Kevin J. Begley, Construction and Enginering Law

PER DIEM QUESTIONNAIRE

Understanding why lawyers currently use or do not use per diems, will help address the concerns of all attorneys, and point out how to make the use of per diems more desirable. So, if you would be so kind, please check out the Per Diem Questionnaire, and if possible, complete it and send same to me. --- THANK YOU !

Using Legal Per Diems
Kevin J. Begley, Esq
Copyright 2002

Few law firms use per diems. Why not? Should they be? If they should, when does it make sense to use per diem attorneys and paralegals?

An office manager may be impossible to replace on a temporary basis, but you can effectively use an attorney on a matter on a short term or contract basis. There are various situations where the use of the proper per diem attorney or paralegal is more than suitable, it is preferable and profitable. I will be addressing attorneys in this article, but many of these comments will apply equally to paralegals.

THE NEED

Let us step back and look at the average law firm. The work available waxes and wanes depending upon the economy, the gaining or losing of a client or clients, ‘events’ such as the ‘correction’ of the stock market, or oil prices, a war in some far away country, or an attack on our homeland and the phase of the moon. The people available to do the work within a firm also varies from time to time, depending upon retirements, lateral moves to other firms or companies, vacations, illness, pregnancy, and other causes.

Perhaps a client may start sending you work that is new to your firm, or new in many regards, such as matters including maritime or fire loss claims, cases which involve simple or complex business bankruptcy issues, construction, toxic mold, etc.

Few firms will always have all the experience they need or would like to have in-house. So what to do? Put a junior associate on it, directing him to learn everything necessary to assist in that bankruptcy or construction matter? That is often what is done, but does that make sense? About as much sense as taking a new doctor in a general residency and asking him to diagnose a complicated neurological problem or performing a heart catheterization with no one to at least guide him or her. So, what does make sense?

You can hire an experienced bankruptcy attorney for that matter involving bankruptcy, that makes sense, but if you hire an engineering expert to help with that construction matter, the engineer may not know the law well enough to be effective, but an engineer-JD would, providing that you can find the right per diem attorney. Face it, especially if you want to have an associate become your in-house “expert”, it makes sense to bring in someone who can mentor the associate, guide their learning experience, while providing the expertise necessary for the matter at hand. Face it, it makes much more sense, and will produce a better work product and may be be more cost effective, to hire an engineer-JD, or an attorney with 10 to 20 years of construction law experience, for a matter involving construction elements, than to use an inexperienced associate!

Perhaps you can effect a strategic alliance with another firm that has expertise in bankruptcy, insurance coverage issues, land use law, appellate practice or some other specific area, but when that is not practical, perhaps you would be better off locating a suitable per diem attorney in lieu of trying to have someone in the firm learn that area of the law, and “re-invent the wheel”.

Will a firm always have sufficient manpower to properly handle all the work they have? If they do, then they are well over staffed, and are not operating as efficiently as they should be. This will either reduce profits, or over price your services. Can you pull that attorney off those apartment evictions to handle that doctor’s deposition? Yes, but is it the smart thing to do? That depends on the experience of that attorney, the complexity of the case, the timing, and how critical the work and timing of the work he is pulled off of to ‘put out your fire’. If you pull someone off one matter to put out a ‘fire’, even if they can do it well, will other work start to ‘smolder’?

There are law offices, big and small, as well as corporate legal departments, which have matters in-house where they could use an attorney, paralegal or ‘other’ person to assist them. Perhaps they could use someone with certain experience that they do not have in-house. Perhaps they do have in-house people with the desired experience, but they just have too much work for them. The answer may be a per diem employee!

THE ANSWER:

If you don’t have all the tools necessary in-house, you can and should hire a per diem attorney. Think about the advantages… You can get the help you need, and the experience you don’t have or just need more of. When you decide they are no longer needed, “good bye”. These employees are typically already covered by your malpractice insurance, so you have virtually no additional overhead. Employers can contract specialists in short term, long term, full time and part time temporary and temporary to permanent positions. The possibilities are only limited by supply, demand, and your creativity.

What are the benefits of using per diems?

“Peak loading” is a term the power industry uses to describe sudden or periodic expected or unexpected demands for more power. A power company plans for this by arranging for help from outside their company, or by adding additional generators (typically gas fired turbines) to bring online just to handle their peak loads.

Most law firms have peak loading problems. Sometime they have sufficient capacity to handle these problems. If they do, it usually means they are overstaffed, and not as efficient and profitable as they might be. Usually, they shuffle staff, taking staff off work that needs to be done (it’s just smoldering, and they have a fire to put out!) , to address the emergency. This creates great inefficiencies, and clients do not want to pay for inefficiencies in your operation any more. Employers will do whatever it takes to get the job done, they just don’t handle it in the most efficient manner.

