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8667.0 - Legal Practices, Australia, 2001-02  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 25/06/2003   
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SUMMARY OF FINDINGS

Introduction

This publication presents the results of the 2001-02 Legal Practices Survey. This survey is conducted periodically by the ABS to provide a detailed description of the financial and business structure of legal practices. For the purpose of the survey, legal practices included private solicitor and barrister practices, and other legal services organisations operating in Australia, whose primary activity was the provision of legal services. Other legal services organisations included patent attorneys, legal aid authorities, community legal centres, government solicitors and public prosecutors. The main focus of the survey was on understanding aspects such as the composition of the income earned by legal services practices and organisations, details of the expenses incurred and the characteristics of the workforce.

Chapter 1 contains summary information about legal services practices and other legal services organisations. Chapter 2 presents statistics on private solicitor practices, while chapter 3 presents statistics on barrister practices. Definitions of what constitutes a solicitor or barrister practice can be found in paragraphs 3-4 of the Explanatory Notes. Chapter 4 presents statistics on legal aid authorities and community legal centres.


Size of profession

At the end of June 2002, there were 7,566 solicitor practices, 3,670 barrister practices and 258 other legal services organisations operating in Australia, with a total employment of 36,124 solicitors and barristers, and 57,628 other staff. These practices and organisations generated $10,636.1m in income, including $598.9m in government funding for government solicitor and public prosecutor offices, legal aid authorities and community legal centres.

Industry value added (IVA) quantifies the contribution that businesses make to gross domestic product (GDP). The derivation of IVA differs for businesses in the market and non-market sectors therefore caution should be used when making comparisons between businesses in these two sectors. Further information can be found in the Glossary.
The total IVA contribution to the Australian economy by legal practices and other organisations was $7,776.7m, contributing 1.1% to Australian GDP for 2001-02. IVA for private solicitor practices was $6,316.7m (81.2%), for barrister practices $896.8m (11.5%), and for other legal services organisations $563.2m (7.2%).


T1.1: INDUSTRY VALUE ADDED


Industry value added
$m

Solicitor practices
6,316.7
Barrister practices
896.8
Patent attorney businesses
147.8
Government solicitors/Public prosecutors
246.3
Legal aid authorities
114.2
Community legal centres
54.9
Total
7,776.7

Copyright Australian Bureau of Statistics, 2003
G1.1: CONTRIBUTIONS TO INDUSTRY VALUE ADDED AND EMPLOYMENT TOTALS

G1.1; Contributions to Industry value added and Employment totals



Comparisons to accounting practices

Both the Legal Practices Survey and the Accounting Practices Survey were conducted in respect of the 2001-02 financial year, providing an opportunity for the results of the two surveys to be compared.

The legal profession contributed more to the Australian GDP than the accounting profession in 2001-02, 1.1% ($7,776.7m) compared to 0.8% ($5,753.2m) for accounting. The legal profession also generated a greater return per professional than the accounting profession, with barristers generating the highest return at $206,900 per barrister, followed by solicitors with $129,500. Accounting practices generated $73,100 return per practising accountant.

Solicitor and barrister practices reported higher operating profit margins (OPM) than were reported for accounting practices. In 2001-02, solicitor practices had an OPM of 29.7%, and barrister practices 66.5%, compared to 18.8% for accounting practices. The operating profit margin was influenced not just by the underlying profitability of the practice, but also by the employment profile and structure of a practice. If the practice was incorporated, then the principals would be paid a wage or salary, which in turn reduced the overall profit. If a practice were unincorporated and had no employees, then no wages and salaries were required to be paid and the full value of work done by the practice was paid as profit.

In 2001-02, barrister practices had an employment of, on average, 1.6 persons per principal (the barrister, and an additional 0.6 persons), and solicitor practices had an average employment of 5.4 persons per principal. Accounting practices had an average employment of 4.8 persons per principal.


Income

Solicitor practices generated $8,378.6m in income in 2001-02; barrister practices generated $1,146m in income.

Government solicitor and public prosecutor organisations were the next highest income earners with $413.6m, followed by legal aid authorities ($325.5m), patent attorney practices ($287.6m) and community legal centres ($84.8m).


