What Are Billable Hours? How to Get Paid on Time

Many professional organizations, like law firms, PR firms, and consultants, have billable-hour requirements to run their businesses successfully. But knowing how to keep track of billable and non-billable activities can be a constant challenge when you’re a small business or starting out as a contractor or freelancer taking on new clients. 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. Measuring billable hours also makes it easier for organizations to determine if their employees are working efficiently or not. To charge by the billable hour, workers need to track the amount of time they spend on each client’s case or project every day.

This function helps to monitor whether your employees do not spend too much of their work time on non-billable projects and tasks. The additional ‘Billing rates’ function shows us how much billable and non-billable hours cost. The next columns show the value of the invoices and the employee payments. A few examples include freelancers, law firms & legal professionals, accounting firms, and advertising agencies. Administrators of law firms should track both realization rates and utilization rate of employees.

What is the difference between billable and nonbillable hours?

We saw in one Yale Law School report that there is a vast divide between actual hours and billable hours. When maximizing the number of billable hours an attorney has, it becomes necessary to increase the number of lawyer work hours worked overall. This means that some lawyers are working anywhere from 70 to 80 hours per week every week just to meet their billable hour minimums which can range between 1700 and 2300 hours a year. If an attorney worked 40 hours a week for 52 weeks of the year (NO weeks off) – they would work 2,080 hours a year.

• These tools will allow you to start and stop a timer whenever you begin or end working on a task so you can get an accurate picture of how much time you’re spending on billable tasks.
• Another key factor to consider is whether or not your workers are comfortable with the billable hours system.
• In pragmatic terms, those hours mean that your team makes less money for the company, while for your clients it means that projects might take a little longer than they otherwise would.
• Be sure to research industry salary standards, keeping in mind your level of expertise and amount of experience.

In this case, the client will pay the consultant for eight hours even if they have spent ten chargeable hours. But it all depends on the type of work you do, in what industry you work for, and the specific tasks you need to get done on your workday. You need to https://www.bookstime.com/ take how much you’ve worked and multiply it by your hourly rate. Team members in these industries track hours during their workday and note which hours they can bill to clients. As an employee, don’t worry; your employer will still pay you for these hours.

Resource Management

Speaking of working hours that you won’t charge your clients, be sure that tracking non-billable hours is essential for your company. We’ll https://www.bookstime.com/articles/billable-hours elaborate on this topic in the following part of the article. Billable hours are the hours you spend doing tasks for a particular project.

• In the case of partners, equity partners are heavily dependent on having enough billable hours in a law firm to get paid a decent salary.
• By making some small adjustments to your work schedule, you can enhance the number of billable hours you collect at the end of each day.
• We saw in one Yale Law School report that there is a vast divide between actual hours and billable hours.
• The first step in calculating your billable hours is understanding which work is billable and which is not.

At the end of the day, we need to change our mindset about non-billable time. An organization should hire a consultant once they make sure that their internal workforce cannot undertake the project. The reason behind that inability can be anything like tight deadlines, limited skills and experience, organizational politics, limited creativity, etc. Most importantly, the organization should hire consultants they can entrust with task ownership, project completion, and fair billing practices. While hiring a consultant and signing the contract, both client and the consulting firm agree upon considering what percentage of hours should be billable. In addition, you’ll have other expenses to consider – employee development and training, invoicing and bookkeeping activities, company meetings, and more.

Track All Your Billable Hours

In other words, the utilization rate is a metric of overall productivity. It is calculated by dividing the total billable hours by the total hours available, then multiplying by 100. To make sure you don’t overlook any of your billable hours, track them in real time. Record your start and end times for each project as they happen, rather than looking back at the end of the day and trying to add up all the billable hours you spent on a client’s project. If you track time as it happens, you won’t overlook any billable time. Record your billable hours by project, so you know what client you’ll invoice for the work you’re completing.

• With the billable tasks lined up for the next day, you’ll know just how much time you can allocate to non-billable items.
• Of course, client relations matter, and different clients will require different levels of management.
• You will be able to identify those non-billable tasks which might be taking up more of your time than they should, and make appropriate changes to streamline those processes.
• Calculating billable hours is relatively simple and only requires you to keep track of the time you spend working on tasks that can be charged to a client.
• Besides, this article explained the importance of tracking both billable and non-billable hours.