question regarding reimbursement to attorneys for work perfomed

Question From ASK THE EXPERT:


We split the receivables with our attorneys.
If their client pays 1000, he gets 500 we keep 500. that part is pretty clear cut. the problem is we have a paralegal who performs work for $100 per hour.
I have been charging the attorney for this fee in this way:
I subtract the total amount of paralegal fees from the attorney's bottom line of receivables (before it is divided) I then divide the remainder to split between us. i then divide the paralegal fees 30/70 (which is our agreement) and add that back in to their total. so for instance if client Black pays 1000 and there are $100 in paralegal fees (which could be for other clients) i would subtract the 100 from the thousand leaving 900 to divide by 50%. i then would multiply the $100 paralegal fee by 30/70%. In the attorneys column he would have 450+30. our column would have 450+70. the attorney is telling me this is not correct. He believes that i shouldn't subtract the paralegal fees arbitrarily from the bottom line because when the client pays (meaning the one who actually incurred the paralegal fee) and we then divide that payment by 50% we are in essence paying out at 80% to him and 120% to us. He has me totally confused!

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I understand what you're doing, but yes, it is confusing. You should not arbitrarily deduct any fees from the money you receive from a client for paralegal fees.

Instead, you should have the paralegal give you a bill for services that breaks down their services by customer. For example - 1 hour @ $100 - Customer Black $60, Customer Yellow $40.

When a customer pays you, split it 50/50 with the attorneys.

Separately bill the attorneys for the paralegal services at your 70/30 split.

If you want to do a combine these transactions, do it like I've suggested above, but show the transactions as the separate occurrences that they are.

The attorneys should be happier with this, as they won't feel like they're getting less than they should.

I hope this helps.

If you have any other questions, feel free to email me again.

Kathy

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