Some firm express concern over losing a client to a per diem that they perceive as being more attentive. This can be addressed in numerous ways, by contract, by a covenant to not compete, peer pressure, common sense (what attorney is going to hire someone who takes clients – though I’ve had a few clients I WISH I could palm off on another attorney!).

Have an NASD arbitration? How about finding an attorney that has the experience you want for a project that lives in Cape May, New Jersey or has semi-retired to Florida? If you can ship them the documents they need and/or set up access to them over the internet, you would not be likely to have a client leave for an attorney they never meet who is at best many hours away. Some sick folks actually LIKE writing appellate briefs or doing research. Why not use per diems if they can do the work efficiently and have experience in an area that you do not? Concern about the use of a local per diem seems misplaced, but if it is a concern, perhaps an attorney from Manhattan, would be more comfortable hiring a per diem attorney located in Pittsburg, Pennsylvania or Scottsdale, Arizona to handle your securities or IRS matter, instead of an attorney located in Brooklyn. That per diem in Pennsylvania or Arkansas may be less costly also!

So, the big question is why aren't firms using per diems... As discussed previously, there are many situations where the use of a per diem not only makes sense, it may be more efficient that trying to use the resources you have in-house. Most other businesses use short term or temporary employees or sub-contractors. What is the obstacle to them using per diems? Is it in mindset? Perhaps it is just lack of experience in using per diems. At least unconsciously, people are uncomfortable with or fear the unknown.

A per diem is not like an associate, where if he costs the firm $100,000 per year, he must generate $300,000 in billings to turn a profit. Per diems will turn a profit for you from the beginning, because if you can bill them at $150 per hour, you can pay the per diem $75 per hour, and make a profit of about $75 per hour, because you have no insurance costs or other overhead costs for the use of that per diem. Think about it – you can make money from the use of per diems from the first day.

I suspect that education is the key. IF convinced that it is cost effective, firms will use per diems. If it is a 'break even' financial proposition, then they need to get something they need to make their life or results better.

Well, I think that when firms can find the appropriate candidates, per diem attorneys not only make sense, but they will make your matters more profitable, save time, produce a better more professional product.

Capitalism Works for Small Firms
Laura Gentile, Esq.
New York Law Journal
10-15-2001

As the owner of a small law firm you are both laborer and capitalist. As a laborer, you earn your wages, which are directly proportional to the time spent on the services you perform: spend two hours preparing a will or closing a mortgage, collect some money. This is no different than the hourly wage your father earned as a bricklayer, except that his was recognized as good honest work.

As a businessperson, you hire other people and you pay them for their work. As a capitalist, you make money by collecting the surplus value of your employee's labor, the difference between what their labor earns you and what you pay them. If you hire an associate to prepare a will or attend a mortgage closing for your client, then the difference between what you pay the associate and what you collect from the client is your profit, after you deduct your fixed expenses. The more work you can hire someone else to perform for you, the more surplus value there is for you to collect.

Consider the following scenario. You have settled a small personal injury matter for $10,000 at the second pretrial conference after expending $750 in disbursements. Based on the standard contingency retainer in a tort case, you collect a fee of one-third of the net settlement or verdict after reimbursements of your disbursements. The client nets $6,166; your fee is $3,083.33.

What is your profit? It depends upon whether your were a laborer or a capitalist. The following tasks were performed in the process of bringing the matter to settlement:

Of these total hours, there are 4 appearances totaling 15.5 attorney hours and 8.5 administrative hours.

Calculate the hourly rate of compensation if you personally performed all 24 hours of work by dividing the fee collected by the hours you spent on the case. Divide $3,083 by 24 hours and you arrive at a calculation of a fee of $128 per hour. That is an honest wage for an honest day's work.

Now inject some capitalism into the equation and consider the following thought experiment: If you had a paralegal perform all of the administrative, non-attorney tasks, would your net hourly fee increase, or does the expense of the labor result in no increase in profit?

Assume a pay rate for the paralegal of $20 per hour including the cost of benefits, then the labor costs for the administrative tasks is $170 ($20/hour x 8.5 hours). Deduct this labor expense from your fee and your net fee is now $2,913 ($3,083 - $170). Just a bit of capitalism has increased your compensation by almost 50 percent, to $188 per hour.

Take your experiment to the next level. Calculate the result if you hired an attorney to perform the lawyer's tasks. A per diem attorney is the most expensive kind of coverage you can retain, but it is the easiest expense to control and the simplest way to start bringing in attorneys to help with the work. If you had a per diem attorney cover all four appearances (a preliminary conference, one deposition of each of the two parties, and two pre-trial conferences), the cost of the labor is $850. Does it make sense to hire per diem attorneys?

