In the last 4 years since setting up New Zealand’s first agency for temporary and contract lawyers, there has been a huge increase in the use of independent contractors and temporary lawyers by law firms. Four years ago, many of New Zealand’s large law firms said they would never have a need for a temp or contractor. Now, all of them have looked at using contractors, and many of them have successfully done so. Many smaller and medium sized firms have begun to use contractors and temps on a regular basis. In this paper I will look at:
Although we are seeing the start of a change in situation right now, over the last couple of years, the job market has been very tight, which has lead to employers becoming much more open-minded about alternatives. We had many many examples where firms had been looking for a permanent staff member for 6 months or more without success, which eventually led them to consider the possibility of a temp or contractor. Often they were concerned about the effect of understaffing on their ability to retain existing staff so they saw a contractor as being a way to fill the gap and keep everyone happy until they could recruit permanently. Many were then surprised by the quality of contractors available and the other benefits of the arrangement which in turn led to further use of contractors.
This is closely allied to the tighter job market, which saw quality candidates feeling they had more power because of the level of demand for their services. Many took the opportunity to set their own terms in this environment so they could create a better balance in their life. Contracting and temp work offers much greater flexibility to lawyers, and this is something that many lawyers are increasingly seeking in their lives, for a number of reasons which I will discuss below. But in a tight job market for employers, the ‘employees’ are able to dictate the way they want to work, and this has led to an increase in this kind of work.
Another difference in the approach of younger lawyers is that there is a marked change in job loyalty trends. This is immediately evident when examining the CVs of older and younger lawyers. More experienced lawyers are concerned to not have too many changes of job, as they worry that this looks like a lack of job loyalty to employers. Many younger lawyers have no such concerns, and do not feel that they need to stay in a job if they are not satisfied. While this is not entirely correct as I believe many employers still do not like to see a CV with numerous short-term jobs, there is generally no problem for a quality candidate who has changed job several time, for advancement of their career. This means that not only do employers lose staff more readily at different stages and have unexpected vacancies, but also that there are a large number of lawyers moving around, and open to temporary work while they decide what they are doing.
This relates in particular to outsourcing which is not common in New Zealand but is certainly occurring on an ad hoc basis. We are particularly aware of New Zealanders returning home, who are continuing to do some work on a contract basis for their former employers in the UK. We have also found contract work for expert contract lawyers which can be done remotely from one city to be sent to another. The growth of this kind of work would be impossible without the technology we now have to make it easy to communicate with the other side of the world and to share documents and materials online.
While maternity leave is nothing new, legislative changes and slow attitudinal changes have made it easier for women to feel they can take full advantage of maternity leave provisions. Therefore there seem to be many more instances of lawyers going on maternity leave for a full 12 months, which is long enough for employers to seriously look at getting a contractor or temp to cover. Certainly we have noticed a big increase in the number of contractors sought to cover maternity leave.
Although the tight job market was a factor leading to an increase in employers looking at alternatives like contractors, the converse is also true: in current times where employers are less certain what the future will hold and how much work the firm is going to continue to have, contractors/temps are a great way to deal with excess work without committing to new staff long term. Many of our clients are choosing not to replace permanent staff who leave at present, using temps in the short-term until they are confident they can predict future workflows for the firm.
An Independent Contractor is self-employed, and they are engaged by a firm to do specified work. They invoice the firm for the time they have spent doing the work, they handle their own tax and expenses, and they are not entitled to any employee benefits such as annual leave, sick leave, parental leave. They are engaged via a Contract for Services and the arrangement will be over once they have performed the agreed work, or when either party decides to terminate the arrangement as set out in the Contract. Lawyers providing expert advice, or those with their own practices which they are supplementing, fall readily into this category, as do those who are on flexible project-based hours. A sub-group of this is Executive Leasing, which really just concerns highly skilled and expensive contractors.
A Temporary Employee works for the firm like any other employee, on a temporary basis, and should have an Employment Agreement setting out the term. Employee benefits will be as per the Employment Agreement or as provided for in legislation but generally most rights don’t have time to accrue in short-term contracts.
