Payroll in Your Law Firm

Once an attorney successfully begins a practice, she will want to set up payroll for herself and any staff or partners she brings on. Many times the process can seem daunting, but if a few steps are taken to do things correctly, payroll does not have to be difficult.

 Step 1 - Collect employee information

 The owner of the law firm has the responsibility to hire and maintain records of eligible workers. You will need to have your new staff fill out a W4 form from the IRS. This form gives information needed to determine how much income tax to withhold. As of 2020, the IRS updated and now requires the newer W4 form. For the most part it is less complicated for someone to fill out than the old form. 

 Another required form is the I9, a document that proves the candidate is legally allowed to work in the US. This document doesn’t need to be turned in, just kept on file. 

Finally, a new hire needs to provide the firm with his driver’s license number and social security card. Of course these two numbers are used as identification and will be needed for taxes and IRS filings periodically. You as the owner of the firm have the responsibility to keep these numbers secure and private, so be sure your files are kept confidential, whether online or in the office.

 You will also need to have a contract in place that the employee and owner signs, stating the responsibilities expected and the benefits that will be provided, such as vacation time and insurance. Deciding to hire a new employee should be a carefully planned decision, and only happens once the firm is bringing in enough revenue to cover all of the associated costs. 

 Step 2 - Choose a payroll provider

 Gone are the days of working out every tax withholding on a spreadsheet with a pencil. Multiple payroll providers are available online for a very affordable price, making payroll runs quick and easy. It is worth the extra cost to go ahead and sign up for a full-service payroll provider, turning over the responsibility of remitting payroll taxes every period, and issuing W2s and 1099s at the end of the year. You may need to do some research to discover which payroll provider would suit your firm’s needs the best. A few providers cater specifically to attorneys, of course at a higher cost, but the expertise may be worthwhile.

 Another payroll option would be to hire a local company to run the payroll, remit taxes, and keep records, but this can cause some difficulties if a report is needed quickly or if the local company has a break-in or fire. You will have to weigh the benefits and risks of each option to decide which is best for your individual needs.

 Step 3 - Decide on benefits

 Payroll is complex not only because of taxes, but also because so many add-ons are available. You can offer bonuses, retirement funds, insurance, overtime, and so much more. You will have to decide which of these perks you can afford and want to offer to your employees. 

 Each law office receives income in a specific way, such as retainers or contingencies, so that may affect how you pay staff, especially the attorneys in the firm. Keep in mind the extra perks agreed on when you prepare to hire a new employee, because they can add up quickly, and put you over your payroll budget.

 Step 4 - Run payroll

 Most payroll providers can be set up to run payroll automatically, but if your law firm is anything, it is not simple when it comes to paying attorneys. You will have to calculate and pay the law partners based on the income received for each time period. 

 If a big case was completed recently, for example, you can run payroll based on those earnings. If clients have failed to pay, you may have to run a lesser amount through the payroll system. In either case, running payroll can still be easy if you have a good provider, just enter the amounts you want to pay, and the system will calculate withholdings and benefits. 

 Direct deposits are also a wonderful time saving service, so be sure to set that up as well! Most payroll providers require a canceled check from the employee and a signed form stating that the company has permission to pay through direct deposit rather than a paper check.

 Step 5 - Have a great time tracking system in place

 Much of an attorney’s work is paid based on how many hours he or she spends on the task in question. A simple will preparation might only take one hour, while a complicated case that goes to court might require hundreds of hours of preparation and research. Tasks that are time-based need to billed as such, and the best way to do so is to have a great, easy-to-use time tracking software in use. 

 Paper timesheets are no longer the best way to track hours, especially if you tend to work on several different client cases each day. Thankfully, there are plenty of options online that will allow the attorneys and their staff to track every minute spent on each case, log in quickly and organize hours by project, staff member, or client, and give detailed reports as needed.

 Setting up and running a smooth payroll system does take some time and concentrated effort, but the results of a great payroll process are well worth it! Once you are set up, your payroll should be quick and easy. Be sure to ask your bookkeeper for any questions you have about payroll along the way.