Staff costs soar as top UK firms pay out almost 50% of revenues

Staff costs soar as top UK firms pay out almost 50% of revenues

Legal week.com| Author: Caroline Thorpe | 22 Mar 2013 | 00:00

LLPs highlight law firms with highest ratio of costs to turnover

The UK’s top 30 law firms spent almost half of their combined turnover on staff costs during the last financial year, with the total bill coming to £4.5bn.

Legal Week analysis of limited liability partnership (LLP) accounts filed with Companies House for the 2011-12 financial year shows total staff costs for both lawyers and support staff accounted for 42% of fee income, with the total amount spent rising by 7.3% year-on-year.

The research found total spending on staff costs hit £4.5bn, compared with £4.2bn the previous year. This equates to 42% of the group’s combined turnover of £10.7bn.

Total staff numbers across the group stood at 57,758 – a rise of 6% since 2010-11.

Two firms spent the equivalent of more than half of their turnover on staff costs – DAC Beachcroft (52.5%) and SNR Denton, where the UK LLP costs came to 52.3%.

The former firm’s spending was skewed by the addition of a full year’s costs from legacy Davies Arnold Cooper, which merged with legacy Beachcroft in late 2011, against only six months’ revenue.

Following close behind are Linklaters, which spent 48.1% of turnover on staff, Norton Rose (47.1%) and Freshfields Bruckhaus Deringer (45.0%). The firms where staff costs accounted for the smallest proportion of turnover were Addleshaw Goddard (32.7%), CMS Cameron McKenna (32%) and Olswang (31%).

Olswang chief executive David Stewart (pictured) said: “We are very careful about recruitment and we only recruit when our practice groups are fully utilised so that we avoid ending up with excess capacity.

“We outsource IT, PR and communications, reception and catering and a number of legal outsourcing processes… We have to do more. In this market clients are going to continue to demand more for less.”
The analysis also found that the leading firms spent an average of £70,030 per employee in 2011-12. The magic circle are the most generous employers, with Linklaters topping the league at an average of £131,750 per staff member.

It was followed by Freshfields (£118,320), Allen & Overy (£97,880) and Clifford Chance (£91,560). At two firms, average costs per employee are below £40,000 – Irwin Mitchell (£35,650) and Hill Dickinson (£34,210).

Peter Jackson, managing partner at Hill Dickinson, said the figure reflected the firm’s relatively low cost base. “It doesn’t necessarily surprise me given the nature of our business. If you’re looking at the nature of the other top 30 [firms] in the UK, we are different to most. We get a lot of volume business, which is lower cost. The majority of our space is built around the northwest [where costs are lower].”

The research excludes Slaughter and May as it is not an LLP and Withers and Stephenson Harwood because they have not yet filed their accounts. A detailed analysis covering broader aspects of the accounts will appear in next week’s issue of Legal Week (28 March).