What is the difference between billable and non-billable hours?
Billable hours are the hours spent working on client projects. Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service.
For example, sending emails to clients would count as billable time. However, upgrading your email software wouldn’t count as directly servicing those accounts.
Calculating billable hours can help determine employee workloads and manage efficiency. If this process is new to you, here’s what you should know about billable vs. non-billable time.
Billable hours
The advantage of billing time to clients with set billing rates is that it gives your client a clear picture of how you spent your time and why it is worth their money. Tracking hours you’re billing also ensures you will be paid for any overtime hours worked.
Your client may ask that you to note what you’re billing for them. This provides further clarity for them, and while it can be more work for you, it is a way to demonstrate your process and progress to the client.
Here are some scenarios when you will need to use billable hours:
Sending invoices to a client
Preparing project estimates
Payroll for employees and freelancers
Budgeting future projects
Depending on your client agreements and internal policies, billable time may or may not need to be reported on a timesheet. Regardless, timesheets allow for simple billable hours tracking and ensure the accuracy of your billable hours estimate.
Non-billable hours
Non-billable hours are not a complete loss for your business. While clients may not pay for this time, it is still necessary.
Depending on your internal policies and agreements, getting up to refresh your coffee or chatting with your team during a Sprint meeting will not be billed to a client.
As an employee, don’t worry; your employer will still pay you for these hours. For freelancers or business owners, non-billable hours will help you increase your profits and benefit your business.
How many working hours should be billable?
Now that you know the difference between billable and non-billable hours, you’re probably wondering, how often should I be doing work that isn’t billable?
There isn’t a straightforward answer, but we all know no one can be working on client projects for 8 hours a day (you’ve got to get a lunch break in your day!).
But how productive should you be in terms of client work, especially when you’ve got to pay the bills? Your expected billing rate depends on the industry and your client’s expectations.
On average, that typically means billing around 30 hours out of 40 working hours a week. For some high-performing fields, that number may be even higher.
According to the Yale Law School Career Development Office, “to be profitable to your firm, [legal professionals] must make enough money from your billable hours not only to cover your salary and overhead but also to generate revenue for the firm.
The most direct way to track your productivity using billable hours is to determine your utilization rate. You can evaluate your billable hours' utilization rate with this formula.
Depending on requirements, you may also need to consider the opposite — the issue of billable rate overrun. The overrun rate means you have exceeded the allotted hours a client has allowed for a project.
You will get used to balancing your billable hours over time. By automating your hourly time tracking, you may be able to increase your utilization rate and spend less time focusing on tracking your billable hours.
FAQs
What is the difference between billable and non-billable hours? Billable hours are the hours spent working on client projects. Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service.
What is the difference between billable and non-billable hours? ›
The main difference is that billable hours are spent working on a client's project, while non-billable hours represent time spent on administrative tasks such as meetings, training, etc. But there are other factors to consider, like the billing rate, business impact, and priority.
Do I get paid for non-billable hours? ›
Instead of thinking of non-billable hours as time you can't get paid for, you should think of it as an investment in your organization's future. You won't get paid directly for it, but the non-billable effort you put in now will help you increase profits and grow your business over time.
What is the difference between billable and actual hours? ›
Billable hours are the hours law firms charge their clients for, directly affecting their revenue. Conversely, actual hours encompass all work done by lawyers and staff, including non-billable tasks such as administrative duties and client relations.
What is an example of a non-billable task? ›
Non-billable hours are the work hours you spend which are not going to be directly charged to the client. Some examples of non-billable work hours are things such as team meetings, staff development/training, or networking and attending conferences.
What is an example of billable hours? ›
In the case of a professional services company, that mostly includes tasks that contribute to a customer's product or project. For example, if 3 employees work on a time and material project for 160 hours a month, the customer that ordered the project will get an invoice for the 480 billable hours spent working.
What counts as billable hours? ›
Billable hours are the time spent working on tasks directly related to a particular client project. What qualifies as billable hours varies between projects and industries. The important distinction is that billable hours must be directly related to and necessary for a client project.
Why do lawyers bill in 6 minute increments? ›
6-minute increments offer many advantages.
They can save a lot of time during invoicing. They provide an ideal amount of time to prevent excessive rounding. At the same time, 6-minute increments are small enough to ensure accuracy and transparency when invoicing.
How many minutes is a billable hour? ›
A sample billable hours chart
| Time Increment | Minutes |
|---|
| 0.7 | 37-42 minutes |
| 0.8 | 43-48 minutes |
| 0.9 | 49-54 minutes |
| 1.0 | 55-60 minutes |
6 more rowsJan 2, 2024
When you start the Workstatus timer, you can label the task as “non-billable.” This separates it from the client project time that gets billed. You could spend an hour having a team meeting every Monday morning. Just start the Workstatus timer labeled “team meeting,” and it will calculate that as non-billable time.
Most law firms set a yearly billable hour target for their associates. This figure typically ranges between 1,700 and 2,300 hours, forming the average billable hour requirement. This requirement is a key performance indicator for attorneys, serving as a benchmark for both individual and firm-wide productivity.
What are the benefits of billable hours? ›
The biggest claim of proponents of the billable hour model is that charging by the hour promotes productivity. If only the work you do for the client matters, then you're more incentivized to actually do that work, rather than some of the other things you might have on your plate.
Why do law firms use billable hours? ›
Billable hours play a pivotal role in the profitability and success of law firms. They're also a key metric for lawyers to meet their firm's minimum quota and maximize time spent on their practice.
What is a non-billable hour? ›
Non-billable hours are any that are spent on administrative or overhead projects that are not directly related to client service. For example, sending emails to clients would count as billable time. However, upgrading your email software wouldn't count as directly servicing those accounts.
How to reduce non-billable hours? ›
Here are a few ways you can adopt to reduce your non-billable hours:
- Communicate with your team members on what tasks are billable and what's not. ...
- Outsource the non-billable tasks. ...
- Automate repetitive tasks. ...
- Use a time-tracking app.
Non-billable work examples
- Developing proposals and sending them to new clients.
- Pitching new projects to clients.
- Consultations and team meetings before entering into a contract.
- Fixing your team's own avoidable errors.
- Invoicing and processing payments.
- Internal meetings and communications.
- Internal marketing activities.
The commonly-held estimate of billable time lies somewhere between 60-80 percent, which is known as the utilization rate.
What is the difference between billable and non-billable in QuickBooks? ›
QuickBooks user roles are customizable permissions you can give your team. User roles are either billable or non-billable. Billable users count toward your user limit, while non-billable users don't.
What are unbilled hours? ›
It's important to understand billable vs non-billable work, because time that's not billed is time for which the company does not receive revenue. Many companies, as well as independent consultants and contractors, operate at an hourly rate.
What is the difference between utilization and billable hours? ›
Billable hours are the hours that are spent on payable projects. Utilization is the percentage of billable hours compared to the total number of hours.