Do the math. Subtract the expense of the per diem attorney and the calculation of your hourly fee is as follows: $3,083 - 170 = $2,913, - $850 = $2,063. Assume you spent two hours in supervision of employees and talking to the client, your hourly fee on this case is $2,063/2 = $1,031.50 per hour. Even with expensive per diem services, your hourly rate increased almost 10 fold, because you did less work. This is what the founding fathers envisioned when they created a free market economy with surplus labor.

You do not start making money, of course, until you have paid your fixed costs. If you have a paralegal, a presentable office, some equipment, a car, all the necessary insurance for your business, and you buy a few index numbers each month, your fixed costs are probably about $6,000 per month. If you are the laborer, performing all of the tasks on all of your cases, you are working 47 hours each week to keep your doors open. If you have hired a paralegal and are using per diem attorneys for your appearances, you can cover your fixed costs in six hours.

Whether your practice specializes in probate matters, torts or real estate transactions, you can make the calculation to determine what your profit is. To improve your bottom line, increase your rate of compensation by raising your fees, hiring staff, or reducing your fixed costs.

So you are ready to hire your first employee. For each new employee, you must complete an IRS W-4 (Withholding Allowance Certificate and the IRS I-9 Employment Eligibility Allowance Certificate), which confirms that the employee has a status with the INS that allows him or her to work in the United States. When hiring an employee, you must carry additional insurance associated with your employees, you must pay employer's taxes to the city, state and federal governments, and you must withhold taxes from your employees' salaries and deposit that money at a bank with a federal voucher.

The rule of thumb is that an employer spends an additional 30 percent over the actual salary to cover all the expenses associated with employment, including full health insurance and vacation pay. You can reduce this amount by limiting benefits, but in the long run, the goal is to have a strong benefits program to keep your well-trained and productive employees on staff.

You are required to carry workers' compensation insurance and disability insurance. You must pay employment taxes on a quarterly basis and file summary reports with state and the federal tax authorities, and you must deposit the employee's share of employment and social security taxes that you have withheld from your employee's salary. By the end of January each year, you must generate and distribute W-2 forms, and by the end of March you must file the W-2s with the IRS as an attachment to a W-3 form.

A small firm typically cannot justify the expense of a full time bookkeeper to take care of the employment tax and filing requirements.

You can do it yourself. Any of the advanced accounting packages, including Quickbooks and Peachtree, will allow you to press a few buttons to cut paychecks with the proper taxes deducted. These programs will generate the data required for the quarterly and annual tax forms.

It is easy enough to lose track of these requirements, though, and incur penalties and interest charges. You can hire a payroll service to cut paychecks and make all necessary tax filings for about $50 per employee each month. Your accountant can also provide this service for you. Chances are, the added expense of hiring a service to take care of these items will be offset by the elimination of penalties for late and inaccurate filings.

It may be possible to fulfill your staffing needs with independent contractors, rather than direct employees. A per diem attorney, for example, is an independent contractor. There are no taxes withheld for independent contractors, who receive an IRS 1099 form at the end of the year. You are not required to carry any insurance for independent contractors. You must take care, however, that the work arrangement qualifies for independent contractor status with the IRS. If you do not meet all of the requirements, you will incur severe penalties and back taxes. Proceed carefully, with the advice of an accountant.

Once all of this is done, you can start watching the clock and tapping your fingers until your paralegal arrives between 9:15 and 9:20 a.m. for his or her 9:00 a.m. shift. It's the trains -- you know how it is. You once were an employee, too.

Laura Gentile is managing partner of Gentile & Associates in Manhattan and teaches at City University of New York School of Law, Queens College. - laura@gentile.com

This is a motion by AG, Esq., a per diem attorney who was sanctioned
for not appearing at either an initial court conference, nor the next
conference that he insisted on rescheduling. He seeks to vacate the June
25, 2003 order.

This is an action to recover $180,000 for interior decorating services.
The facts of the case are not relevant to this motion. Rather, this
motion addresses the increasing use of per diem attorneys and
illustrates problems which may arise as a result.

A preliminary conference was scheduled for June 20, 2002 at 9:30. When
plaintiff's counsel had yet to appear by 9:50, defendant's counsel GB
was directed to call LS, plaintiff's counsel of record. Messages were
left for LS in two offices where only answering machines were present.
Thereafter, the conference was held with only GB and a preliminary
conference order issued. It directs GB to fax a copy of the order to
plaintiff within 24 hours. Sometime that morning, AG appeared in the
courtroom and demanded to see my court attorney and an adjournment of
the conference which he had already missed. AG admits that he was late
because he accepted two conflicting per diem assignments scheduling
himself to be in two different courts at the same time. He was advised
to call his adversary upon whose agreement, another conference would be
scheduled. In the absence of GB's objection, and at AG's request, it was
scheduled for June 25, 2003 at 9:30. Again, no appearance by either LS
nor AG on June 25, 2003. LS's office was called and she informed the
Court that AG was expected to appear for the conference. Accordingly,
the Court sanctioned AG $860 to be paid to GB.^3

This situation is not at all like Walsh v the State of New York, 206
AD2d 434 (2d Dept 1994), a case relied upon by AG. In that case, an
attorney appeared 23 minutes late for a hearing and was sanctioned $150.
The attorney was late because he was engaged in a hearing before another
judge and had asked another lawyer to advise the other court that he
would be late. Here, AG did not advise the Court that he would be late.
Moreover, in this case, the Court with the adversary's agreement,
accommodated AG by scheduling another preliminary conference on a date
that AG requested. In Walsh, the sanction was for 23 minute tardiness.
Here, the sanction was for dragging his adversary to court, not once but
twice, and failing to appear both times.

