What are billable hours? Time-tracking guide and tips

Many professional industries work in billable hours. But knowing how to effectively track them can be a tricky business. Billable hours are lucrative for firms—sometimes, it’s necessary for employees to reach ambitious quotas. As a result, maximizing efficiency and productivity is essential.

It goes without saying that no staff member wants their hard work going unnoticed. So, the benefits of staying abreast of each employee’s billable hours should never be underestimated. 

We’ve compiled a guide that will tell you everything you need to know about billable hours and the tools you need to start optimizing outputs as soon as possible. 

In particular, the questions we’re going to explore are:

• What are billable hours?
• What is the difference between billable and non-billable hours?
• How do you calculate billable hours?
• Why should you track billable hours?
• How many billable hours are “normal?”
• To bill or not to bill?

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What are billable hours?

The term “billable hours” can sometimes cause confusion because people in many different professions charge by the hour for their work through invoicing. 

Building contractors and freelancers, for example, could be said to work something akin to billable hours on a daily basis. 

But this isn’t exactly the same thing. Only a select few industries actually have requirements for billable hours. Within the legal profession, for example, attorneys are required to complete a set number of billable hours each week. Failing to meet the quota could spell trouble. 

Billable hours: The true meaning 

It’s important to understand billable hours vs. actual hours. 

Billable hours means the number of hours worked that require compensation. In other words, they’re the hours that you bill clients for, and they pay directly. 

Actual hours, on the other hand, are all the hours that an employee spends working rather than the hours that can be billed for. So, actual hours encompass both billable hours and non-billable hours. They include time spent doing administrative work and other tasks that the client can’t directly be billed for.

For lawyers, consultants, accountants, and other professionals with billable work, client payments don’t apply to other work tasks done for the firm to which they’re professionally affiliated. 

Billable hours apply only to clients. They’re designed to ensure financial compensation for any time spent on individual client cases. The bill, in most cases, must, therefore, be paid by the client themself. Billable hours are, as a result, extremely lucrative for firms.

Now that we’ve explained the meaning of billable hours, let’s take a look at a few examples.

What is the difference between billable and non-billable hours?

So, we know how important it is to keep track of our billable hours. But with such busy work calendars, how can we differentiate between our billable and non-billable hours effectively? 

In simple terms, if you’re working for a client who’s paying you by the hour, it’s billable. If you’re working on non-client specific tasks, it’s non-billable. 

Let’s look at some situational examples: 

Billable

• Client correspondence
• Planning for a client
• Phone calls
• Emails with clients
• Communicating via text message
• Video meetings
• Client revisions
• Working on any aspect of a client’s project
• Research for a client

Non-billable 

• Business marketing
• Internal team emails
• Networking, law school, or training events
• Internal team meetings
• Business planning
• Administrative tasks 
• Proposals
• Liaising with new clients or client development

How do you calculate billable hours?

Knowing how to calculate billable hours is vital if your business has to deal with them. So, let’s take a look at the standard process: .

1. Set an hourly rate.
2. Track every billable hour on a timesheet.
3. Add up your billable hours.
4. Multiply total billable hours by billing rate. 
5. Add fees or taxes to the client’s invoice. 

It can be difficult for lawyers, consultants, accountants, and other professionals who combine billable and non-billable time to keep track. Luckily, these days, there are lots of tools out there to make keeping on top of billable hours that little bit easier.

Here are some ways to use software and solutions to help track billable hours accurately.  

Create a billable hours chart in Excel

Excel has a template specifically designed for managing your billable hours. You can use this billable hour chart to input the hours worked and the pay rate for each client on any given work day, with time-in, time-out tracking.

Use a dedicated billable hours calculator 

A digital time tracker or manager is designed to record your working hours. Using a billable hour calculator like this helps to simplify billing clients and provides data to support your invoicing. 

Such tools are ideal if you offer legal services or other work where keeping accurate records of billable hours is crucial. 

Time trackers like Time Miner can be integrated into your communication app to track how much time is being spent on calls, text messages, and meetings. This way, your communication platform (which you’re already using to make phone calls, video calls, and so on)automatically logs all your client communication and helps you manage any respective billing efficiently.

