Law firms managed to sustain the fillip to profits they earned on the back of the pandemic last year – but fresh evidence has emerged that the working from home revolution may be damaging productivity.

These are among the findings of this year’s Law Society financial benchmarking survey, one of the sector’s most respected annual bellwethers. Some 155 firms with average turnover of £7.1m took part, making the survey one of the largest of its type in England and Wales.

In 2021/22 median net profit per equity partner fell 1.8% on the previous year, from £203,577 to £199,846, according to analysis of firm accounts. But this followed a near 40% increase in 2020/21, when many firms posted their highest PEP figures ever. Fiscal breaks, furlough cash, a red-hot housing market and a slump in overheads as staff stayed at home were then major factors.

Law firms sustain pandemic profits rise – but WFH hurting productivity

Confidence remains reasonably hgh as the 2022/23 financial year draws to a close. This year’s sample predicts median growth in projected fee income of 3.5% in 2023, with the upper quartile forecasting 10.1% and the lower a 2.5% cut. A newly moribund property market and upward pressure on wages are among the factors inhibiting further growth. Total salary costs as a percentage of fee income increased by 0.4% last year, from 58.5% in 2021 to 58.9%. 

Another notable finding of the survey is that working from home may be damaging productivity. The report points out that fee-earners should be charging at least 1,000 or 1,100 hours a year. But in 2021/22, the median number of chargeable hours actually fell, from 863 in 2021 to 841.

This ‘supports the growing evidence that working from home is not always as beneficial to the firm as it is to the individual’, the report concludes, noting: ‘More and more firms are calling their staff back to the office for at least some of the week’.

'It is encouraging to see law firms continuing to perform strongly, especially given the difficult economic climate we are all facing,' said Law Society president Lubna Shuja. 'As the cost-of-living crisis hits England and Wales, the legal sector will continue to be an important driver of the UK’s economy.

'Of course, some firms struggle more than others, with lack of government investment continuing to hit legal aid firms. In this current crisis, lawyers are needed more than ever to help people access justice in their time of need. The government must take action to stop the shortfall in legal aid providers before it is too late.’

*The Financial Benchmarking Survey 2023 is written and produced by the legal team of Hazlewoods LLP for the Law Society Leadership and Management Section, and sponsored by Lloyds Bank Commercial Banking. It is free to read in full here