Do Flat-Fee Lawyers Need to Track Time?
Short answer: nothing requires it, and you should do it anyway. A flat fee is set on an estimate of how long the work takes, and recording the hours is how you find out whether the estimate was right.
We hear the long version of this from firms regularly. A firm sets its flat fees, the fees hold for a few years, and at some point a partner notices that a practice group is busy and unprofitable. When they go looking for the reason, there is nothing to look at. The fee schedule was built on a feel for the work, and nobody kept the data that would confirm or correct the feel.
Why flat-fee firms stop tracking time
There's a sensible reason for it: timekeeping is a chore that exists to produce an invoice. Take away the hourly invoice and the chore looks pointless, so attorneys stop doing it, and nobody at the firm has a strong reason to make them.
It also feels like the whole point. Many lawyers move to flat fees to get away from the six-minute increment. Asking them to keep recording time can sound like taking the benefit back.
The trouble is that the hourly invoice was only one use of the data. The other use was knowing what a matter cost the firm to deliver, and a flat fee makes that second use more important than it was before.
What the hours tell you that revenue doesn't
Revenue per matter tells you what came in, and it says nothing about what went out; two uncontested matters billed at the same flat fee can differ by a factor of three in attorney hours, and from the revenue report they look identical.
With hours recorded against each matter you can answer the questions that set a fee schedule:
What does this matter type cost us in attorney and paralegal hours, at the median and at the ugly end?
Which phase runs over? Intake, drafting, the back-and-forth with the other side, the closing?
Which clients or referral sources produce the matters that run long?
Is a senior attorney doing work that the fee assumed a paralegal would do?
One firm we work with bills flat fees wherever it can and still tracks time on everything, and their reasoning is simple: flat-fee pricing only works if you know what the work costs.
What to record on a flat-fee matter
Less than you would for an hourly client, because nobody outside the firm will read it.
Record the matter, the timekeeper, the hours and the phase. If your billing system supports task codes, use them for the phase, and keep the list short enough that people pick the right one. Five phases that get used beat twenty that get ignored.
You can skip most of what makes hourly entries slow. The narrative doesn't need to survive a client's review or an e-billing audit. It needs to tell you, a year from now, what kind of work the time was. "Drafting - operating agreement" is enough.
Reviewing the fee schedule
Once a year, pull the hours for each flat-fee matter type and set them against the fee. For each type you want the median hours, the range, and the effective hourly rate the fee produced.
The matters to look at first are the ones where the range is wide. A wide range usually means the fee covers two different kinds of work under one name, and the fix is often to split it: one fee for the simple version, another for the version with a complication you can name at intake.
A narrow range with a low effective rate is a simpler problem: the fee is too low, and now you have the numbers to raise it with confidence.
Getting attorneys to record time they can't bill
This is the hard part, and exhortation doesn't solve it. An attorney with no invoice depending on the entry will skip it when the day gets busy, which is most days.
Three things help: keep the entry small, as above; show people what the data is for, including the fee changes it produced; and take the recording off the attorney where you can.
That last one is where automatic time capture helps a flat-fee firm. Software that records work as it happens and drafts the entry means the data exists whether or not anyone decided to write it down. The attorney confirms a day's entries in a few minutes. Ajax works this way, and it records the work the same way whether the matter is hourly, flat or capped.
Is it ethical to track time on a flat-fee matter?
Yes. Recording time and billing for time are different acts. The client pays the agreed fee, and your internal hours never reach them.
The ethics question around flat fees runs the other way. Model Rule 1.5 requires every fee to be reasonable, flat fees included, and if a fee is ever challenged, a record of the work done is the best support you can have for it.
FAQ
Do flat-fee lawyers have to track their time?
No rule requires it in most situations. Some courts and fee-shifting statutes will ask for time records if you seek fees, and a firm that kept none has a harder argument. Beyond that, it is a business decision, and the business case is pricing.
How detailed do flat-fee time entries need to be?
Matter, timekeeper, hours and phase. A short description of the type of work is enough. The entry is for the firm's analysis and doesn't need to read like an hourly narrative.
How often should a firm reprice its flat fees?
Annually works for most firms, and sooner for a matter type that's new or visibly running over. You need enough closed matters of a type to see a pattern, which for common work means a few dozen.
Will attorneys resist tracking time on flat-fee work?
Usually, and with reason: nothing in their day depends on it. Keep the entry minimal, show them what the data changed, and automate the capture so the record doesn't depend on anyone's memory.
