Some people believe that lawyers make a lot of money. And it is true that some lawyers can make a more-than-comfortable living. But the idea that all lawyers are rich is a myth.
On average, lawyers make about $149,000 annually. This places lawyers just ahead of sales managers, but behind doctors, dentists, airline pilots, CEOs, and some engineers. Here are some factors that affect which type of law makes the most money.
The Compensation Structure
One explanation for why the average compensation seems low is the variety of ways that lawyers are compensated. This can also play into which type of law makes the most money because some types of law are more likely to have high-paying compensation structures.
Most lawyers are compensated based on three structures.
- Salary: Many lawyers earn a salary. This is typical for lawyers in private practice who are just out of law school because they have not yet originated any clients. This is also the compensation structure used for government employees and most public interest lawyers. For example, prosecutors, agency regulators, investigators, legislative staff, judicial clerks, and other government lawyers are paid a salary. Similarly, many organizations like groups that advocate for environmental, gun safety, civil rights, and other public interest causes pay their lawyers a salary.
- Client billings: After a lawyer has built a practice, the lawyer begins to be compensated based on the amount of work the lawyer does. In other words, after a few years, the lawyer’s compensation becomes tied to the amount of money the lawyer makes for the law firm. This is where practice law can become lucrative. A senior associate is usually expected to bill at least 150 hours a month. If the lawyer’s billing rate is $300 per hour, that means the lawyer brings $45,000 into the law firm every month or $540,000 every year. If the firm pays associates 30% of their collections, a hard-working lawyer can make over $150,000. This structure is used in private firms.
- Profit sharing: Once a lawyer reaches the top of a firm, the lawyer becomes a partner or shareholder. This means that the lawyer owns a piece of the law firm and receives a share of its profits. This is highly lucrative for the lawyer because now the lawyer is paid based on the lawyer’s own billings, but also the billings of all the other lawyers in the law firm. For example, as a lawyer’s billing rate climbs, a partner could bill at $1,000 an hour or more. On top of those billings, the partner also shares in the firm’s profits. For many partners, they make as much or more from the work of the associates’ billings as their own billings.
Based on the compensation structures used, it becomes clear why some practice areas make more than others. The practice areas with large firms and high billing rates give lawyers the greatest opportunity to make money. A financial law firm that can offer clients a securities lawyer for stock offerings and a bankruptcy lawyer for corporate bankruptcies will stay busy, charge high billing rates, and generate a lot of profits.
The Billing Structure
Another factor in what type of law makes the most money is the billing structure. Lawyers use three billing structures:
- Hourly: Under this billing structure, the law firm is paid based on the number of hours the lawyer works. If a lawyer works ten hours on a case and bills $250 per hour, the legal bill will be $2,500.
- Flat: Some law firms can charge a flat fee for work because the amount of work is predictable. For example, business law firms might charge small businesses and startups a flat fee to form a corporation or file a trademark application.
- Contingent: Some practices can charge a contingency fee. A contingent fee is calculated based on the amount of compensation recovered. So, if the lawyer recovers $50.000 for the client and the contingent fee is $25%, the lawyer earned a fee of $12,500. Two areas of law are not allowed to charge a contingent fee — criminal law and family law. In these two areas, the law tries to keep the lawyer’s self-interest out of the case. A personal injury lawyer will typically bill a contingent fee.
This billing structure can benefit the client. The lawyer can start the case with no fees collected upfront. The client only pays a fee if the lawyer wins or settles the case. And the client only pays a percentage of the compensation for legal fees, guaranteeing there will be something left over for the client.
This billing structure can also make a lot of money for lawyers. Since the lawyer is paid based on the results produced, high-value cases can generate big fees. Medical malpractice lawyers can win multi-million dollar settlements and verdicts, resulting in fees in the hundreds of thousands of dollars for each case.
Whether Insurers Are Involved
Another factor in determining what type of law makes the most money is who is on the other side of your case. When you win a case against individuals, your client might never get paid the judgment and, as a result, the client might never pay your fee. So, for example, if your client was hit by an uninsured driver, you could win the lawsuit easily, but still, never see a dime because the uninsured driver might never pay your client.
On the other hand, if the other driver has insurance, many states require the insurer to pay any settlement or judgment within a set amount of time. For example, some states force insurers to pay within 14 days after they sign an agreement to settle a case.
Many cases involve insurance. For example:
- Dog bites: Homeowners insurance policies usually cover dog bite injuries caused by the homeowner’s dog.