Expenditure

During 2001-02 solicitor practices accounted for $5,913.9m in expenditure. Barrister practices accounted for $386.8m, while expenditure by other legal organisations amounted to $1,000.6m.

Labour costs accounted for 65.9% of the total expenditure of community legal centres in 2001-02, 54.7% for solicitor practices, 34.4% for legal aid authorities, and 19.7% for barrister practices.

The low contribution of labour costs to the total expenses of barrister practices is partially explained by their lower rates of employees per working principal/partner compared to solicitor practices. The rate for barrister practices was 0.6 employees per working principal/partner compared to 4.4 employees for solicitor practices.


Employment

The total employment of legal services practices and organisations at the end of June 2002 was 93,753. This consisted of 36,124 solicitors/barristers and 57,628 other staff. Solicitor practices accounted for 84.5% of the total employment in the legal profession, and barrister practices 6.3%. The remaining employment was accounted for by government solicitor and public prosecutor offices (3.8%), community legal centres (1.8%), legal aid authorities (2.0%) and patent attorney practices (1.6%).

Barrister practices and the offices of government solicitors and public prosecutors had notably higher rates of employment of solicitors and barristers than solicitor practices or other types of legal services organisations. Solicitors/barristers comprised 62.6% of total employment in barrister practices, and 53.8% in government solicitors/public prosecutors offices.

Government solicitors and public prosecutors had an employment of, on average, 0.9 other staff for each solicitor/barrister, while barristers had an average employment of 0.6 other staff. Solicitor practices had higher rates of support staff, averaging 1.7 other persons for each solicitor/barrister.

Females accounted for 33.6% of the employment of solicitors/barristers by solicitor practices at the end of June 2002. The corresponding figure for barrister practices was 14.7%. In other occupation categories female employment was higher than male employment. Females accounted for 65% of articled clerks, 80.2% of para legals, and 86.7% of other occupations in solicitor practices. Within barrister practices, the majority of females (75.6%) were support staff to barristers.


Profitability

Barrister practices experienced higher operating profit margins than solicitor practices in 2001-02, 66.5% and 29.7% respectively. The high operating profit margins of barrister practices reflected low employment of support staff.

Although barrister practices had a higher operating profit margin than solicitor practices, the magnitude of the variation in operating profit margin between solicitor and barrister practices was similar. The variation is illustrated in G1.2, which shows the quartiles of the distribution of operating profit margin across all practices in various size categories. For example, G1.2 shows that one quarter of solicitor practices with one or two working principals had an operating profit margin of 5.4% or less, whereas within this same lower quartile solicitor practices with 10 or more working principals had operating profit margins up to 22.2%. The upper quartile shows the higher distribution of operating profit margins. One quarter of solicitor practices in 2001-02 earned operating profit margins of 37.9% or higher in each of three broad size categories (39.4% for 1-2 working principals, 37.9% for 3-5 working principals, and 41.4% for 10 or more working principals).

G1.2: DISTRIBUTION OF OPERATING PROFIT MARGIN

G1.2; Distribution of operating profit margin


States/Territories and regions

New South Wales had the highest number of solicitor and barrister practices as well as employment, followed by Victoria. In New South Wales, barrister practices represented 43.9% of the Australian total, and solicitor practices 38.3% of the Australian total. The margin was much closer in Victoria, 32.8% for barristers and 32.1% for solicitors. New South Wales accounted for 48.6% of total employment in barrister practices and 41.9% of total employment in solicitor practices, while Victoria accounted for 29.4% and 25.2% respectively. Tasmania had the smallest share of barrister practices and employment, both 0.4%, while the Northern Territory had the lowest share of solicitor practices (0.7%) and employment (0.6%).

The Australian Capital Territory and New South Wales recorded the highest average incomes per solicitor practice ($1,330.1m and $1,316.8m respectively). New South Wales also recorded the highest average barrister practice income. The New South Wales value of $412,200 was markedly higher than the next largest average barrister practice income, $274,100 for Western Australia. Tasmania recorded the smallest average income per barrister practice at $161,500 as well as per solicitor practice at $724,100.
At the end of June 2002, 79% of all solicitor practices were located in capital cities. Capital city practices averaged a return per solicitor/barrister of $134,600 in 2001-02, compared to practices in non-metropolitan areas, with an average of $102,900. The average operating profit margin was 30.1% for capital city practices and 27.5% for other practices.


