussed in the compliance section below, that will effectively create a markup on the hourly rate.

A major disadvantage is that your primary focus is running a law firm and you do pay for this method in your own time investment, context switching, and in a higher risk of a suboptimal hire. Bad hires, even for contract work, can be costly in additional time, money, disputes, frustration, and potentially client trust if you don’t have the time to or fail to catch and fix suboptimal work. All of these costs—in addition to the hourly rate that you pay the contractor—should be accounted for when you are considering the true hourly cost of a contract attorney or paralegal.

THE TRADITIONAL LEGAL STAFFING AGENCY APPROACH

Traditional legal staffing agencies can save time and frustration on initial sourcing and better ensure candidate quality. Agencies also generally offer some guarantees and contractor relationship management services that help to mitigate the financial costs and emotional labor of ending a relationship with a suboptimal contract attorney or paralegal. For traditional agencies, a short call or email exchange can return curated resumes within 24 hours and within a week for specialized roles. Agencies generally work on a success basis so if you don’t find a suitable candidate or you ultimately decide not to hire, you haven’t spent any upfront costs on job postings, and your initial time investment to understand the market of qualified candidates is minimal.

Providing feedback on resumes, requesting additional candidates, and playing a game of telephone or an exchange of multiple emails with the recruiter to tease out details takes an average of 3 hours when the bits of time, responses to emails, and interruptions are added up. This takes more time if it’s a new recruiter relationship and/or your recruiter is missing the mark and less time if it’s a recruiter who knows you and your firm well, and regularly provides the right fit.

Interviews with candidates that you wish to interview typically take about 1.5 hours based on an average of 3 candidate interviews at 30 minutes each. The agency handles I-9s, 1099s, W-2s, and other employee and contractor forms, verifications, and compliance.

If you have a good recruiter your chances of success and a smooth working relationship are high. Much of your experience and success with an agency can depend on the individual recruiter who has been assigned to your firm or legal department since it is a very manual process and individual recruiters tend to work fairly autonomously.

The additional time, cost, and risk savings that come with using an agency are that they generally stand behind their work. Legal staffing agencies generally carry professional liability insurance policies on their legal professionals that offers another layer of liability protection to you and your firm in a worst-case scenario. In more typical scenarios, if there are issues with the work product of a contract attorney or paralegal, an agency will manage quickly finding a replacement and the emotional labor of firing a candidate. Agencies will typically comp you for all or some portion of the initial hours billed by the candidate with whom you are unhappy, whereas many attorneys engaging in DIY hiring will end up compensating a suboptimal hire for all or part of their work to dispose of the situation and reduce liability.

So what is the cost for this service and guarantees? Agencies mark up contractors that they classify as their independent contractors an average of 30-50% on top of their hourly rate and those they classify as employees where the agency acts as the employer or record responsible for payroll taxes and benefits by 65%-100%. The lower end of these ranges tends to be for more basic roles where there is a strong supply of candidates and the upper range of markups is what you will pay for more specialized, pedigreed, and hard-to-find candidates. Keep in mind that for employee relationships as opposed to independent contractors, the agency is paying the 15-20%+ you would typically be paying as an employer including payroll taxes, insurances, benefits, and paid leave requirements that now exist in many state and local jurisdictions and are increasingly being added to federal legislation such as the CARES Act.

THE HIRE AN ESQUIRE APPROACH

Hire an Esquire is structured and insured as a legal staffing agency. As such we take on the responsibility for vetting, candidate quality, and professional liability insurance that a traditional legal staffing agency assumes as well as verifications, tax documents, and other compliance-related matters. Additionally, at Hire an Esquire we have married science and technology for a more efficient and precise staffing experience. This saves on 1) the time invested in contingent hiring 2) the risk of a bad hire by providing better insight into how a candidate and 3) agency fees thanks to the efficiencies of technology and our business processes.

Hire an Esquire cuts your time investment in contingent hiring by more than half from a typical agency. After answering a few questions in our job wizard you instantly receive recommendations of vetted, verified candidates. You can view additional recommendations and ask candidates of interest follow-up questions instantly and directly without going through a recruiter.

In addition to verifying identity, bar standing, and professional records like a typical agency, Hire an Esquire has a structured vetting process for candidates that collects data on both their hard and soft-skills so you’re consistently getting strong data-driven candidate recommendations. With a standardized vetting and matching process, your candidate recommendations won’t have the variability of an individual recruiter’s abilities and their prioritization of your project. Human recruiters are often juggling many clients, each of whom requires a high amount of service. They can be motivated to put your project and the candidates they send you in second place as they focus on and prioritize candidates for bigger and more profitable projects and client accounts. At Hire an Esquire, candidate recommendations are consistently objective regardless of the size of your project or your status.

