Delighted to share that we have been informed that HCL has been awarded: "Best Law Firm Business Consultancy – Midlands" in the SME News Legal Awards 2020.

Please note – we are not tax accountants – BUT this is something that businesses, including larger law firms, need to be aware of. Get appropriate tax advice.

IR35 – a bear trap for companies hiring external help. Basically, the Inland Revenue wants to ensure that the state is not being done out of taxes through the use of a service company instead of the staff being regular employees, paying PAYE etc. So for some years now, if external help has been hired by an arm of the state (including local government, the NHS etc), the hiring party (or end client as HMRC calls them, eg, NHS) has to make a determination as to whether the hired help is an employee. If so, the end client needs to pay employers NI etc. If they say that they are not an employee and HMRC decide they got it wrong the end client will need to pay the missing tax to HMRC.

On 6^th April 2020 this regime is extended to larger private companies hiring external help. By larger they mean companies meeting 2 of the following criteria:

a) you have an annual turnover of more than £10.2 million
b) you have a balance sheet total of more than £5.1 million
c) you have more than 50 employees

Several factors influence whether HMRC will regard the external help as an employee; such things as

• how many organisations the external help has worked for in say the last year (if it’s just that end client you are likely to have a problem), or indeed do they work for more than 1 at a time;
• the level of control the end client has over how the external help works;
• how open-ended the contract is;
• do you get any employee benefits;
• other things that depict independence, such as carrying your own business insurance, use your own equipment etc

HMRC has created an easy to use tool to check if an arrangement is likely to fall foul of IR35. Crucially, it is anonymised, so one may check out a scenario before entering into a contract. Here is a link to it: https://www.tax.service.gov.uk/check-employment-status-for-tax/disclaimer

A lot of organisations will need to consider how they work very carefully. This will even affect mid-sized Accountancy & Law firms, given the criteria above. Many law firms hire ‘Consultant’ Lawyers. It’s a way of getting experienced talent in to cover a need within the business. Typically, the consultant solicitor will have their own company through which he/she trades. If they are there long term, as they are most likely to just be working for that firm, there is a strong likelihood that they will be caught by IR35 after 6^th April 2020. This is a shame, as the arrangement allows flexibility within the workplace that suits both sides. Feel free to contact us to talk this through, as we might have a solution.

Here are some useful links to the rules:

Understanding off-payroll working (IR35)

https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Who the changes apply to:

https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients

What the April 2020 changes are:

https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-intermediaries#off-payroll-working-rules

I expect most of you have experienced poor management in your career. It can leave you feeling bewildered, undervalued & demotivated. I have and I’ve seen others close to me undergoing it as well. I’ve had the privilege of coaching some people through it until they come out to the other side. So why does it happen, why does it matter and how can you as an organisation try to minimise the likelihood of poor staff management occurring? I have found that size of the organisation does not necessarily make any difference to how well they manage their staff. Huge blue-chip companies can do it very poorly, whereas micro-businesses do it very well (& vice versa). Here are a few thoughts and suggestions.

Why does it matter – how can it affect your bottom line?

Setting the character of the team: this issue goes to leadership, which I have written about before. It is difficult to overstate the importance of leadership in setting the character of an organisation. That is replicated in management at all levels. We are social animals and how we behave in an environment will be influenced by the leader. If the behaviours of the leadership reflect and support the achievement of the goals and strategies decided for the organisation, then it is likely that it will work more smoothly to achieve them. If the management, at any level, is operating at odds with them, then their staff are also likely not to be fully aligned to achieve them and the organisation will underperform.

Staff retention/talent acquisition: if you have poor management it is likely to affect morale. Whilst a certain amount of churn in staff is inevitable, if it is too high then it will drag back the organisation. In my department we worked out at one time that there was a £60,000 dip in fee production over a year each time a member of staff left and a new one started. Conversely, if morale is good staff will often go the extra mile, stay even though the pay might not be the best in the local market and word will spread into the market place that yours is a good organisation or team to work for. That will help with bringing in new people.

