—— The traditional law firm business model ——

The traditional law firm business model pays attorneys mostly based on opaque calculations that take factors such as seniority, expectations and perceived benefit to the firm into account. Within this compensation system, attorneys are pressured to meet huge billable-hour requirements and, as a result, are discouraged from focusing on long-term priorities, such as business development and counseling.

A similar system of billable-hour requirements applies to most paralegals and legal assistants. With the economic recovery taking longer than initially expected and pressures building on the legal professions as a whole, we take a deeper look into the compensation schemes applicable to most paralegals today.

—— Wage scales for paralegals ——

Usually, first, to set wage scales for paralegals, law firms administrators use surveys available for their region. The main surveys are:

• the US Department of Labor Bureau of Labor Statistics that conducts metropolitan studies that contain compensation information by industry and size of employer,
• the Association of Legal Administrators that conducts surveys of the compensation of non-attorney positions,
• the salary surveys organized by local and national paralegal associations, such as the National Utilization/Compensation Survey prepared by NALA, or by employment agencies and search firms that also generally assess job satisfaction, backgrounds, and experiences.

As a next step, legal administrators usually analyze factors such as:

• your knowledge and education,
• the amount of supervision you require,
• the complexity and scope of your work duties,
• your personal contacts (i.e. if you can bring new business),
• your work environment,
• your supervisory duties,

to roughly determine your base salary.

—— Paralegals as fee earners ——

Paralegals are fee producers, so their compensation can also heavily depend on the level of production of fee revenues.

In determining paralegals' earnings, legal administrators mostly work of a firm-specfic system to allocate overhead among all fee earners (partners, associates AND paralegals).

Surveys seem to show that the generally accepted standard is that one lawyer equals two paralegals. Therefore, a law firm with ten lawyers and five paralegals is generally considered as having twelve and a half fee earners.

According to the same surveys, paralegals are generally expected to be working on billable matters at least two thirds of their total work hours.

Of course, individual law firms, looking to their own data and use of resources, and balancing the complexity of their business with some measures of simplicity to make the calculations easier, may develop other means of allocation. For example, in certain sectors, it is common to count paralegals as one-quarter or three-fourths of a fee earner.

Paralegal compensation can then be structured much like associate compensation, which allows for consistent reward strategies across the organization. This simplifies administrative matters for legal administrators and can increase clarity and comparability across career streams to a firm's staff.

—— Write-offs ——

Paralegal utilization is generally outside the control of the paralegal, so compensation structures can unfairly penalize paralegals when revenues are down.

Paralegal time is often hit the hardest when write-offs are taken on a matter. Paralegals sitting at the lower end of the ladder often have less career options than the lawyers. As a result, the rationale for the write-off of some paralegal hours is that “It won't hurt the paralegals' careers or their incomes”. And this attitude may prevail even in a firm that pays paralegals bonuses based on fee generation!

—— Overtime ——

There has been a major shift in the past twenty years concerning paralegals and the payment of overtime for their work. Court decisions and letter rulings from the United States Department of Labor have persuaded most firms that paralegals are non-exempt employees and must be paid overtime. Surveys show that a majority of paralegals are now paid overtime.

However, some firms maintain a "hybrid model," in which entry- and mid-level paralegals are paid overtime, and senior and supervising paralegals are not.

The Fair Labor Standards Act requires employers to pay overtime to all employees, except those who are categorized as “executive, administrative, or professional.”

Paralegals are not required to be licensed or certified, have a wide range of educational backgrounds and must work under the supervision of lawyers. Therefore, they generally do not meet the requirements for the professional or executive category.

However, the administrative category provides a basis for legal administrators to qualify paralegals as exempt, especially if they supervise other personnel and spend a majority of their time working independently.

State and local rules equally have to be taken into consideration, of course.

—— The future of paralegal compensation ——

To be successful, firm practices need to establish positive working environments for all fee producers, including paralegals, so that personal income opportunities are not artificially diminished for a certain category of employees. This extends beyond billing, namely to staffing and task assignments.

Thus, the best compensation schemes are probably the ones that grant fee credits for continuing legal education, accounting tasks, and pro bono work.

Such assignments may be more cost effective for the law firm if handled by paralegals. Accordingly, compensation should recognize such value. In the same way, paralegals assigned to high-risk or contingent matters should share the allocation of premiums to compensate for their work on those matters where no fee is earned.

—— For more information ——

US Department of Labor Bureau of Labor Statistics,Paralegals and Legal Assistants Occupational Handbook
Greene, Arthur G., Expanding the Role of Paralegals - The Profitable Paralegal, 1 Law Prac. 39 (2005).
James D. Cotterman, Compensation Plans for Law Firms (2004).
Arthur G. Greene, Therese A. Cannon, Paralegals, Profitability, and the Future of Your Law Practice (2003).

This book uses real-world examples, offering practical application of each concept discussed, and further enhances this focus with hands-on activities throughout. The text gives the student a thorough introduction to not only the legal system in general, but to specific areas of the law and the paralegal's integral role as a member of the legal team. The student gains a comprehensive understanding of the laws in our society, the importance of ethical and professional responsibility, and the skills needed to thrive in this environment.