Growth

Comparisons with results from earlier surveys are useful, as an indication of the extent of change over time. However, it is important to note that the survey was not designed to provide highly accurate estimates of change, so any comparisons to results from previous surveys should be made with caution. Estimates of change can be subject to high levels of sampling error, changes to coverage, and minor changes to question wording. Further information can be found in paragraphs 11-12 and 23-24 of the Explanatory Notes.

There were 7,566 solicitor practices in 2001-02, up from the 7,115 practices in 1998-99. The estimated number of barrister practices recorded a fall from 3,704 practices in 1998-99 to 3,670 in 2001-02 (-0.9%), however the size of this fall is small relative to the standard error of the estimate (4%).

Total employment in solicitor practices grew from 67,278 in 1998-99 to 79,258 in 2001-02. The recorded decline in barrister practices also coincided with a recorded decline in employment, from 5,908 in 1998-99 to 5,862 in 2001-02 (-0.8%), which is small relative to the standard error of the estimate (7%).

Operating profit margin was not affected by the decline in the number of barrister practices or employment for barristers. The margin of barristers was 66.5%, 1.8 percentage points higher than in 1998-99. Total income increased by 36% and had an annual average growth rate of 10.8%. Return per barrister also grew significantly, from $146,800 in 1998-99 to $206,900 in 2001-02.

The operating profit margin for solicitor practices dropped to 29.7%, down 1.7 percentage points since 1998-99. However, return per solicitor increased, from $109,600 in 1998-99 to $129,500 in 2001-02.

TABLE 1.1 SUMMARY OF OPERATIONS

Solicitor practices
Barrister practices
Patent
attorney practices
Government solicitors/Public prosecutors
Legal
aid
authorities
Community legal
centres
Total

Practices/organisations at end June
no.
7,566
3,670
41
18
8
191
11,493
Locations at end June
Capital city and suburbs
no.
7,077
na
np
36
34
^164
10,903
Other
no.
2,086
na
np
22
37
^240
2,590
Total
no.
9,163
3,670
61
58
71
^404
13,493
Employment at end June
Solicitors/barristers
no.
29,159
3,670
37
1,935
770
553
36,124
Patent attorneys
no.
*98
. .
324
. .
. .
. .
421
Other(a)
no.
50,001
^2,193
1,142
1,664
1,107
^1,101
57,207
Total
no.
79,258
5,862
1,502
3,599
1,877
1,654
93,753
Income
Income from legal services
$m
7,984.2
1,136.4
277.8
155.9
. .
. .
9554.3
Government funding
$m
. .
. .
. .
232.1
288.6
78.2
598.9
Other income
$m
394.4
^9.6
9.8
25.6
36.9
*6.6
482.9
Total
$m
8,378.6
1,146.0
287.6
413.6
325.5
84.8
10,636.1
Expenses
Labour costs
$m
3,233.2
^76.4
79.3
246.3
108.3
53.1
3,796.5
Rent, leasing and hiring
$m
577.7
^99.5
12.3
30.4
9.6
4.4
733.8
Other expenses
$m
2,103.1
210.9
(b)124.1
112.3
197.4
23.1
2,770.9
Total
$m
5,913.9
386.8
215.8
389.0
315.2
80.5
7,301.2
Operating profit/surplus before tax
$m
2,485.1
759.2
71.8
24.7
10.3
^4.3
3,355.4
Operating profit margin
%
29.7
66.5
25.3
na
na
na
na
Return per solicitor/barrister
$'000
129.5
206.9
. .
. .
. .
. .
. .

na not available
np not available for publication but included in totals where applicable, unless otherwise indicated
^ estimate has a relative standard error of between 10% and 25% and should be used with caution
* estimate has a relative standard error of between 25% and 50% and should be used with caution
. . not applicable
(a) Of which 85 were trade mark attorneys.
(b) Of which $43.3m were payments of fees to local and foreign associates.
Copyright Australian Bureau of Statistics, 2003

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