Productivity: You will want your most expensive resource (people) to be as productive as possible to maximise the return on your investment and as quickly as possible. Low morale, as mentioned above, will affect productivity. So will lack of clear instruction, support and guidance for junior staff to enable and facilitate them to meet the needs of the organisation. Poor management may indeed mean that it is unaware of the effect of decisions, as no targets or the wrong targets are set and/or data measured.

Goodwill: the goodwill of your staff will not alone save a business but it will certainly help it. You are unlikely to have much goodwill with poor management. The goodwill is likely to lead to a nicer working environment, stronger bonds within the team, more cooperation and mutual support.

Additional Benefits: Your workforce is a potent source for innovation and unexpected benefits. They may have connections of which you are unaware that might open up opportunities for new work or partnering. They are often the people with the greatest knowledge of how to do their job and then, if encouraged to share, how to do it better.

Why Does it Happen?

Ego: There is no doubt that in some businesses the manager is on an ego trip. The manager feels that everything reflects on them and their image. Why is a whole exploration in itself, which a business coach might investigate or I might explore when I am mentoring someone. However, it might arise from inherent insecurities, from a management style learned beforehand or handed down through the culture of the organisation. It can result in every interaction being personalised, every analysis, turning it into an assessment of how it affects and reflects on them. It can end up as a corrosive

Pressure from managers above: people have said that being in middle management can be the most pressurised position – pressure from above and from below, but often without the power to make decisions that relieve the pressure. Decisions of top management will need to be implemented by middle management. As will fear for their own career development or how their actions and the performance of their team are perceived by their superiors.

Inexperienced managers: if your manager is new to managing, they may be out of their comfort zone. They were trained to do a particular job but now have to take on managing people, perhaps because that is what is perceived as what comes with the territory as they become more senior. Just because they were good at one particular job doesn’t mean that they will be good at running a team.

Lack of discipline: sometimes it comes down to poor self-discipline – they are just poor at managing their time, keeping to commitments, making time and head space to manage. So, appointments with their junior staff are missed, they forget to do things they promised, they seem to lurch from one crisis to another.

Lack of time: this could be a feature of lack of disciple, as set out above, but it could also be that their superiors have not given them time to manage, just expecting them to fit it in around and on top of the rest of their work. It could be that there is just too much work coming in – which is great but should only be a temporary issue as this will be processed if short term, or if long term then other resource should be added. It could be a failure to delegate, which could have a number of reasons, for example: it could be part of their nature, lack of trust in their junior staff, lack of infrastructure to facilitate this.

How to improve staff management

Training for Managers: I have always believed that it unfair to someone to put them in a position but not give them the training to do it. It’s a poor investment and can look as though you are setting them up to fail. At the very least give them clear instruction on what you want them to do and how you want them to manage their staff. This should not just be a one off. The best organisations will have a structure of mentoring or coaching (either informally or formally) right down the management structure, which would then be replicated through the team members as well. Remember that the manager will influence the whole team they are managing. They have the potential to do a lot of harm or a lot of good.

Good measurements/Data: be scientific – measure the appropriate data and then make informed decisions on it. Then keep measuring the data and adjust when necessary. That can help to keep things less personal and steer away from prejudice, favouritism and nepotism. The best people delivering the best results is likely to maximise performance.

Communication & Regular Reviews: you almost can’t communicate enough! I’ve found in management that you think you’ve told everyone time and time over and yet there are people who say they didn’t know. Sometimes it is their fault. Sometimes it is the method of communication. You may be saying something in one way but that doesn’t get through. They prefer another method. For example, sending out email which everyone ignores. There’s a whole article, maybe a book to write on this! I’ve also put in here regular reviews. These I have found to be so, so important to managing staff. It is a subliminal message to them that they matter. It gives them a space to ask longer term questions about their progress, your expectations of them and their career. It should build trust and allow for a light touch on the tiller to guide them rather than a drastic shove.

Honesty, Humility & Curiosity: I’ve recently finished reading Eddie Jones autobiography. These are aspects that he wants to see in his players. This resonated with me, as they are traits I admire and believe help people succeed. Honesty – because you look at the data and your own performance as it is without excuses or rose-tinted spectacles. Humility – because if you don’t have that you are not open to analysing, reflecting on and learning from your own mistakes. Curiosity – because open to outside influences and ideas, learning from others, always facing outwards to innovation. Then you have managers who are interested in improving themselves, their performance, that of their staff and of the whole organisation.

