Billable hours are the amount of time a professional works in direct service to a client. However, the number of billable hours completed may vary from the total number of hours required to complete a project. Within a given workday, billable and non-billable hours may be acquired and require different bookkeeping tactics to keep straight.

Some small businesses, such as law firms and agencies, use billable hours because it helps them keep a measure of their overall profitability. The legal profession often has service hour requirements for professionals to maintain their qualifications and certifications.

For this and other reasons, it's necessary for companies using billable hours to utilize some sort of time-tracking software that keeps those hours in proper order. This article will explain the difference between billable and non-billable hours while providing tips on the manageable tracking of both.

What Are Billable and Non-Billable Hours?

Billable hours don't apply to every in-house minute that a worker spends at their job. The major between billable and non-billable hours is that billable hours are connected only to the client at hand. Billable hours are only those that your business spends working on tasks that relate to fulfilling a client order or handling client requests. Non-billable hours are those that a worker spends addressing other workday concerns, such as answering internal emails or participating in company meetings.

Billing rates vary for billable and non-billable hours because the company is expected to pay workers for non-billable hours while the client is technically paying the company for billable hours. Companies don't bill clients for the time spent doing non-related tasks, and the billing rate for billable hours is generally set by the contract from the project's outset.

The following sections break down the proper labeling and usage of billable and non-billable hours in greater detail.

Examples of Billable Hours

All working hours are not considered billable hours. Billable hours are only those that occur when a worker is actively engaged in completing a task essential for a client project to be completed.

Imagine that a worker receives two separate tasks in an email from a superior. One is the outline of a customer's project, and the other is general administration. Only the hours the worker spends on the client workflow would be considered billable. Any hours spent completing routine tasks associated with the job would be considered non-billable hours.

Here are some examples of tasks and activities that could fall under billable time:

  • Performing work required to complete a project
  • Developing project timelines with colleagues
  • Researching client branding or history
  • Attending meetings with clients
  • Speaking to clients on the telephone
  • Reading and responding to project-related emails
  • Revising work submitted to the client at their request
  • Training
  • Work-related social events
  • Networking events
  • Work beyond the scope of the project, as outlined in your contract
  • Fixing errors that could have been avoided
  • Invoicing and performing other administrative tasks

It can quickly get hectic attempting to keep a handwritten log of when and how you spend your workday. Having the right software products, such as those available through Skynova, can make the process of keeping up with billable hours much easier.

Examples of Non-Billable Hours

Where billable hours are charged to the client, non-billable hours are charged to the company. Non-billable hours are the remaining hours that a worker spends on something job-related outside of client work. For instance, let's say a company's graphic designer is also responsible for the upkeep of the company's social media platform. Whatever hours the designer spends on the social media site would be deemed non-billable because the company would be expected to absorb that cost and not the client.

The following list contains further examples of tasks that might constitute non-billable hours for a small business:

  • Developing proposals for new clients
  • Training
  • Work-related social events
  • Networking events
  • Work beyond the scope of the project, as outlined in your contract
  • Fixing errors that could have been avoided
  • Invoicing and performing other administrative tasks

Finding a bookkeeping method with time tracking that helps separate non-billable time from billable hours is particularly important for consultants and freelancers who may be working for several clients at once.

How Do You Track Billable Hours?

The more a company that uses billable time can automate that system, the better. Tracking billable work can be simple, especially with the help of Skynova's accounting software.

Here are a few steps that can likewise help with easy, successful billable time calculations.

Agree Upon an Hourly Rate

Billable rates need to be established early between the client and the company. It's the responsibility of the business owner to explain and negotiate those costs through any full-time or freelance workers who'll be contributing. A meeting between all concerned parties is the quickest way to get this done. Different industries may approach pay negotiation in various ways.

For freelancers and consultants, the hourly rate may be just a matter of estimating project length and value. Drafting necessary documents, such as quotes and estimates, is made much easier when using business templates like those available through Skynova.

Develop a Time Sheet

One essential component of keeping up with the hourly rate is a well-constructed time sheet. The time sheet might be a manual ledger of hours completed with accompanying projects or tasks or something that requires software. However, having a time tracking system that works for your company's needs is a vital step.

Track and Calculate Each Project's Hours

Beyond just organizing working hours into billable and non-billable time, companies need a way to categorize clients and projects. It's crucial to come up with a time sheet that can keep up with the number of billable hours completed for each client and separate individual projects. This is another place where implementing well-designed software like Skynova's can save huge amounts of time and energy.

For example, a workday might consist of you working on a single project. That would mean every hour worked should be recorded and calculated as billable hours that correspond to the agreed-on hourly rate. However, let's say you are a freelancer who works six billable hours on a logo design for a client in the morning and then puts in another three billable hours for that same client's separate request for social media ads in the afternoon. Although they are completed for one client, those hours would need to be tracked under different projects to keep billable hours for each assignment accurate.

Create an Invoice

All small business owners know that accurate invoicing is crucial to business development, but it's also an important part of tracking billable hours. Once you and the client have settled on an hourly rate, you can go about creating an invoice in one of several ways. Some companies choose to work an estimated number of billable hours into a preliminary invoice for materials.

Others decide not to bill clients for working hours until a project is completed and the exact number of billable hours has been determined. Certain industries, like marketing and advertising, may choose to send multiple invoices for the billable hours and materials associated with each task requested by a client, while law firms may just send one total invoice that includes all billable hours and other expenses at the completion of their service to a client.

Should My Business Track Billable Hours?

When staffing, business owners may need to explain their utilization rate to team members for their working hours. Some companies choose to use billable hours, and others may use different time management metrics. For those in the legal profession, keeping up with the number of billable hours versus non-billable hours worked is a vital component of practice management. The following list contains a few more industries that frequently utilize billable hours:

  • Consultants
  • Freelancers and contractors
  • Advertising and public relations
  • Accounting firms
  • Architects
  • Graphic designers

Remember that a company may use billable hours for one set of employees but not another. For example, if a company employs a secretary charged with only handling internal administrative tasks, the secretary may work under a separate utilization rate determined in the employment contract.

Keep Your Invoices for Billable Hours Organized Through Skynova

Successful business management revolves around ensuring that clients are billed faithfully and that employees are paid accurately. Skynova's accounting software can help small businesses keep track of billable hours and create invoices.

With access to Skynova's business templates covering everything from receipts to deposit requests, any business owner can get their company's bookkeeping organized swiftly. Check out the full range of Skynova's software products to simplify the process of small business accounting.

Notice to the Reader

The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant before deciding on using billable hours and ensuring that you meet accounting standards for your company's industry.