The UK's 50 largest law firms by revenue spent a combined £5.4bn on staff costs in the 2012-13 financial year – equating to just over 40% of turnover on average.

Total spend was up year-on-year according to exclusive analysis of limited liability partnership (LLP) accounts filed with Companies House carried out for Legal Week by accounting giant EY. 

The research found spend across the group increased by 3.2%, with cost as a percentage of revenue staying broadly static at 41%, despite many firms actively looking to cut the cost of their support services in recent years. 

In 2011-12 the firms – which do not include Slaughter and May or Osborne Clarke, as they have not converted to LLPs – spent £5.2bn, or an average of £108.9m per firm, according to the accounts. This compares with £5.4bn in 2012-13, or an average of £112.4m each.

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 According to EY's research, the group spent £65,900 per employee in 2012-13, up 0.4% on the £65,700 per employee spent the previous year. Looking at the spend based on lawyer numbers it equates to £123,100 per lawyer, virtually identical to the £123,300 average spend recorded in 2011-12.

George Bull, head of the professional practices group at accountant Baker Tilly, believes that the relatively flat staff spending from the top firms reflects an emergence from several years of austerity. "We are coming out of cost-cutting and looking at the return of growth," he told Legal Week.

"By 2012-13 most firms had done several rounds of cost-cutting already. We've had several difficult years but now firms are worried about losing some of their people, so we are seeing targeted incentives for the employees firms want to keep, rather than across the board increases or decreases [in staff costs]."

Firms seeing the largest increases in staff costs included several that underwent mergers during the 2012-13 financial year, such as Pinsent Masons and DWF, both of which saw spend rise by more than 40% year on year. Meanwhile, Clyde & Co saw costs climb by 24.7% following a period of rapid expansion in the wake of the previous year's tie-up with Barlow Lyde & Gilbert, with headcount climbing 15%.

Among those firms seeing staff costs grow without opening in new jurisdictions or carrying out mergers, Macfarlanes was a significant outlier. The single-office City firm increased costs by 13.2% from £29.8m to £33.7m.

In contrast, firms cutting costs significantly over the period included Gateley (12.4%), legacy Lawrence Graham (11.7%) and Irwin Mitchell (9.7%).

Overall, non-partner staff numbers were up across the top 50 firms, growing by 4.7% from an average of 1,452.9 to 1,520.6. The largest headcount reductions came at legacy Lawrence Graham, which cut numbers by 9.9%, and Dentons, which saw a 6.6% drop.

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 Four firms in the top 50 spent more than half of their turnover on staff costs during the 2012-13 financial year: BLM (58.9%), DAC Beachcroft (53.2%), Shoosmiths (52.6%) and Dentons UKMEA (51%). Within the 10 largest UK firms by revenue, the top spenders were Linklaters at 47.4%, Freshfields Bruckhaus Deringer (45.1%) and Clifford Chance (CC) at 43.9%.

Freshfields and Linklaters were the only firms to spend more than £100,000 per employee. They increased their cost per staff member by 2.7% (to £121,500) and 1.7% (to £132,200) respectively, while magic circle rival Allen & Overy reduced its spend by 3.2% to £94,800. CC spent £99,200 per employee, up just £100 on the previous year.

Despite spending more on their staff, Freshfields and Linklaters were two of the firms to most significantly slash member numbers, cutting partner headcount by 5.1% and 6.1% respectively. Only Nabarro (13.3%), CMS (10.5%) and Kennedys (6.3%) saw bigger reductions in member numbers.

"There are significant differences between the number of support staff and fee earners per member across firms," says Michael Radcliffe, a director from the fraud investigation and dispute services department at EY. "These benchmarking exercises can prompt change because if firms see themselves paying more in support staff costs than anyone else they will start to question it." 

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