These are just a few thoughts from my experience from working in a law firm for 24 years at all levels from Office Junior to Equity Partner, Board Member and Head of Department and subsequently through my consultancy with over 300 SME’s. I have found that size of the organisation does not necessarily make any difference to how well they manage their staff. Huge blue-chip companies can do it very poorly, whereas micro-businesses do it very well (& vice versa). I would welcome other people’s input as comments to this article. No-one has all the answers but some do it a lot better than others and reap the rewards. If you like to talk more about implementing some of these thoughts into your organisation then please contact me.

Today the 5th AML Directive comes into force. If you are a law firm we can help you update your AML policies & procedures.

Here is a link to the guidance from the Law Society with a summary of the changes as well.

https://www.lawsociety.org.uk/policy-campaigns/articles/anti-money-laundering-guidance/

Top Line minus Middle Line equals Bottom Line. In simplistic terms this is the equation for Profit. Top Line is the exciting stuff: new sales. Everyone loves a new sale. The risk arises when people focus on new sales alone. Of course, if you don’t get sales there is no business. Driving up turnover is essential for a healthy expanding business. But it’s not by any means the whole picture. Your business can survive by just increasing sales if that is turning you a profit but it misses an important element of the business.

In this article I’m going to write about the Middle. When times are good this is often neglected. When sales flat-line or fall then businesses may take the time to look at this. That is fine, but there are a couple of problems with only looking in this then. One is that the business will have missed out on extra profit during the good times. Another to bear in mind is that making changes to squeeze the middle may actually involve up-front investment – always harder to do when sales are down.

So, what do I mean by the Middle? In short – the Cost of Production – what it costs for you to get the sale and then do the work so you may invoice, indeed also the cost of recovering the cash. It all drives towards cash in the bank.

Service firms often overlook the investment in getting the sale. If it’s a referral fee or an overt marketing spend then that is usually captured as an overhead. However, the networking, lunches, golf afternoons/days, drinks, social media are all part of the cost of acquisition and should not be overlooked. Some of this is difficult to quantify. It might just be time – but time can be given a value and measured. It is important to do so, to facilitate accurate comparisons.

That brings me on to another point – data. In order to be able to make informed decisions accurate data must be gathered. This is often the hard bit. Getting staff to accurately record their financial outlay is a bit of a struggle, but, if they are claiming that as expenses, easier than getting them to accurately record their time spent. They can see the benefit in recording their expenses, as if they claim them they will be paid back to them. Recording time is a different matter. Most businesses I’ve worked with struggle with this. Some do not even recognise the issue. Some do, but collection of the data is patchy. I would argue that this is of great importance to a business. After all, when a business hires someone what does it do but buy a number of hours of that person’s time and expertise? So, in order to measure Return on Investment, it needs to know what that time is spent on and how effectively that time has been used. No-one would argue against that approach with regard to the investment of hard cash. With good data one can start to measure what is working and what is not working. Then one may start to experiment with approaches that might deliver better results.

I would argue that the best approach is to be scientific: setting out the objective and then measuring results in an impartial manner against the objective. Squeezing the middle will often result in reflecting performance back to people and asking them to make changes. It is very easy for staff to take things personally, or indeed management to mishandle the situation with negative impact on the performance of the business. This is why the whole issue of Change Management is a topic of it’s own. In general, people do not like change – but that is the messy business of improving performance that distinguishes the best businesses. Ducking the issue because it is difficult and might/will result in difficult conversations does not help the business. Certainly, approaching the situation with good, clear, impartial data will help taking out some of the emotion.

Without initially realising it, I have been involved in change management for a large part of my career. When managing and then running a department of 60 in a mid-sized regional law firm, I took them through restructuring, both of the organisation of the teams, the staff and the methods of working. We held regular departmental meetings to keep everyone aware of the objectives so that everyone knew what was happening. We had regular team meetings and a system of monthly 121 meetings – so there was a clear understanding and feedback to guide through the changes.

Since setting up my consultancy, HCL, we have helped around 300 law firms through change. It is fascinating seeing the different business models and approaches that people have. However, the fundamentals I have written about above apply to all.

