Practice Tips

The Practice Management Advisor

David J. (Dave) Bilinsky is the Society's Practice Management Advisor. His focus is to develop educational programs and materials to increase lawyers' efficiency, effectiveness and personal satisfaction in the practice of law with a special emphasis on technology.

His preferred way to be reached is by email to: (no telephone tag). Alternatively, you can call him at the Law Society office at (604) 605-5331 or toll-free in B.C. 1-800-903-5300, or address mail to the Law Society office.

How should an independent contractor bill a firm?*

Question: I am an associate in a law firm. My compensation is a fixed percentage of my paid billings. The firm takes my WIP and includes it when a bill is rendered to the client. I was recently told that I should be billing my law firm for my services and charging GST and PST on my accounts. Is this the case?

Answer: For the purposes of this question, I assume that you would be classified as an independent contractor and not an employee - meaning that the firm makes no deductions for CPP, EI or income tax/Revenue Canada remittances from the amount they pay you - and that you look after these remittances yourself. As an independent contractor, you are running your own business and you are required to register and collect GST on your services (assuming that you are billing over $30,000 a year), as well as PST.

When it is time for a bill to be rendered by the law firm to a client, you would bill the law firm for your services and any disbursements that you have incurred. Like any other business, you will then be required to make the PST and GST remittances to the government within the requisite time periods (whether or not the bill has been paid by the client, so you may have a timing problem here).

The law firm then has two alternatives:

1. The firm can treat your invoice as a non-taxable disbursement (as far as PST is concerned) and show it as a disbursement on its invoice to the client. In this way, your account (which already includes PST since you billed it as such) is billed to the client and the client remits the amount due to the law firm. In time, the firm then pays you. This way, there is no double-billing to the client for PST. As far as GST is concerned, the law firm will treat the GST that you billed to the law firm as an input-tax credit. Under this method, the client pays no more in PST or in GST than if you were an employee of the firm.

2. Alternatively, the firm takes your fees and disbursements and "rolls" them into the firm's bill to the client, rather than treating them as a disbursement. In this situation, the law firm still can claim an input-tax credit for the GST billed by you and the client is no worse off regarding GST. However, since the PST scheme is not an input-tax system, the firm then has to charge PST on the full amount of the professional services claimed, which now includes your time. This means the client is being taxed twice for PST on the portion of your services (once on your account to the firm and again on the account to the client).

Furthermore, there is an additional complication. If, as an independent contractor, you incorporate a law corporation and your compensation method is still a fixed percentage of paid billings, you run the further risk that the income of your law corporation could be deemed to be personal service business income - and this income is taxed at top rates, with no deductions. Any tax advantages that you gain by splitting income via a law corporation will be quickly wiped out by the taxation of income in the hands of the law corporation at top rates.

Accordingly, any contractor who is on a fixed percentage recovery compensation scheme is well advised to seek good accounting advice before finalizing a deal with his or her law firm, particularly when practising through a law corporation.

* I wish to gratefully acknowledge the assistance of David G. Thompson of Thorsteinssons Tax Lawyers and Donald J. Sheane, C.A. of Godding Sheane in the preparation of this item.

How can a firm preserve accounting data when upgrading from an old computer?

Question:We have our accounting data on a Windows 3.11 machine and need to transfer it to a newer Pentium III machine running Windows 2000. The data files are much too large to put on a floppy. The older computer is not networked and it does not have Internet capability. We have tried LapLink and other direct transfer programs - but they all require Windows 95 at a minimum. Any ideas on how to preserve our data?

Answer: This question highlights a growing problem with legacy computer systems. While older machines will keep running the programs designed for them, eventually you will be faced with the problem of data migration to a newer system. While a network or Internet access would at least allow you to email or transfer the data files to a newer machine, older machines most probably do not have this capability. You may attempt to do a back-up on the original tape back-up drive for the older machine - but you probably will have difficulty obtaining drivers allowing this tape drive unit to work under Windows 2000. You could instead attempt to install the hard drive in the newer machine and then copy the files.

Alternatively, you could try installing a parallel port zip drive and transferring the data onto the zip media. One last alternative - Microsoft has Interlink - a DOS command line utility that may work by establishing direct serial or parallel port cable connection between the older and newer machines. This utility is under Windows 2000 - you will have to install it on the older machine, connect the two machines via a proper parallel or serial cable and then go through Networking and Make New Connection to build the bridge. The good news is that Windows 2000 should allow you to make a new network connection to the older computer even though the older machine does not have a networking card. Once the two computers are linked via Interlink, the data transfer can occur.

Most people recognize the downward amortization of capital costs over time. But often with computer technology, there is a later upswing in costs if technology becomes sufficiently dated, due to problems like the one just mentioned. It is not a bad policy to periodically review your existing systems and to address legacy systems and data migration, storage and updating issues to avoid problems like this. The firm in this case was fortunate that Murphy's Law didn't apply (i.e., in the worst case situation, the hard drive in the older machine crashes and the law firm is then facing the problem of trying to restore their data from the outdated tape back-up).

New management books

Multidisciplinary Practice: Staying Competitive and Adapting to Change by Gary L. Munneke and Ann L. MacNaughton, Editors. (American Bar Association, Law Practice Management Section, 2001)

This book explores the issues involved in providing services through multi-professional offices involving lawyers and other professionals. It delves into ethics, ownership of the business entity, interference with lawyer's independent judgement and other issues. It is meant to allow firms to prepare for and adapt to the changes involved in MDP practice if the rules are amended to allow for the legal existence of these businesses.

Managing Partner 101: A Guide to Successful Law Firm Leadership by Lawrence G. Green. (ABA, 2001)

This is an updated and expanded second edition of an ABA bestseller. It is intended to help managing partners, lawyers and others understand the role and responsibilities of a law firm's managing partner. It contains guidelines, tips and examples designed to shorten the learning curve for mastering successful management techniques.

How to Build and Manage an Entertainment Law Practice by Gary Greenberg (ABA, 2001)

This book is aimed at those looking for a resource for lawyers looking to "build and maintain" an entertainment practice, coming from a lawyer with 15 years of experience in that field. It discusses the basic differences between entertainment law and other types of law practice and provides guidance for avoiding common pitfalls.

Compensation Plans for Law Firms, 3d Edition, by James D. Cotterman of Altman Weil, Inc, Editor. (ABA, 2001)

Finally, an up-to-date book that explores workable plans for compensating partners and associates, as well as other employed lawyers, legal assistants and professional and clerical staff. This book discusses value billing, tiered ownership and deferred compensation plans. Written by the global consulting firm of Altman Weil, it reflects their 20+ years of experience with law firms.

All these books are available on-line at or call (312) 988-5522. All are recommended for their potential to increase your bottom line (and thereby increase the money in your jeans) . that is, after the taxman has taken his due.