 

Our applicant view helps you to make data-driven hiring decisions and sort through potential candidates faster, decreasing the cost of your time and the effective hourly rate when hiring contract attorneys and paralegals.

The data and research behind our candidate recommendations and matches can also help you save on the cost of a bad hire. When you receive applicants on Hire an Esquire you will see their experience with each qualification required for your role and the soft-skills as determined by years of legal industry and general I/O psychology research to be the most important to your job and work environment. In addition to having research-backed data to predict a candidate’s success, this can make the process of hiring simpler and faster by taking some of the guesswork out of whom to interview and whom to hire. You can read more about how lawyer soft skills predict performance here and here and how we assess these skills for our instant recommendations and applicant fit scores here.

 

 

Further, you can reach out to candidates immediately with an invitation to apply to your job and/or questions about their experience which cuts down on the time spent communicating with candidates through a recruiter. With this on-demand legal hiring experience, the initial sourcing and vetting commitment on Hire an Esquire is about 30 minutes.

Like an Agency, you pay nothing to sign up for Hire an Esquire and only pay when you hire through Hire an Esquire. Our Fit Scores and soft-skill analysis are provided as part of our hiring experience. Because of the efficiencies of technology, we can provide lower agency markups and are transparent about our rates. For independent contractors, we charge the contract attorney or paralegal’s hourly rate + 25% and for contractors that we classify as our employees where we are the employer of record paying payroll taxes, insurances, leave requirements, and benefits, we charge the contract attorney or paralegal’s hourly rate + 55%.

Compliance and Payroll Costs and Considerations:

When carefully calculating a contract attorney or paralegal hourly rate, many small law firms forget to account for the tax and compliance costs and are unaware that contract attorneys and paralegals they assume are independent contractors may actually need to be classified as employees. Failure to properly classify contract workers can result in penalties and fines in addition to the back taxes owed. The fines and penalties for misclassification are in addition to (and often much heftier) than the employer taxes and fees that would have been paid originally with proper classification. The fines, penalties, and legal headaches of misclassification can quickly wipe away any gains from hiring contract attorneys or paralegals.

1. Employment Compliance Considerations

Hire an Esquire and most traditional agencies will assist in ensuring proper employment compliance of your contract attorneys and paralegals based on the role. They will also manage and/or pay the related taxes, insurances, benefits, and relevant paperwork as part of the fee and service they provide.

If you choose the DIY hiring approach you are responsible for proper worker classification at the federal and state level. While there is no penalty for classifying an independent contractor as an employee, classifying a contract attorney or paralegal as an independent contractor when the IRS or a local state agency determines they should be classified as an employee can be a costly mistake.

For federal compliance, the IRS uses a multi-factor test—where no single factor is determinative—that examines factors including control, supervision, the cadence of work, and opportunity for profit and loss. You can find more about the information that the IRS considers when making a classification determination here.

 

Whether the IRS will require that you classify your contract attorney or paralegal as an employee or independent contractor greatly impacts the cost and hourly rate.

 

States can have additional and more stringent requirements for worker classification. For example, some jurisdictions have adopted the ABC test which requires that workers performing outsourced work that is part of the organization's core business be classified as employees. Under this test, law firms would have to classify contract attorneys and paralegals as employees but in-house legal departments may not.

Some states, like California, have exempted attorneys and other professionals from the ABC test, but this does not mean that the Federal and IRS requirements don’t apply. For instance, a document review attorney in California in most cases would need to be classified as an employee to comply with the IRS requirements even though they may seem to be exempt under California law. You can read more about state and federal classification criteria here.

Failure to properly classify employees will result in having to pay the back taxes and costs you would have had to pay for an employee plus additional fines and penalties that are in addition to and can be more than the original tax burden owed. This issue can be raised by a contractor who has not paid their taxes throughout the year and when faced with this burden asserts they are an employee, or by the IRS and local tax agencies and unemployment funds. Proactively seeking out employee misclassification tends to be more common during recessions, when state and federal unemployment funds dip, and based on the administration that holds power. Keep in mind that if you are deterimined to have misclassified employees as independent contractors, you will generally be responsible for back taxes and fines not only for the present year but also for past years and violations.

2. Compliance and Payroll Costs

If you work with a Traditional Agency or Hire an Esquire, the costs of taxes, benefits, and insurance are included in the service fee.

If you choose the DIY hiring approach, you’ll want to research and be aware of the employment and payroll costs and requirements— such as paid leave— that you’ll be required to pay, withhold, or provide based on whether your contract attorney or paralegal is classified as an independent contractor or employee. Here’s an overview of some costs to consider and sample costs—which vary by jurisdiction.