Below are a few examples of changes that have made a difference to our clients:

• Simplifying and Automating the Billing/Invoicing process: I amazed at how difficult it is in many businesses to create and send out the bill/invoice. Some people seem to be positively scared of doing so. That baffles me. For me invoicing is the reward. Your client expects to receive it – at least they should do, because you discussed that at the beginning before you took on the work. (Maybe you shied away from discussing that clearly at the start. That is a mistake.) There should be as much clarity as possible with the client and you as to what your fees will be and when they are to be paid. They should be recorded by the relevant staff member. The system you use should make it easy to produce the invoice/bill. Template what you can. I’ve been in firms where they have commented “It used to take us up to an hour to produce the bill, now it will just take us a few minutes!” Time is money. If billing is that hard, no wonder some people regard it as a chore!
• Create a basic Electronic Letter Template with an auto-signature in it so that people may email it out direct from their computer. (I recognise that there will be supervision issues for certain staff which may impact on this.) The idea is that this will allow one to email directly out rather than having to print onto pre-printed letterhead, collect the paper letter, sign it, scan it in, attach it to an email and send it out. I calculated that, on a conservative basis, the automation of this could save a business £6,000p.a. per member of staff. (Assumptions: 20 letters a week x 45 weeks = 900 letters p.a. 2 minutes saved per letter @ £200/hr = £6.67 per letter. Total £6,210.). Remember that is per staff member.
• Create and use Precedent Letters. (This also interfaces with Risk Management.) It is a waste of time for staff to be typing the same words again and again. Time invested up front in the creation of good precedent should pay off in reduced cost of production – if people use them, which is where measuring and reinforcing will come into play. (Create precedent emails as well.)
• Incorporate your Risk Management into processes so that it is more likely to happen and will enhance rather than impede the work.
• Analyse what you do and Map Processes. Nearly everything we do has a process. Even the most complex work will have elements that follow a common process. Best practice can be established and then reinforced.

Each circumstance will vary and the ideas will need to be adapted to the way each firm works and the challenges it faces. There is so much more to explore on this topic but that will be for future articles.

They said they would do this. Now they have. This week they have written to all firms caprtured by the 2017 Money Laundering Regulations requiring the COLP to sign a declaration confirming that your practice has a firm-wide money laundering risk assessment in place. The deadline for responding is 31 January 2020. Firms outside the scope of the regulations will not be written to.

The SRA website is a great resource to check on this. https://www.sra.org.uk/

There seems to be a constant stream of compliance requirements that a busy practice owner or compliance officer needs to keep up with. That ontop of trying to win work, do the work, manage staff and spin all the other plates required!

We recognise that and want to offer help. We have therefore developed a number of Packages to help you with your compliance obligations. Whilst we cannot and should not seek to take on your responsibilities as a Compliance Officer (COLP, COFA, AML Officer or MLRO, Data Manager) we can help so you can pick up trends more easily, have some of the spadework done, receive relevant regular updates and ensure that your policies, procedures and Office Procedures Manual is up to date. We can also help with applications for Quality marks or Standards such as Lexcel, CQS and obtaining a Legal Aid Franchise.

Please see the separate pages for our Packages or click on the hyperlinks below. Please contact us on  07887 524507 or by email at: [email protected]

1. Compliance Review & Updating Service
2. Monthly COFA & COLP Review Service
3. Client Care Letter Review
4. AML & Risk Assessment Review
5. Transparency Rules & GDPR Review
6. Lexcel Accreditation Applications
7. CQS Accreditation Applications
8. SQM Accreditation Applications
9. How LEAP can help you with your Compliance

Flagship Homes are a leading Housing Association providing accommodation across the East of England. Flagship own and manage about 22,000 homes. Over the last few years James McCulloch has been building an in-house legal team which handles property, commercial and civil litigation (mainly debt collection) work. The existing team of Anti-Social Behaviour Officers also joined the Legal Team to aid collaborative working and litigation reduction. at the team work across various office and on site locations, so ability to work remotely is essential. The system had to be cloud based.

