Except we don't know when we're going to die, and taxes are subject to change at the drop of a hat
As indeed they did last week in the UK Budget
With staff costs being the main expense for law firms, firms will feel the increase in employer national insurance from April 2025, but there's some nuance in the way the reduction in the base threshold (from £9,100 to £5,000) and the increase in the class 1 rate (from 13.8% to 15%) interact
Perhaps not obvious from the headlines over the past few weeks - but firms are going to experience higher inflation on the salaries of lower paid staff
For a member of staff on an annual £10,000 salary, £749 of employer NI will be payable from April 2025, up from £124 in the current tax year
This is an increase of 6.2% on the overall cost to employ that individual
Contrast with a £100,000 salary, and the £1,705 increase in employer NI is just 1.5%
The average lawyer's salary is around £50,000, and so the law firm will bear a 2% increase
YMMV depending on staff mix, but in broad terms I anticipate smaller firms are going to experience higher input cost inflation (say, 2 - 6%) for generally having a more junior staff mix and lower salaries
Firms with an annual employer NI bill of less than £100,000 will benefit from an increase in the employment allowance from £5,000 to £10,000, which should more or less offset the increased NI, but it will be painful for firms above this threshold
Contrast this with larger firms who typically pay more will experience much lower inflation (e.g. less than 2%)
Regional firms will also be harder hit than those in London and the South East as a consequence of generally lower salaries in those regional firms
What to do...
First and foremost, I would suggest firms model through the impact of these changes on their gross, operating and net margins and then focus efforts where they'll make most impact
Smaller firms have been more hesitant in increasing prices in recent years - so a real pressure is building on gross margin with prices not going up and wage inflation/employer NI impacting the direct cost of delivering legal services
There's a real need to look at the pricing of services in these firms
Given the link (rightly or wrongly) between salaries and hourly rates, I expect firms will increase headline rates for more junior grades more steeply than at the senior end in 2025 - particularly for unqualified fee earners/paralegals
Query how amenable clients will be to this approach, and I'd be mindful of where clients perceive relative value - potentially away from NQs and towards more senior fee earners and paralegals
There'll also be a temptation for firms to cut (generally lower paid) business services staff, or to trim future pay awards to absorb the increase in employer's NI
Treat the above as broad brush strokes - the most appropriate course of action will differ from firm to firm
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