What the new hourly rate guidance means for you

The Judicial Office has published its new guidance on hourly rates following a cost review by the Civil Justice Council, with the top earners now claiming up to £546.

Master of the rolls Sir Geoffrey Vos has since accepted all recommendations from the review, which include a general rise in hourly rates in line with the Services Producer Price Index (SPPI).

The new guidance covers bands A-D as follows:

• Band A: Solicitors or legal executives with eight or more years’ experience
• Band B: Solicitors or legal executives with four or more years’ experience
• Band C: Solicitors or legal executives with fewer than four years’ experience
• Band D: trainee solicitors, paralegals and other fee earners

Will my location affect me?

In a nutshell, yes.

Hourly rate guidance is calculated based on whether your firm is situated within London or not, as well as the type of work that you do.

There are five location bands in the hourly rate guidelines:

• London 1 – the Central Business District, largely corporate and commercial work
• London 2 – City and Central London
• London 3 – Outer London
• National 1 – Covering most major cities and much of the Southeast
• National 2 – Everywhere else not covered by London or National 1 bands

There are vast differences between the guidelines for the City of London and, for example, a National 2 firm of up to £274 for the most experienced practitioners.

Should my hourly rate increase?

The hourly rate guidelines are exactly what they say – guidelines. You do not have to set your rates by them, and many solicitors and other fee earners charge different amounts depending on their individual experience and specialisms.

There are a number of financial factors that you’ll need to account for when deciding whether to raise your rates, including:

• Cash flow – if your current cash flow is not sufficient to cover costs, you may need to raise your rates, as well as finding other areas where you might cut costs.
• Client opinion – are your clients willing and able to pay for your services at an increased cost? You can avoid this conflict by identifying the ways that you add value and staying in continued communication with clients.
• Competitior pricing – without offering additional value, pricing your services far above competitors could result in lost business and a struggle to maintain cash flow.
• Tax efficiency – for individuals setting their rates, higher rates could become tax-inefficient if you are pushed into a higher Income Tax band. Practices could also be required to pay more Corporation Tax without careful planning.

Alongside inflation and the rising cost of living, many consumers, whether business clients or individuals, will expect a certain level of rate increases.

However, it’s important to understand the potential implications of doing so as outline above, to avoid conflict with clients and unforeseen financial consequences.

Make sure that any rate increase is justifiable, by sitting in line with guidance, reflecting new skills or a particularly niche practice area.

Where can I find advice?

We can provide expert advice on the finances of your legal practice.

By identifying the quality of your cash flow and long-term plan, we can help you to take the most appropriate steps to shape your rates – striking a balance between the needs of your clients and those of your firm.

For further information or guidance, please contact us today and speak to a member of our team.