This February, Hogan Lovells opened a global business services centre in Louisville, Kentucky, one of the latest firms to move administrative jobs to lower cost cities.

The firm is paying roughly $20 (£16) a square foot for 31,000 square feet of space, less than a third of the rate for prime office space in New York and Washington DC, where the firm has its two biggest US offices. As of September, 50 people were working there; the firm aims to employ 250.

Mark Klender, a principal at Deloitte Consulting, who advised Hogan Lovells on this move, says that a firm can slash its real estate costs by more than half with a back-office or shared service centre, as they're also called, and that's not even the biggest efficiency. "There's bigger savings on the labour front," he says. "Ten percent of the savings come from real estate and 90% come from labour."

Hogan Lovells global chief operating and finance officer Scott Green confirms that labour costs motivated their decision. "We were really struggling to fill roles in DC and New York," he says. "We were competing against a lot of law firms who want the best and brightest. We did a nationwide search and found that Louisville has a highly educated workforce with labour costs that are below the national average."

UK firms are more aggressive about using Europe for back offices. Offshore to the US firms is too dramatic a change

When Orrick Herrington & Sutcliffe kicked off the remote back-office movement in 2001 by moving jobs to Wheeling in West Virginia (pictured above), it was seen as a possible harbinger of the future. "I thought the early moves would open the floodgates but there has not been that huge a tide," says Klender, who also advised Wilmer Cutler Pickering Hale and Dorr on opening an office in Dayton in 2010, and Pillsbury Winthrop Shaw Pittman on the creation of a back office in Nashville in 2011. "Even though the business case is typically overwhelmingly positive, change is very difficult for lawyers. It's viewed as distracting."

A report by ALM Legal Intelligence confirms little enthusiasm for shared service centres: It identified just 14 major US firms that had opened or planned to open a centre in the US or UK The report doesn't cover 'offshore' centres in foreign countries, but only a few US firms use those, including White & Case in Manila and Hogan Lovells in Johannesburg.

Klender says that not only can firms slash real estate costs, they can often cut space to 125 square feet or less per person in newer, efficient buildings. Labour costs can be cut by up to 30%, according to the ALM report. In all, the report states, savings can add up to $20m (£16m) annually, depending on a firm's size.

Orrick, for example, pays less than $10 (£8) a square foot for the 88,000 square feet it rents in Wheeling. The firm employs roughly 300 people there, including 30 career associates who do legal work but are not on the partnership track. Laura Saklad, the firm's chief administrative officer, says the office has evolved from housing administrative employees to more client-facing professionals, including the career associates and a predictive analytics team. "For us, the differentiator has been expanding beyond internal firm operations to deliver innovative services to the client," she says. Saklad estimates that the Wheeling operation is saving Orrick $13m (£10.5m) a year in labour, rent and other costs.

A few firms handle some legal work from these offices, including Fish & Richardson in Minneapolis, but they still use back offices primarily for administration. UK firms, in contrast, are more likely to locate legal work in their back offices, the survey found. Freshfields Bruckhaus Deringer uses a 25-employee office in Vancouver, Canada, exclusively for legal work, as well as its larger services centre in Manchester. Herbert Smith Freehills uses its 100-employee Belfast operation for legal work, as does Berwin Leighton Paisner in a Manchester office that employs 50.

In most, if not all, domestic US moves, firms are getting state or local tax incentives to create these offices. Hogan Lovells, for example, can qualify for $4m (£3.2m) in state tax breaks if its Louisville employees earn an average of $31 (£25) an hour. Kaye Scholer can qualify for $560,000 (£452,000) in Florida tax refunds spread over seven years if its centre employs 140 employees at an average annual wage of $53,585 (£43,000). Deloitte's Klender says tax incentives are helpful but are a secondary factor at best. "One does not do this for economic development incentives," he says. "They might influence the final decision [about which city to choose], but they're not so large to cause someone to do this in the first place."

Firms in the US have been reluctant to establish back offices overseas. "UK firms are more aggressive about that, using eastern and central Europe," Klender says. "Offshore to [the US firms] is too dramatic a change."

Timezone differences can be an issue, for one thing. Hogan Lovells' Green says one reason the firm opened the Louisville operation, even though it already had a Johannesburg back office, is that it wanted an operation in that timezone. Orrick's Saklad emphasises that operations in places like Wheeling are about more than saving money. The lower cost structure gives the firm the freedom to experiment. She says: "It's about having a location where you can continue to think about innovation."