There are some employment law issues when setting up a Fixed Term Employment Agreement that need to be kept in mind. Essentially, such an Agreement is only lawful if there is a valid reason to take someone on temporarily, (such as to cover someone’s leave, to deal with a project or short-term overflow of work), and that reason must be set out in the Employment Agreement. If it is not, the Agreement might be unlawful, which then makes the Temporary Employee the same as a permanent employee (as happened in the TVNZ/Susan Wood case). In other words, it is not acceptable to take someone on temporarily as a disguised version of a trial period, where there is no other reason for a temporary position.
By the nature of the arrangement, outsourcing work will generally be done by an Independent Contractor, which makes it a subset of that group. This is not common in , however we have placed several contractors in positions where they provide overflow work on an hourly basis from one centre, to a firm based in another. This works well for contract drafting in specialist areas, where the contractor can be sent the details of a contract, and draft this up in their own time. We also know of a number of lawyers providing contract services to law firms, and we know of one lawyer who is now in the , providing contract legal services back to her old employer, a local authority in .
It is very important to note that whether someone is working as an Independent Contractor or a Temporary Employee is not just a matter of how the parties define it. While that is one important indicator, the court has set out a number of factors to be considered, and can decide the relationship is not the one that the parties intended it to be. The factors taken into account include:
Many people think that the only people interested in contracting are mothers, and lawyers who can’t get a ’proper job’. In fact about half of our contractors are men, and the majority of them are well-qualified with good experience. A surprising variety of people are interested in contracting or temporary work. Here are some of the kinds we have come across:
Of course some of the people who want to do contracting are lawyers who can’t get a permanent job and are looking for any options they can find. Such lawyers don’t make good contractors and are usually easy to identify:
Here are some of the common situations where a temp or contractor can be useful:
As a temp or contractor is not going to be with you permanently, you do not want to have to spend a lot of time training them and getting them familiar with your workplace. A temp needs to be able to start producing work relatively quickly, and with minimal need for input from other staff, in order to be economic for the firm (with the exception of very long term temp employees, such as 12 month contracts). For that reason we have found that very junior temps or contractors often don’t work out that well and it is best to use contractors or temps for intermediate to senior positions.
Although a temp or contractor is not going to be with you permanently, the right ‘fit’ is still vital to make the arrangement work. In order to work efficiently they need to quickly understand how your firm works and get on with the other staff. It is worth taking the time to find the contractor who feels right for your place rather than settling for one you have reservations about.
The corollary to ‘fit’ is that it pays to be open-minded about what a solicitor can offer. The fit is more about their personality and how they will get on with the rest of the firm. If that is right, it probably doesn’t matter that they only have 4 years PQE instead of 7 or that they have general commercial experience with a smattering of what you are looking for instead of years of specialist experience. Most quality lawyers are far more capable of diversifying than they are given credit for – the exceptions to this are generally very obvious. Giving someone a chance makes far more sense in the context of a contract where you can set your terms and don’t have to continue with it if it isn’t working out. Likewise, if you were fixed on full-time hours but the perfect person can give you 4 days per week and the alternative is no-one, it’s the perfect time to try some flexibility and see how it works. Most of the time it does.
At this stage you will need to decide whether a contractor or employee works best, although occasionally this will be dictated by the person themselves. Some Independent Contractors will only work on that basis, although most of the lawyers on our books will do either, depending on the job.
For longer fixed term roles, a temporary employee might be a better option. They are put on the payroll which means no special dealing with invoices, and they are given a desk at your firm and will work pretty much like the other employees. They will turn up at set hours for the period agreed and will be paid a fixed weekly amount.
However if the work is uncertain in nature, or is project-based, and you are wanting the contractor to keep timesheets and bill only for chargeable work done, this fits better with the Independent Contractor concept. They will need to invoice regularly for hours worked and will charge GST if they are GST registered. As soon as there is no work to be done, they will go, so if there is uncertainty around how much the contractor is needed, this is probably a better system.