To make it easier to track your billable hours, streamline the number of apps you use. Specifically, instead of using separate apps for video conference calling and messaging, try to find a versatile app that can provide different communication channels in one place.

This is how RingCentral’s desktop and mobile app works, as a quick example:

Other software 

There are many other software options out there, designed to aid resource and practice management. 

This software not only helps offices keep track of billable hours but also makes other useful tasks easier, like productivity analysis, costing, reports, invoicing, and accounting. 

Here are a few options:

1. Saviom—best for resource management and workforce planning. 
2. QuickBooks Time—best for time tracking and custom billing. 
3. QuickBooks—best for invoicing and cash-flow management.
4. PracticePanther—best for secure legal management.

Don’t let hours go to waste: Use a template

Maintaining a template to track your billable hours accurately is also a useful idea. After all, anything that isn’t tracked didn’t really happen. In other words, it gets wasted and that means hours or days of productivity will be lost. 

Say you’re a lawyer. You’re working long weeks, upward of 70 hours. Keeping track of what’s billable and what’s not while working can be a struggle. Using a billable hours tracker, timekeeping app, or productivity app is a smart choice. It’s a great way to avoid letting work hours go uncompensated.

Why should you track billable hours?

There are a variety of benefits for your company when you track employees’ billable hours:

Accurate invoicing

Providing clients with accurate invoices benefits both you and your client. 

The client will get a clear overview of exactly what they’re paying for. They’ll know the time spent on each specific task that you’ve done for them and can clearly see where their money is going. This instills the client’s trust in your company making them more likely to use your organization in the future.

It also means that you can use data about previous billable hours that your company has invoiced to provide accurate estimates for any new work that clients would like your organization to do.

Tracking billable hours also means that staff receive fair compensation for the time and work that they’ve put into clients’ projects.

Improve your team management

Knowing exactly who’s spending what time doing certain tasks can allow you to delegate tasks more appropriately. You’ll be able to allocate work accordingly when you can see the time spent on billable hours.

Determine profitability

This is a big advantage of tracking billable hours. When you’re able to view accurate data about your employees’ time, you’ll be able to see whether or not you’re billing for more hours than the amount you’re spending.

So, tracking billable hours offers a great insight into how much money you’re making (or losing) on every client’s projects.

Track employee efficiency

By keeping track of each employee’s billable hours, you’ll be able to see how efficient each team member is. That way, you’ll know whether or not they’re performing as expected.

How many billable hours are “normal?”

There’s no one-size-fits-all answer to this question. How many billable hours you aim for will depend on your industry and professional position. It’s also possible to monitor the utilization rate of employees working billable hours.

The utilization rate calculates billable time as a percentage of an employee’s total working hours. In other words, the utilization rate is a metric of overall productivity. It’s calculated by dividing the total billable hours by the total hours available and then multiplying by 100.

Utilization Rate = (Total Billable Hours/Total Hours Available) x 100

The law firm example: How many billable hours in a year?

To maximize on an attorney’s billable hours, some law practices resort to increasing their overall work hours to upward of 70 or 80 hours per week. 

A billable hours’ quota of over 2,000 hours per annum is not unheard of. It’s, therefore, essential that law firms streamline their operations for better time management.

To bill or not to bill?

Now that you’ve got the lowdown on billable hours, it’s time to make use of your new (or maybe not so new) knowledge. To bill or not to bill? That is the question. 

Knowing exactly which tasks constitute billable hours and how to track billable hours means that you’ll be ready and set to optimize everything from workflows to invoicing. So, really it’s a no brainer. Tracking billable hours is the way to go.

FAQs

What’s the difference between billable and non-billable hours?

Billable hours are those you invoice to a client for services you’ve completed for them. This can mean anything from working on a named project to corresponding with the client or meeting them face-to-face. Non-billable hours are those you spend doing non-client-related work for your company.

Apart from ensuring accurate invoicing, are there other advantages to tracking billable hours?

Yes. It’s beneficial for the company to be able to monitor employee performance. One downside of charging by the hour is that it can unfairly penalize workers who are more efficient, since they can complete much more work in the same amount of time as a less industrious colleague. Tracking billable hours in conjunction with other workforce management metrics can help management assess who their top performers are.

Originally published Jun 10, 2024, updated Sep 23, 2024