The relationship between staff retention techniques and your finances
The news that listed legal firm Gateley chose, in 2023, to put its staff bonus scheme ahead of profit margins with a £4.5 million total bonus package has come as a surprise to some and as a great move by many – despite resulting in a nine per cent fall in pre-tax profit to £22.8 million.
It has also raised questions among other firms about whether they should do the same, and how.
We recognise that these are not figures that the majority of law firms are dealing with. However, the principle of carefully planning your cash reserves in order to reward staff and boost retention rates applies to all mid-sized firms as well as larger ones.
The cost of poor retention rates
In our role as accountants and business advisors, we are often in a position of advising firms on managing labour costs, one of the largest costs which your firm is likely to face.
These can be challenging to manage, with the average rate of pay for a full-time, qualified solicitor in the UK currently sitting at £62,000 – depending on experience and location.
However, the cost of poor retention rates can be much higher, once you factor in advertising the role, onboarding and training and recruitment support.
One of the best ways to boost staff retention is to financially recognise excellent work which has contributed to business growth. This tangibly shows appreciation, particularly at a time of high living costs, as well as providing an opportunity for all colleagues to share in your success.
Bonus planning
If you want to provide bonus payments for your staff, you’ll need to ensure that your cash reserves can cover this at the end of the pay period.
Most firms will offer bonuses either at the end of the financial year (April) or the end of the calendar year (December).
Around these times, you will need to:
- Assess your cash flow – Know what you have and what you can spare before deciding on a bonus scheme, including understanding your incoming and outgoing payments.
- Anticipate additional costs – You should retain substantial cash reserves alongside your bonus scheme in case of additional costs.
- Account for tax – for PAYE staff, you’ll need to account for tax when you process your payroll in the pay period when the bonus is given, typically at the same rate of tax as paid on the individual’s salary, unless the bonus pushes them into the next band.
Investing in staff retention in this way involves a strong and adaptable cash flow strategy, including staying on top of invoicing and paying your own suppliers.
If you need support planning for staff bonuses, please contact our team today to discuss your requirements.