Law Department Budgets - Internal Hourly Rates
In this series on budgets, the one piece we have not yet delved into is the fully-loaded staff cost. Ops in a Box, Legal Edition includes a worksheet for tracking the salary, any merit increase, bonuses or entitlements, including car allowances or 401k match, as well as any regulatory payments required such as worker’s compensation insurance. The worksheet is designed with the US in mind, but generally can accommodate other world regions. In particular regulatory amounts will vary by jurisdiction and change regularly, so you will want to confirm what the most recent rates are for your operating locations.
The last field in this section is real estate allowance. This is intended for the average square footage by role times the annual fee per square foot and the common space allowance. You can often pull most of this information from your space lease agreements or blue prints, but a tape measure can also be useful.
With these fields populated you have the fully-loaded cost of the legal team. For each employee you can divide by the expected number of work hours (normally in the 1,680-2,400 range depending on role) to arrive at the inside hourly rate for each legal staff member.
The first time I did this, I learned that on average our company was paying one-third the amount for an internal legal employee who knew our business cold over what it paid external legal resources. Armed with this knowledge the legal department was able to make a successful argument to hire additional heads with a corresponding reduction in external resources. A shared characteristic of every company I have worked for is spending less on outside legal services than on internal legal resources.