How much should you earn in 2021? Recently several articles appeared detailing salaries for lawyers. These articles list statistics which at once appear painful and unbelievable. This analysis is based on material published elsewhere and attempts to present a cohesive interpretation.
According to BusinessTech.co.za the average worker (all industries) is paid R22 500 per month, approximately R270 000 annually.
With the majority of South Africa’s 24 000 legal practitioners in solo practice, comparative figures act as an important benchmark.
Unlike the USA, South Africa does not publish detailed consolidated labour statistics. This makes it difficult to obtain and verify the kind of information under discussion. Comparatively, according to the US Bureau of Labor Statistics the national average annual remuneration of a lawyer is just below $145 000, approximately $12 000 monthly. With a 2019 national average income (all industries) of $68 703 annually and $5 725 monthly.
There are certain considerations to bear in mind. Some of these are obvious, while others may be more obscure.
- Amounts have been rounded and averaged.
- Standard considerations such as sample size and composition cannot be verified.
- The information obtained in the articles referenced all seem to reply on public job advertisements. This means that the numbers reflect salary expectations based on advertisements. Head-hunting and internal promotions would be excluded from these numbers.
- Remuneration appears to refer to payslip based monthly or annual regular remuneration and does not refer to equity/dividend payments.
- No indication is given of the nature the numbers present: total cost to company or net take home pay. Due to very high tax rates, at the upper end of the scale this can create a distortion of 30%.
- Unofficial, contradictory and unexplained job titles or professional designations make it difficult to reconcile various sources.
- Most legal practitioners are sole practitioners, and therefor self-employed. Data based on public job advertisements will mainly reference corporate or large law firm realities. This must of necessity skew the final data set and interpretation.
Candidate Attorneys are generally not referenced, but it appears that entry level salaries fall in the R6 000-R7 500 per month band (just below R100 000 annually).
|Recently qualified||50 000||600 000|
|Associate||62 500||750 000|
|Senior Associate||75 000||900 000|
|Partner||120 000||1 440 000|
|Senior Partner||250 000||3 000 000|
Interestingly Payscale indicates a Total Pay of R1 000 000 annually, with a base salary ranging from as little as R78 000 to R644 000. At the bottom end this indicates a monthly income of R6 500.
The website Indeed.co.za presents a similarly bleak picture of the an average base salary of R10 391 per month (R125 000 annually).
The website SouthAfricaFacts.co.za indicates that Lawyers who have just graduated from college earn as little as R30 000 per month which presumable refers to recently admitted and not candidate attorneys.
GoLegal.co.za indicates that the median remuneration for an equity partner is just below R5 000 000 annually.
To put the above in perspective, consider the following illustrative example.
In order for an attorney to qualify for take home of R50 000 monthly, fees need to be generated in excess of this amount. Overhead costs, such as rent, internet, stationery, computers and software and salaries must be covered in order to provide the necessary infrastructure to provide the legal services. In addition payroll tax claims a substantial portion of the base pay. In this example a personal income tax rate of 25% is assumed. Further assuming that that all eight hours of every 21 working days can be charged.
- 21 working days per month, with 8 billable hours per day allows 168 billable hours per month
- Headline earnings: In order to generate a monthly fee income of R100 000 for the firm an hourly rate of R595 must be charged. (168 hours x R595 = R99 960)
- At this monthly turn over, Value Added Tax at 15% must be added to fees and paid to SARS regardless of recovery from client
- This calculation conservatively allows R25 000 for overheads, VAT of R13 000 and income tax of R12 000 and net take home pay of R50 000
- Bottom line after tax and overheads R50 000 per month. (R50 000 / 168 hours = R297)
- Rounded an Hourly Billing Rate R600 leads to an Hourly Pay Rate R300.
A desired Billing Rate to Pay Rate ratio of 1:1 appears impossible, while other cash flow factors may force the Billing Rate even higher. A ratio in excess of 6:1 may be unsustainable, with a typical range between 2:1 to 4:1.
Continuing this example, an attorney with a nominal billing rate of R2 000 per hour, may take home R168 000 monthly.
Note that for the 2020/2021 tax year the nominal tax threshold on a gross salary of R62 000 is 39%. This amounts to R16 000 in tax and take home pay of R45 000.
Bear in mind that billing rates do not directly equate to take home pay, as payment by clients and disbursements may have profound impact on cash flow.
Certain questions present themselves
- What is take home pay expectation?
- What should be the effective billing rate required to achieve the expected take home pay?
Carl Holliday is an attorney specialising in practice management and compliance.