The True Costs of Independent Contractor at Law Firms
Law firms have traditionally hired employees as opposed to independent contractors. In the past ten years, however, there has been an increasing trend to hire independent contractors for a whole range of work. For example, staffing companies now routinely provide lawyers to law firms on a project basis. Historically these were likely to be document review projects for large law firms. But now staffing companies will provide project-based attorneys for everything from M&A negotiations to patent trials. The lawyers provided by the staffing companies are often treated as independent contractors of the firm. This enables law firms to bolster their talent pool on an as-needed basis.
The increased use of independent contractors is also based on an assumption that they are cheaper for the law firm than employees. From a tax perspective, the advantages of hiring independent contractors are clear; the law firm doesn’t have to pay social security and other federal employment taxes on their sums paid to the independent contractor. Much of the commentary associated with hiring independent contractors has focused on compliance issues. Specifically, what do law firms need to do to protect themselves from a claim that they have misclassified the lawyers as independent contractors?
There is an additional consideration to hiring independent contractors that doesn’t get the attention it deserves. Independent contractors are more likely to have divided loyalties because they often serve multiple clients simultaneously. Moreover, they often look at the economic benefits of assignments differently than employees do. Employees generally value the perceived security that comes from collecting a pay check, and they usually have all of their economic eggs in one basket; the basket belonging to the employer. By contrast, independent contractors are more likely to stop working on law firm projects or workless diligently on them if they receive a better more lucrative project from another source. For example, solo practitioners who devote some of their time to project work for other firms may quit abruptly if their own practice begins to generate more work.
Thus, there is some reason to believe that, all things being equal, employees might be more diligent, motivated, and reliable than independent contractors. This is a generalization and of course in a specific situation your mileage may vary. Law firms should therefore make strategic decisions about the kinds of client projects that would benefit from the use of independent contractors. .
What has your experience been using lawyers as independent contracts, especially on projects that are not document reviews?