In opposition to the sanction, AG disputes that he was ever engaged by
LS to appear on June 25, 2003. Alternatively, he asserts that as a per
diem lawyer, he is not the lawyer of record and thus not responsible.

LS and AG battle over whose responsibility it was to cover the June 25,
2003 conference. LS is counsel of record. Ultimately, this is who shall
be held accountable to the client. However, from the Court's
perspective, only AG had appeared so far for plaintiff.

Resolution of this dispute would require a time consuming hearing. 22
NYCRR '130-2.1(d). See also, Balter and Simone, "How Judges Can Enforce
Civility By Punishing Frivolous Conduct", NYLJ, Aug. 25, 1998, at 1. The
Court is not inclined to participate in the battle between LS and AG.
Happily, GB does not oppose this motion. Therefore, the motion is granted.

However, the Court is concerned about two important ethical dilemmas
raised by this motion: Is AG correct that per diem lawyers have no
responsibility? Alternatively, can the attorney of record absolve
herself of responsibility for a per diem attorney's violative behavior?

The Court acknowledges the growing use of per diem attorneys to appear
in court at conferences and practical reasons for lawyers to engage per
diems. Laura Gentile, "Per Diem Work, "Covering All the Bases"", NYLJ,
Sept. 5, 2003, at 16; Jones, "As in Comedy, Secret to Small-Firm
Lawyering is Timing", NYLJ, Aug. 5, 2003, at 1. Laura Gentile, "Maximize
Profits Capitalism Works for Small Law Firms", Practice Development for
Solos & Small Firms, Vol. 2, No. 5, Jan. 2002, at 3; Laura Gentile,
"Capitalism Works on a Small Scale", NYLJ, Oct. 12, 2001, at 16; Rivkin,
"Per Diem Lawyering Offers Solo Extra Cash and Flexible Scheduling",
NYLJ, Dec. 13, 1999, at 1. Busy attorneys relying on colleagues,
associates or partners to cover an appearance is a tradition in the
profession. See, Levin, "Symposium: Preliminary Reflections on the
Professional Development of Solo and Small Law Firm Practitioners", 70
Fordham L. Rev 847, 869-870 (2001); Anthony Gentile, "Benefits of Using
Per Diem Attorneys", NYLJ, Aug. 22, 2003, at 2.

However, attention must be given to communications between the attorney
of record and the per diem attorney. See e.g. Levin, "Symposium:
Preliminary Reflections on the Professional Development of Solo and
Small Law Firm Practitioners", 70 Fordham L. Rev 847, 869-870 (2001) n.
93. Otherwise, as one commentator has acknowledged "[i]f a per diem
attorney fails to show up in court and the case is dismissed, you [the
attorney of record] are on the hook." Laura Gentile, "Small Firm Life:
Handling the Mishandled File", NYLJ, Aug. 30, 2002 at 16. Likewise,
attorneys, per diem or otherwise, who attend conferences are required to
be prepared. Rules of the Justices of the Commercial Division, Supreme
Court, New York County, Rule 1, 9. An unprepared attorney can be the
equivalent of no appearance at all for which the case could be
dismissed. 22 NYCRR '202.27 and Rule 13 of the Rules of the Justices of
the Commercial Division, Supreme Court, New York County. From the per
diem lawyer's perspective, her reputation is at stake if an appearance
is not adequately described. Laura Gentile, "Per Diem Work: Covering All
the Bases", NYLJ, Sept 5, 2003 at 16.

Attorneys using per diem attorneys and per diem attorneys should not
only fully and completely communicate. They must be aware that, 1) per
diem lawyers do have a responsibility to the court and to the client; 2)
no attorney of record can absolve herself or himself of responsibility
for a per diem attorney's violative behavior; and 3) that
notwithstanding that a per diem lawyer is not the attorney of record,
responsibility attaches once any agreement, action or appearance is
taken in furtherance of the representation. Clearly, an unprepared per
diem attorney does not serve anyone.

In the battle over whose responsibility it was to cover the June 25,
2003 conference, both are responsible to the client and answerable to
the court

ORDERED, the motion to vacate this Court=s June 25, 2003 sanction order
is granted.