The title “Of Counsel” is one of the most versatile — and frequently misunderstood — designations in the legal profession. Whether you are a retired partner transitioning out of practice or a specialist looking for a flexible affiliation, understanding the nuances of this role is essential.
While the title suggests a prestigious, high-level connection to a firm, the underlying legal and tax structure can vary wildly. Here is what every attorney needs to know about the “Of Counsel” arrangement.
Is “Of Counsel” Considered Employment?
The short answer: It depends. The “Of Counsel” label describes a relationship, not a specific tax status. Depending on the agreement, you may be classified as an Employee (W-2) or an Independent Contractor (1099). This distinction isn’t just semantics — it dictates your tax obligations, benefits, and legal protections.
Determining Your Tax Status: The Key Factors
For legal and tax purposes, the IRS and state authorities look past the title and examine the actual nature of the relationship. The determining factor is if this is an ongoing partnership with benefits (employee), or is the relationship a temporary, hourly, or project-based arrangement (contractor)?
Common “Of Counsel” Structures
Because the term is so flexible, these relationships generally fall into one of three buckets:
- The Independent Contractor: Common for experienced lawyers seeking autonomy. These attorneys are affiliated with a firm but remain self-employed, often operating under a fee-sharing agreement without a salary.
- The Salaried Employee: Often used for senior attorneys who aren’t on the partnership track or who work reduced hours. These individuals receive a salary and benefits, much like a senior associate.
- The Transitional Employee: This is frequently a temporary phase — either a “probationary” period for a prospective partner or as a partner transitions into retirement with more limited client involvement.
Why the Distinction Matters
Misclassification is a high-stakes mistake for both the attorney and the firm. The consequences of getting it wrong include:
- Tax Obligations: Independent contractors must manage their own self-employment taxes, while firms are responsible for withholding for employees.
- Benefits Access: Employees are generally eligible for firm-sponsored health insurance and 401(k) plans, which are typically unavailable to contractors.
- Liability and Malpractice: The classification can impact how you are covered under the firm’s malpractice insurance policy.
- Legal Penalties: If the IRS determines that a worker has been misclassified, the firm could face massive penalties and state employment law violations.
The Ethics of the Designation
It is important to remember that the American Bar Association (ABA) and state ethics boards have their own requirements. To use the “Of Counsel” title appropriately, there must be a “close, regular, personal relationship.” Regardless of what you call the arrangement, if the firm provides significant supervision and support, the IRS is highly likely to view you as an employee. Before signing an “Of Counsel” agreement, ensure both parties are aligned on the legal and financial reality of the role.
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