Hourly Rate, Flat Fee, Contingency or Retainer?

Fees

The Rules of Professional Conduct require attorneys to set fees that are not excessive. (Rule 1.5 (a)). Lawyers must also communicate the basis for their fees and expenses to their clients, according to the scope of representation. Yet how does an individual attorney calculate the amount of the fee? Should this fee be hourly or be predicated on a fixed, contingency or retainer basis?

It’s helpful to first consider how much of the work you undertake for clients consists of activities that may re-occur throughout your practice. This repetitive nature may help you anticipate how many hours it may take to complete the specific task. Barry Heyman, who focuses his practice on entertainment, music, new media and IP at Heyman Law, notes his fee schedule has evolved, based on “learning over time the actual amount of time a certain matter may take as well as the more uncertain amount of time that may be involved — for example, back-and-forth negotiations.”

To protect yourself from underestimating the time, consider adding a percentage of the fee to the total amount in a flat fee arrangement. Alternatively, the agreement letter signed by the client may feature a clause that authorizes an invoice for any additional services and time that exceeds the projected hours and amount.

Flat fee arrangements may simplify the billing process, according to Patricia Werschulz. She notes “I have about 20 different activities which I routinely perform for clients. Each has its own price structure” for her patent and trademark services at Werschulz Patent Law.

For Sarah Gold, who advises companies and nonprofits on business contracts, leases and other transactions at Gold Law Firm, choosing a flat fee made sense from an administrative perspective. “My practice is transactional and I would be doing my own bookkeeping.”

Zara Watkins, who writes briefs for appeals and substantive motions in state, federal and immigration cases at On Point Expertise, also prefers flat fees. By calculating one hour to draft one page of a brief, she multiplies the work completed by an hourly rate to arrive at a total. “If I have to go over my estimate, I send an invoice at the end of the project.”

According to Werschulz and Watkins, the flat fee permits them to focus on the matter on their desk and the legal analysis, free from tracking their time.

Other attorneys dislike flat fee agreements. Craig Wolson, who leads Wolson Litigation Support Group with a practice focused on securities, lending and other finance, says “Clients almost always want a fixed fee or cap fee arrangement, which I try to avoid if at all possible.” By billing his hours against a retainer, calculated as an estimate of the time, he manages any downside risk of under-billing by the matter or the month. Clients rarely anticipate the true scope of the work or the time required, in his experience. “Unexpected things often come up during the course of the representation, clients often change their mind as to what they want to do after the project begins, and/or clients often ask for more work to be done than they would if they knew they were paying by the hour.”

Randall Hirsch, who advocates for victims of medical malpractice and assists small businesses at the Law Office of Randall J. Hirsch, agrees, “I soon realized that the extra services I provided, such as having long discussions with the client to make sure that I understood their needs and that they understood the process and bigger picture… made me busy, but not successful. A client who was interested only in the lowest-cost provider was not a client whom I wanted to have.”

Some deem the hourly rate to be more reliable, as far as billing and considering the prevailing legal environment. Craig Dobson, whose practice is focused on ethics and immigration at Dobson Law, says “I often bill by the hour when I represent lawyers on ethics matters.” He once set flat fees for immigration cases, “but I am now considering more hourly billing because of the unpredictability of representing clients during the current administration.”

Despite complaints by attorneys and corporations about tracking the fractional hour,  Andrew Berks says “Larger businesses, businesses with experienced in-house counsel, and large organizations generally prefer hourly billing” at Berks IP Law, with a focus on intellectual property, patents and litigation.

Heyman offers a retainer fee of estimated time. “I may first suggest a consultation – sometimes complementary – in order to determine the scope of services and an estimate of my time. Based on this information, I propose a retainer amount. In addition, various phases of a matter may have a combination of hourly, flat fees, and/or contingency fees.”

You should anticipate an increase in your fees. Robert Erlanger, whose practice is personal injury and estate administration at Erlanger Law Firm, said “[My] hourly fee increased over time, as I became more experienced and knowledgeable.” Berks and Werschulz also raised their fees after practicing patent law for more than 10 years.

Experience is not the only reason to raise your fees. There are expenses to running your practice and competitors may also be a factor. Gold remarks “I have increased rates based mostly on hard cost increases.” In addition, Wolson notes “If I see that other lawyers with similar backgrounds are charging more, I will raise my rates.” Heyman also takes “current market rates” into account.

Be aware that a fee increase may dissuade some past clients from returning to your office, as Watkins learned. Nonetheless, she “was able to replace them with other, higher paying clients and do less work for the same amount of money.”

On occasion attorneys may work with a client whose budget is limited. Charles-Eric Gordon, investigative counsel of the Law Office of Charles-Eric Gordon, comments “If a prospective or existing client consults me on a price-sensitive matter, which I believe will be extremely interesting, I may accept less of a retainer and an additional amount on contingency. I also try to base my fees somewhat on a sliding scale, when appropriate.”

An attorney may offer an alternative resource as a solution. Werschulz says “If a client cannot afford my services, I send them to Volunteer Lawyers for the Arts to apply for pro bono representation. If they truly can’t pay my fees, VLA can make a determination and I will take the case.”

Be wary of pro bono work for family and friends, cautions Hirsch. “If you don’t charge a fee for the work that you do, you will not be seen as a professional. You can give a special friends and family discount. However, make sure that it is clear how much of a discount off your regular rates they are getting. Otherwise, they will not appreciate your time and skill.”

If you seek greater transparency in your fee structure, consider the approach taken by Berks. He has a tabular fee schedule “with a list of various services and costs. I use this routinely as a starting point when clients request costs in advance. Some people want to see it, especially foreign counsel.”

Billing procedures and payment arrangements vary. Flat fee advocates, like Watkins and Werschulz, may require full payment to begin the work. Some attorneys, like Gold, design a payment plan. “I offer anything that makes it reasonable for my clients to pay timely, including monthly payment schedules and varied payments over time. I also take credit cards and e-checks.” Gordon states “I always make certain to require a retainer of at least half of what I estimate the final fee and expenses will be.”

As far as accepting payments, there are multiple options: credit card, check and ACH. Some attorneys prefer the ease of online payment services. Werschulz uses LawPay, for its credit card and e-check services. Her international clients send wire transfers; occasionally, a client pays cash.

For Berks, a bookkeeper and Quickbooks are an efficient solution. “I want to make it as easy as possible for clients to pay me. Something nice about Quickbooks is the emails with invoices have a payment link that accepts credit cards and ACH payments.”

As you consider your current fee structure, transparency of fees, procedures for accepting payment, you have many options. Your experience, the competitive environment and expenses should all be factors in evaluating your current rates, whether on a flat fee, hourly, retainer or contingency basis. Keep in mind that these fees (and expenses) will continue to evolve in the future.

Looking at his 30+-year career, Erlanger advises “Always respect the value of your services, but be flexible under the circumstances as they present themselves. Remember, a satisfied client may be the source of more business and referrals.”

An earlier version of this article was published in The New York Law Journal on August 19, 2019.

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