How can our law firm calculate fee distribution?
Fee allocation is a necessarily complex feature of law firm accounting. It’s how we make sure everyone gets paid for the work they contributed to a matter, but it can also be a minefield of mistakes waiting to happen. The complicated nature of fee distribution skyrockets if you’re trying to work with generic accounting tools not designed for attorneys or if you manually calculate percentages.
Let’s look at common distributions of collected fees and approaches to calculating payments.
The different places a fee could go
Fees get divvied up among many different people and categories, including:
- Partners or responsible attorneys
- The individual attorneys who worked on the matter, also known as timekeepers
- Cost reimbursement
- Originating attorneys (in referral cases)
- Other law firms working on the case with you
If a firm offers a discount to a client, then there are questions of whether the discount is applied uniformly across all timekeepers or not. Additionally, most clients pay their fees in installments, which means you’ll need to do these calculations more than once, potentially with slight differences, such as paying off all reimbursement costs with the first installment.
How to calculate
You can do these calculations yourself, but there’s a strong argument that you shouldn’t. You didn’t get a law degree to spend valuable time adjusting spreadsheets. Never mind all the potential risk for error. Shoot for smart use of tools instead.
With installment payments, aim for a billing and accounting program that lets you automate proportional allocations of fees to timekeepers. (Programs that have this feature should also give you the ability to adjust proportions on the individual level, if needed.) Having default and custom options for fee allocation increases efficiency and flexibility. You should also be able to make other adjustments, such as choosing to have reimbursements covered in full before applying payments to timekeepers.
Speaking of proportions, it helps to have the flexibility to adjust for parties other than timekeepers receiving a portion of collected fees. If you worked with another firm on the case or received a referral, these fee recipients can be worked into your allocations in various ways.
Finally, looking at fee allocations on both a macro and a micro scale can help you get a clearer picture. Use a tool that lets you see a summary of billing and collection by responsible attorney and on the timekeeper level.
1. Collection & Distribution of Fee Income
2. Fee Splitting: The Ethical Implications of Non-Lawyer Involvement