Economic Survey Of Ala. Lawyers Reveals Market Forces Have Negative Effect On Income; 66% Of Lawyers Are In Solo/Small Firms
Montgomery, Alabama, April 4, 2012 – The Alabama State Bar has released the results of its periodic study of the economics of law practice in Alabama for the year 2010.
State Bar President James R. Pratt, III, Birmingham (Hare Wynn Newell & Newton LLP) said, “Determining and presenting accurate answers to questions about attorney income, hourly rates and overhead costs, for example, is the purpose of this survey. It provides data for countering many commonly held misconceptions about how lawyers practice. More importantly, it provides lawyers with a tool to gauge the effectiveness of the business side of their practices in comparison to colleagues with similar experience, working in similar practice settings.”
Some of the findings were from such categories as:
TRENDS IN INCOME
*Reflecting the financial difficulties lawyers experienced following the economic downturn, the largest single group of respondents (22.8%) indicated they earned less than $25,000 before taxes in 2009. The next largest group (21%) earned $50,001-$75,000 which was also the median salary range for respondents.
When compared to the surveys conducted in 1996 and 1998, it appears that, overall, individual lawyer income may be falling, particularly at the margins, with more lawyers reporting income of less than $50,000 than in 1998 and fewer lawyers reporting income of more than $100,000 than in 1998, while the percentage of lawyers reporting income of between $50,000 and $100,000 remained relatively even across all three surveys.
*In 1998 24% of respondents said they earned less than $50,000. In 2010 it increased to 36.9% (which was still under the 47% figure reported in 1986).
*The number of respondents in the more than $100,000 earnings range fell from a high of 40% in 1998 to 28% in 2010 (yet still more than the 17% figure in 1986).
*The number of respondents falling into the middle range ($50,000-$100,000) remained fairly steady at 35.1% in the 2010 survey.
*Firm size affected income. 48% of solo practitioners said they earned less than $50,000. 33% reported earning between $50,000-$100,000; 19% reported earning more than $100,000.
*21% of those practicing in firms with 2-5 lawyers reported income before taxes of less than $50,000; 40% reported earning between $50,000-$100,000; 39% reported income before taxes of more than $100,000.
Only time will tell whether these numbers showing decreasing lawyer income are a result of the recession and will improve by the time the next economic survey is conducted, or reflect the greater competition resulting from the increase in the number of lawyers admitted to practice in Alabama since 1986 when there were approximately 8,000 members (approximately 9,000 more lawyers have been admitted in the past 26 years) and the trend toward commoditization of various types of law practice and the lower income levels that often result from commodity practice and increased competition.
*16.2% of respondents said their hourly rate fell between $150-$174; 51% of those surveyed charged $174 per hour or less, while the other 49.1% charged a standard hourly rate of between $175 and $500 or more.
When compared to the 1998 survey, hourly rates have risen but not a lot. At that time, the average rate charged was $129 per hour while the media was $125. In 1998, nearly 19% of respondents reported charging more than $150/hr while only 14% charged less than $100/hr. In 2010, the median standard hourly rate charged was between $150-$174.
Private practice attorney respondents were asked to provide information on overhead and lawyer compensation as a percent of gross receipts. The median percent of gross income of the various expenses and lawyer compensation was as follows:
*Rent or other occupancy expense – 10%
*Staff salaries – 20%
*Equipment – 5%
*Client development (marketing) – 2%
*Legal research – 2%
*Other miscellaneous – 10%
*Compensation – 50%
These figures, particularly for lawyer compensation, are in line with national benchmarks.
*73.5% of respondents were employed full-time (40 hours or more per week) and 12.5% reported being employed part-time (less than 40 hours per week).
*Respondents came from all different firm-settings. The largest single group was solo practitioners (41.5%) followed by those in firms of 2-5 lawyers (20.8%). This reflects the fact that nearly two-thirds of the lawyers practicing in Alabama are employed in solo/small firms. Only 11.5% of respondents indicated they practiced in firms employing more than 100 lawyers.
AREAS OF PRACTICE
Private practice attorneys were asked to indicate up to 3 primary areas of practice. Family law (36%), criminal law (32%) and general practice (29%) were cited most often. Other areas included: civil litigation (28%); wills, estates and trusts (25.5%); real estate (18%) and personal injury work (14%).
DEMOGRAPHICS OF RESPONDENTS
*64% of respondents were male and 36% were female. The majority of survey takers classified themselves as Caucasian (87.8%) while 5.9% classified themselves as African American.
*Survey respondents ranged in age from under 30 to 71 and over, with the largest single group (27.9%) falling into the 51-60 age group. The next largest age group was 41-50 (21.3%). The median age range of respondents was 41-50.
*The largest single group of respondents (24.1%) reported being in practice for 11-20 years. The next largest group has been in practice for 4-10 years (22%), followed by 21.5% who said they had been practicing for more than 30 years. The median range for years in practice by survey takers was 11-20 years.
The survey provides a snapshot of information concerning the economic aspects of law practice in Alabama. It includes analysis of: (a) lawyer income; (b) lawyer employment; (c) practice setting; (d) legal staffing; (e) billing methods; (f) hours and rates; (g) use of fee agreements;
(h) collections; (i) overhead and expenses; and (j) retirement plans.
Survey data was collected between August 16 and November 9, 2010. Of the 2,000 members randomly selected to participate in the online survey, 463 started the survey and 427 completed it. This resulted in a 22% response rate and a 92.2% completion rate. For this survey, one can be 95% confident that the results for each part of the survey which was taken by all of the respondents are not more than 4.5% (+ or – 4.5%) different from that of the entire population of Alabama lawyers.
The 17,000-member Alabama State Bar is dedicated to promoting the professional responsibility, competence and satisfaction of its members, improving the administration of justice and increasing public understanding and respect for the law.