In addition, tax cuts come FY24–25 could mean lower salary increases in review season and somewhat of a “pivot back” towards more reasonable raises compared to those of FY21–22 and FY22–23.

From July 1, the revised stage-three tax cuts will mean that lawyers who earn between $50,000 and $120,000 will receive between $929 and $2,679 back – $804 more than the original stage-three tax cuts.

In light of these new developments, are legal recruiters noticing a shift in the power dynamic between firms and candidates leading into the new financial year?

Major, Lindsey & Africa managing director in Sydney Ricardo Paredes feels the profession has been an employers’ market for the last 18 months – and “this year has simply extended this market reality for both law firms and lawyers”.

“All through 2023 and this year to date, we have seen firms be quite cautious and strategic with their hiring needs. The quieter market conditions have meant law firms are being highly selective in their hiring process and are seeking to meet with a broad mix of high-calibre candidates before making an educated decision on who to move forward with,” he said.

“Offers are only extended to those lawyers who not only possess the exact experience and technical skills required for the role but are also excellent cultural fits for the team and firm. Firms are extending offers which are strictly in line with their market standing. To see a firm extend an offer with an above-market salary or for the offer to be accompanied with a sign-on bonus is rare in this market.”

Compared to two years ago, there has definitely been a shift towards an employers’ market, agreed G2 Legal Australia director Daniel Stirling.

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“At that stage, all sectors of the market were hiring strongly, including domestic and international law firms and in-house. This resulted in lawyers gaining large pay increases internally and, with demand outstripping supply, employers in all sectors having to pay more to attract talent,” he said.

“I would say that it is now more of a balanced position as there is hiring appetite, but not across all sectors as was the case then. That said, the legal market is generally always seen as a candidate-short market due to the high degree of specialism and the finite number of top lawyers in each area. That prevents the market [from] ever swinging completely to an employers’ market in my opinion. Despite the demand dropping slightly it is still challenging for employers to find the best talent.”

Firms are still struggling for talent in 2024, with the best lawyers still “sought after and hard to find”, and Stirling mused that employers now need to balance dealing with a changing market with hiring and retaining quality talent.

“This swing towards an employers’ market, or to a more balanced position, is likely to affect lawyers during salary reviews and when moving positions. Employers need to strike a balance between hiring or retaining their best lawyers and dealing with a drop in market conditions and the knowledge that many lawyers have enjoyed large increases in the last few years,” he said.

“For in-house employers, salary reviews and increases may be aligned to business performance as a whole so this will vary by sector to some degree. In regard to hiring in-house, clients want to pay a fair market rate for the best lawyers in order to provide value to the business. Now that the market is more balanced, then this should become easier, provided that candidates’ expectations are realistic for their experience.”

Historically, firms vying to retain lawyers have turned to financial incentives such as a “loyalty tax” and significant salary hikes for entry-level law graduate roles, as well as an increase in people and culture-led initiatives, including flexibility and value alignment.

While there has admittedly been a definite power shift in the current market, Burgess Paluch director Doron Paluch said he didn’t believe the tax cuts specifically “will in any way [affect] salary increases for lawyers”.

“Law firms did over-pay last year, partly out of desperation, partly as a retention strategy, and partly because there was an expectation that the booming market would continue. Firms have been consciously trying to peg things back. And there has been a shift in the power dynamic between candidates and firms. But the cost of living has continued to increase, and it is still very hard to find good lawyers for many roles,” he said.

“Lawyers with over two years PQE know the market is still candidate-short in areas like construction, corporate, employment, commercial litigation. And graduate salaries have been widely reported recently to be high at some firms. Those salaries will be unsustainable unless firms can do enough in the lawyers’ early years to retain those lawyers long enough to enjoy return on investment.

“Given the disparity between how employers and lawyers are seeing the market for salaries, lawyers might want to prepare themselves to be underwhelmed come salary review. Market sentiment does appear to be that increases for lawyers this year are going to be pared back from the highs we witnessed post-pandemic, but firms that are too conservative with their salary reviews will see an increased attrition rate. There is likely to be more of a ‘horses for courses’ approach, where law firms do particularly reward those lawyers they are most keen to retain.”

In addition to being underwhelmed come salary-review time, candidates exploring the market should look out for a number of things moving into FY24–25, added Paredes.

“Candidates who are looking to explore the market at present must understand two main points. Firstly, interview processes are taking longer to conclude, so they’ll need patience. Secondly, if they’re lucky to get an offer, they can expect a modest pay increase from what they’re currently on. The strategy of jumping across to another firm for a big jump in salary is unlikely going to pay off under the current climate,” he said.

“Despite the softer conditions, there is significant market demand for well-pedigreed lawyers with both transactional and litigious experience. The bar of entry may be set high, but opportunities abound.”