We managed and delivered the Implementation Project for Flagship’s in-house legal team of their new Case Management System. We have assisted about 300 firms with implementations of their Case Management Systems and then provide ongoing support and assistance to our client base (private practice & in-house).

Whilst some find working with in-house teams difficult, our lead consultant, Ingemar Hunnings, comments that he enjoys working with in-house teams. One has to invert a lot of assumptions that one would have for a private practice. For example – who are the clients? In fact, they are the commissioning areas of the business which are calling on the resource that the in-house team provide. Normally the in-house legal team are regarded as an overhead. As such it is important for them to be able to track which parts of the business/group/local authority etc are calling on that resource – so they can see if some are over-using them. This may provide an indication of other issues and resourcing considerations. Proper record keeping and use of reporting will assist in budgeting going forward.

We started with a detailed Project Planning phone call with James, followed by an on-site Project Planning Meeting with James and his management team when goals were explored and the project was planned and mapped out.

The software was installed on the necessary computers and tested.

The first training day was for the senior management team. As well as training on how to use the software – both the Case Management, the Bookkeeping and how to create and amend precedents, we also went through the reporting functions. Our approach at HCL is not to just train on how to use the software, but also to explore with the client how it might best be used to enhance how the management can improve how the business works. This is consulting work. Nearly all we do boils down to: Profit Improvement & Risk Management. We spent a lot of time looking at the goals for the legal department and then how they wished to achieve them and how the system could be best used to reach those goals – both short term and longer term.

After this we assisted the management team with the re-examination of policies and processes in the light of the functionality of the new software before the roll out software to the staff.

Following on from that were a series of interactive training sessions where we trained each team. After this we provided floor-walking, desk-side and follow up training to ensure that the learning was embedded. We worked with the software provider to ensure an introduction to their Client Success Team and have continued to provide support to the Flagship Legal Team. We also provide ongoing support and assistance. We always work towards an ongoing relationship with our clients to help them grow and thrive.

On 29^th October 2019 the LS Gazette reported that the SRA has given notice that it would over the coming weeks contacting thousands of firms to ask what measures they have in place to combat money laundering. 7,000 firms fall within the regulated sector. On an earlier investigation, it found the majority of firms (64%) were using templates, many of which were of low quality. The SRA believes too many firms appear to take a ‘copy and paste’ approach without thinking through the specific risks and issues they individually face. As well as writing to the 7,000 at-risk firms, the SRA now plans an ‘extensive’ programme of targeted, in-depth visits to firms and calling in more firms’ risk assessments.

Here is a link to the SRA Warning Notice of 29.10.19: https://www.sra.org.uk/solicitors/guidance/warning-notices/compliance-with-the-money-laundering-regulations-firm-risk-assessment-warning-notice/

In summary from the SRA Warning Notice

“Failure to have a money laundering risk assessment in place for your firm is a significant

breach of the money laundering regulations. We will take robust enforcement action where

firms do not have one in place, where it is not sufficient to meet their responsibilities or where breaches are not rectified immediately.”

“We are seeing too many firms that do not have a risk assessment in place, and those firms could be failing to prevent money laundering.“

“We also have a broad concern that firms have not taken into account our sectoral risk assessment as they are required to by Regulation 18(2)(a).”

“Of the 400 risk assessments we [recently] assessed, we have taken follow up action on around 20% which did not meet the required standards. We have also seen broad use of templates, some with prepopulated specimen text. In some cases near-identical risk assessments were submitted by different firms, something that is particularly concerning.”

“Of those risk assessments that are in place, we are seeing that many do not take into account the minimum risks that the regulations require firms to consider.”

We offer provide Business Support to law firms - to help busy lawyers be able to focus on being lawyers and doing the law. We help them with being able to run their business. In the light of the increasing burden of compliamce we have developed a number of Compliance Packages to help. Se the 'Services' are of our website or contact us on our dedicated compliance email: [email protected]

Please note it will be compulsory to display this from 25^th November 2019. The idea is that this allows clients to validate the firm. Here is a link to the article on the SRA website where you can read about this in more detail and obtain the SRA badge.

https://www.sra.org.uk/solicitors/resources/transparency/clickable-logo/

Here is a link to the company that supplies these for the SRA: https://www.yoshki.com/sra/