 

Average Costs for Contract Attorneys, Paralegals Classified as W-2 Employees

Other costs to consider when calculating the hourly rate that you can afford to pay contract attorneys and paralegals when the parameters of their work necessitate classification as an employee.

For 1099 Contractors:

Other tax and compliance costs to consider when determining the hourly rate that you can afford to pay contract attorneys or paralegals classified as independent contractors.

Some legal marketplaces disclaim being an agency and any responsibility for their candidates. They are not always in compliance with professional rules of conduct or they “comply” on technicalities such as the contract attorneys can only work in a paraprofessional capacity.

These marketplaces can be the worst of both worlds. While you may have access to more candidates, the rest of the process is largely DIY with generally minimal vetting, limited to no guarantees. The costs, risks, and work of compliance still fall in your hands. While you will shoulder the majority of the risks and work that you would for DIY hiring, you do not own the contractor relationship and must pay a markup on hours worked just as you would through a staffing agency, and sometimes these markups are similar to an agency’s markup on independent contractors. You can read more about potential compliance issues with legal marketplaces here.

1. Location

The geographical area that a contract attorney or paralegal is required to be in and whether the attorney can work remotely will all impact the bill rate. Here’s how this plays out in popular metropolitan areas and for on-site versus remote based on data from our platform from 2019-2021.

 

Variance in contract attorney and hourly rates based on location requirements from Hire an Esquire platform data spanning from January 2019- January 2021.

2. Commitment

While by default many contract jobs are for a limited time, a very short term project (e.g. a one time project projected to take <5 hours) can increase the bill rate due to the non-billable time inevitable a new engagement. For the same reasons, a long term contract job where a contract attorney or paralegal can save the time hunting down and engaging on new projects by having all or part of their schedule filled with consistent work, the hourly rate tends to drop. Here are the average differences to a bill rate we’ve seen from our own platform data.

 

Impact on contract attorney and paralegal hourly rates based on the consistency of a project from Hire an Esquire platform data from January 2019-January 2021.

3. Value of the Opportunity

Attorneys place a higher value on opportunities that will allow them to develop new practice area expertise or build their experience and connections in a new environment. With this, our recruiters have discerned from soft conversations with candidates that contract attorneys with Biglaw backgrounds who may demand a high hourly rate to do the work they did in their Biglaw career are willing to take a significantly lower their hourly rate to get in-house experience and build relationships that could lead to a permanent role.

4. 1099 or W-2

Contract attorney bill rates will vary based on whether they are being paid as independent contractors or W-2 employees. Often, as discussed, in Chapter 2, the nature of the work will dictate how it is classified. Work that is able to be classified as an independent contractor will command a higher rate since the contract attorney must pay and file their own taxes. We’ve seen attorneys who don’t want to bother with the administrative and financial burdens of being an independent contractor and who understand the additional taxes they are required to pay as an independent contractor willing to accept about 25% less to be paid as a W-2 employee.

5. Billable or Non-Billable Work

Attorneys, on average, work 3 hours for every 2 they bill. Contract attorneys and paralegals should have less non-billable time than permanent employees since they don’t have the same political, administrative, and business development duties. Still, contractors classified as W-2 employees must be paid for all hours worked regardless of whether they’re billable. When calculating the rate and how it works for your own cost structure, keep this in mind. If the job and work is properly classified as an independent contractor, you can come to an agreement with the contractor to pay only for billable work and in this case, the hourly rate may be slightly higher. See Chapter 4 for more insight on managing contractors and billable versus non-billable time.

6. Demand and Practice Area

Rates—particularly in niche specialties—can vary slightly to dramatically based on emerging trends, legal issues, and major litigations underway. We’ve seen Japanese language doc review rates oscillate by 50% as multiple major litigations kept the limited amount of reviewers ramped up and then settled. More recently, rates for Data Privacy attorneys and Blockchain attorneys ramped dramatically upon GDPR and CPPA deadlines and softened as more businesses met compliance deadlines.

 

Average contract attorney hourly rates from Hire an Esquire’s top 12 practice areas, based on platform data from January 2019-January 2021. Note that even pre-pandemic 75% of Hire an Esquire jobs were remote which impacts hourly rate.

The above rates represent the hourly rate paid to the contract attorney or paralegal and do not include typical agency or Hire an Esquire service fees. Note that if you connect with an attorney or paralegal running their own freelance practice and doing their own business development while you won’t pay an agency service fee, you will likely pay a premium beyond these rates to reflect the time and financial investments made in business development and procuring work.