This varies enormously depending on the arrangement you have with the contractor or temp. Generally speaking, an independent contractor will be paid more, as they are taking responsibility for the work they are doing, meeting their own expenses, have no additional benefits, and have decreased work security, often working and billing on an hourly basis that could end as soon as there is no work to do. A temporary employee will be a little better off in that they will normally have a defined period of work, will be paid a set amount per week no matter how much work is available and will not have to meet all their own costs. So saying, the principles when working out an acceptable pay rate are similar for both. Unless the temporary contract is very long-term, both temps and independent contractors should get more than an ordinary salary rate. How much more will depend on:
One way to determine rate can be to charge a percentage of the ultimate charge out rate to the client. A firm engaging a contract lawyer working from his or her own premises doesn’t have a number of overheads loaded into the charge out rate, so a firm could expect to pay up to half the charge out rate in these instances. A firm engaging a person on-site could expect to pay less, up to a third of the charge out rate.
Another way to determine rates is to look at salary rates, and use a multiple of anywhere between 1.3 – 1.7 to compensate for the lack of benefits and job security that go with contracting. As an example, the hourly rate of an employee earning $100,000.00 is $51.28, let’s say $50.00. So that gives a range of between $65.00 to $85.00 being the hourly rate you could expect to pay a contract lawyer who could otherwise assume a salary of $100,000.00 if they were an employee.
Whilst we often look at these factors, they generally only serve as a starting point, as each situation is different. The best way of determining the rate is negotiating a figure that is both reasonable and fair to the contract lawyer and the engaging lawyer. However it pays to bear in mind that that rate should be more than a standard permanent employee’s rate.
The table below gives some examples of rates we have made placements at:
4-6 years PQE - Range $65.00 to $100.00, Median $75.00
8-12 years PQE - Range $65.00 to $175.00, Median $110.00
15- 26 years PQE - Range $90.00 to $210.00, Median $125.00
(In all cases the median is weighted towards the lower end of the range, as we are placing more people in fixed, or long-term roles, than we are in flexible, short-term, independent roles).
Most independent contractors will carry their own Professional Indemnity insurance, but not all of them will, so check this point, and be clear about who is intended to assume the risk for the work done. Although Independent Contractors are self-employed, where they do work for a law firm, it is either behind the scenes, or usually will go out under the firm’s name which will of course mean that the firm would be involved in any negligence action. You should also check the firm’s insurance policy – most law firms’ policies provide for work by independent contractors to be covered, as long as the insurance company is informed that the contractor is doing work.
Temporary employees will be covered under the firm’s policy like other employees and would not be expected to have their own insurance. Again, you may need to notify your insurer of temporary staff being taken on.
It goes without saying that anyone doing contract work for a law firm should have their references checked, as with permanent employees. Temps or contractors through an agency will usually have been checked and these will be supplied, but check this, and if you want to do your own checking you should be able to do this too.
Once you have got to the point of agreeing all of the above matters, these should be recorded in a contract, either a Contract for Services with an Independent Contractor or a Temporary Employment Contract. Some of the additional terms which should be covered in this agreement are:
It helps contractors to work well when you are very clear about what you are expecting them to deal with, and where they should involve permanent staff, e.g. do you want them to have client contact or not, are they to handle a file as if it is theirs, or provide limited assistance. This is especially important if you are dealing with a contractor working off-site. These parameters need to be clear at the outset to avoid misunderstandings. You may not want them to work in the same way as a permanent employee.
Sometimes existing staff are resentful of a contractor or temp coming in: they may be getting paid better, have more flexible work options and they may also need help from permanent staff when starting out.
As with many issues, just being aware of this possibility and having good communication with staff will solve this problem. Many firms involve their existing staff in interviewing potential contractors or temps, to be sure they will get on, where they are expected to work together. It also helps to be very upfront with your staff about why you are engaging a temp and what you expect to get out of it. Finally, temps or contractors should keep the terms of their contract to themselves, and they should be asked to do this. It is up to the firm whether or not their staff know what they are paying a temp.
The trend towards using Temps and Contractors is part of the growing flexibility in approach by law firms and we have seen huge changes in just 5 years, driven by the increasing demand for this kind of work. The people available to do contract work are mostly well qualified and highly experienced and they are a valuable resource to consider when your needs are temporary or uncertain.