- Lawyer malpractice: Most lawyers carry malpractice insurance. When a lawyer mishandles a case due to negligence, the client hires a legal malpractice lawyer to file a malpractice insurance claim.
- Ride injuries: Amusement parks usually carry liability policies that pay for injuries in the park due to the park’s negligence.
Lawyers who focus on claims against insured businesses and individuals often make more money because their fees are almost always collected.
The Amount of Work Required
One of the biggest factors in assessing what type of law makes the most money is the amount of work involved in a case. Generally speaking, the more work involved, the more the lawyer can make.
A good example of this is family law. Some issues handled by family lawyers can be handled in a quick and straightforward way. For example, a name change is usually a short, quick process. Even divorce can be completed quickly if the spouses agree to settle all the issues under the state’s divorce law.
But other cases can take years to resolve. As a result, the lawyer may spend hundreds of hours working on the case and, as a result, bill thousands of dollars in fees.
For example, parents will often fight bitterly over child custody. These battles can drag on with accusations of incompetence or even mistreatment from both parents. Developing the evidence and presenting it to a family court judge can require months of work. Moreover, a judge might take a try-it-and-see approach, with the parties trying out arrangements and coming back to the court when they do not work out. As a result, a child custody lawyer can often be among the types of lawyers who can make a lot of money.
The Clients’ Resources
Sometimes, making money is not the lawyer’s primary concern. As a result, some lawyers deliberately do not choose what type of law makes the most money.
One such type of law is representing debtors against creditors. By definition, debtors are in debt and may have limited resources to pay a lawyer. Nevertheless, many lawyers prioritize fairness and justice over money. A foreclosure defense lawyer, for example, helps people who are behind on their mortgages to avoid foreclosure and homelessness. These lawyers might not make as much money as other lawyers, but will often have greater job satisfaction.
This decision to represent clients based on their resources can cut the opposite way as well. A lawyer might work in communications law for a large broadcaster or telecommunications company. This ensures that the lawyer’s fees are always paid and the lawyer always has work.
Provisions to Shift Attorney’s Fees
Determining what type of law makes the most money should include considerations of who pays the attorney’s fees. In general, each party is responsible for paying their own lawyers. But in some fields of law, the losing party must pay the winning party’s attorney. These fee-shifting provisions can help lawyers improve their collections and make more money.
For example, workers’ compensation law guarantees that workers who suffer on-the-job injuries will have their medical bills and part of their income paid while they recover from their injuries. In most cases, liability is clear and the workers’ comp insurer pays the claim. But in some cases, the insurer denies the claim and the worker must hire workers compensation lawyers to fight for benefits.
An injured worker is in a bad spot. They cannot work and have mounting medical bills. If their workers’ comp claim is denied, they are in serious financial trouble. States needed a way to prevent insurers from denying claims just because they know workers do not have the money to challenge the denials. As a result, many states have a fee provision in their workers’ comp laws. Under this fee provision, the insurer must pay the lawyer for the worker if the workers’ comp board overrules a denial of claims.
This fee provision forces insurers to carefully consider every denial of compensation and provides workers’ comp lawyers a source of fees for meritorious cases.
Flat Fee Work
Another consideration in what type of law makes the most money is whether the lawyer can charge a flat fee for work. By charging a flat fee for work, the lawyer can get paid upfront. This reduces the risk that the lawyer’s bill goes unpaid.
One area of law where the lawyer can often collect flat fees upfront is wills, trusts, and estates. An experienced lawyer can often estimate the amount of work for a client’s estate planning and quote a flat fee. By collecting the flat fee before commencing work, both the client and lawyer benefit. The client knows that the fee will cover the work and there will be no surprise fees later. The lawyer knows the bill is paid before spending the time to work on the client’s case.
The one issue that might be handled on an hourly fee rather than a flat fee is a challenge raised during probate. Suppose an heir challenges the validity of the will or a creditor asserts a claim against the estate. A probate lawyer might need to charge an hourly fee to fight the challenge. The reason is that the amount of work to represent the estate against a challenge might not be predictable.
Necessity of the Work
Some jobs are necessary. Aside from providing a steady stream of work, these jobs often give the lawyer a sense of purpose by fulfilling a greater purpose. A criminal defense lawyer might or might not make good money. But most believe that our system of laws only works when everybody has a lawyer to present a vigorous defense regardless of what they are accused of doing.
There is no easy way to identify what type of law makes the most money. Many factors go into how much money lawyers make. And many lawyers choose their practice for reasons besides money. Ultimately, hard work will usually be rewarded regardless of the lawyer’s practice area.