Billable Hours: Understanding How Law Firms Bill

Billable hours serve as the essential foundation for a small law firm, making it imperative to excel in the art and science of identifying, managing, and balancing these hours with the various responsibilities of your position. Nevertheless, the task becomes increasingly complex when juggling numerous clients, determining the hours to charge them, and discerning what qualifies as "billable," rendering the process more challenging than it may initially appear.

Here, you will learn about billable hours, how law firms track time and bill their clients, the impact of these hours on lawyers and clients, and how legal billing software can help boost productivity and profitability.

What are billable hours?

Billable hours are the hours worked that attorneys bill to their clients. Attorneys perform various tasks, some are essential to the firm's operations but not billable, others are billable activities tied to a client's case. The time dedicated to activities that pertain directly to a client's matter is typically eligible for billing. 

Law firms aim to optimize these hours, as they are crucial for maintaining profitability. Both associate attorneys and partners are assigned billable hour targets that contribute to the firm's financial success. In certain instances, meeting these targets can be quite challenging, requiring extended work hours, weekend commitments, and passing on vacations.

The definition of what constitutes billable hours may differ among firms. However, typical tasks that are generally considered billable hours include the following:

• Meetings with clients
• Managing negotiations
• Document drafting
• Appearances in court
• Conducting legal research
• Filing paperwork
• Any other activities that are directly associated with the client's case
  

On the other hand, tasks related to administration, management, and training, such as handling emails, marketing efforts, and networking activities, are not charged to the client. Therefore, it’s crucial to comprehend the difference between billable work and non-billable work, as well as the significance of effectively managing billable hours, which can influence your professional development — and the financial success of your firm.

Why is tracking billable hours for attorneys important?

Attorneys do not receive direct compensation based on their billable hours. Nevertheless, the overall performance of a law firm is closely tied to them. To maintain profitability, numerous law firms impose a minimum annual target for associates regarding billable hours, with bonuses frequently linked to these metrics. Although a lawyer's base salary remains unaffected by billable hours, those whose hours fall below a specified threshold may encounter layoffs as firms seek to streamline their workforce.

In the context of partners, equity partners rely significantly on achieving sufficient billable hours to secure a satisfactory salary. While they receive a base salary, a substantial portion of their earnings is derived from their equity stake in the firm. After covering all overhead and operational costs, the remaining profits are distributed among the equity partners. Should the firm fail to generate adequate hours that are billable, equity partners may experience a notable reduction in their earnings.

Requirements for law firm billable hours

When maximizing the number of billable hours an attorney has, it becomes necessary to increase the number of lawyer work hours that are worked overall. This means that some lawyers are working anywhere from 70 to 80 hours per week each week just to meet their billable hour minimums — which can range between 1,700 and 2,300 hours a year.

For example, an attorney who dedicates 40 hours each week for all 52 weeks of the year, without taking any time off, would accumulate a total of 2,080 hours of work annually. However, due to time spent on non-billable tasks, lawyers frequently find themselves working significantly more than the standard 40 hours per week to fulfill their obligations. This situation can create substantial pressure to forgo vacations and refrain from taking sick leave in order to meet their professional demands.

When newly admitted attorneys and law students inquire about the expected number of billable hours in a year, they soon come to the realization that the figure is substantial. The task of accurately tracking this time can appear quite challenging, particularly given that nearly every minute spent at work is required to be both productive and profitable. It’s important to note that, in contrast to most traditional law firms that prioritize billable hours, public interest law firms do not charge clients based on hours worked. 

Additionally, smaller law firms located outside major urban areas may impose less stringent billable hour expectations on their associates. The average billable hours recorded by a law firm can fluctuate due to various factors, such as geographical location, attorney compensation, and the methods employed for tracking lawyers' time. Legal billing software automation increases the effectiveness of time tracking, the number of hours billed, and ultimately, profitability.

Lawyer lifestyle and billable hours

According to a report from Yale Law School, there exists a considerable gap between the hours actually worked and the hours billed at most law firms. In the pursuit of meeting billable hour targets, legal teams must assess not only their profitability but also the feasibility of requiring lawyers to routinely work excessively long hours, rather than viewing such demands as exceptions.

As paid time off cannot be billed to clients, lawyers experience significant pressure to fulfill their billable hour obligations. It’s vital to acknowledge that no individual, regardless of their capabilities or commitment, can maintain continuous work without pause, including those exceptionally talented lawyers who are enthusiastic about their practice and seek advancement within their firms. 

That said, law firms ought to take into account the following:

• Lawyer downtime
• Vacation time
• Personal or sick days
• Family emergencies
• Important non-billable time
• Sustainability

What is a billable hours chart?

A billable hours chart serves as a template for attorneys to record their hours that can be billed. Law firms can also use an attorney billable hours chart to see if there are any inefficiencies in the way associates are spending their time. This straightforward table helps calculate the number of hourly increments to charge, depending on the duration of work performed. When manually tracking billable hours using this chart, the majority of lawyers typically follow increments of 1/10th of an hour, equivalent to six-minute intervals. 

Of course, there are limits to how much time any associate can squeeze out of a workday, especially when other tasks must be completed, like required firm meetings, conferences, and continuing legal education (CLE). If a law firm is tracking their lawyers’ time and maximizing their lawyers’ billable hours and they are still unable to turn a profit, they may need to examine other sources of their financial trouble such as a too low fee or too high cost of overhead.

Billing in 6-minute increments 

Lawyers typically bill in six-minute increments due to practical considerations. Tracking and calculating time spent on tasks in smaller increments can be cumbersome and labor-intensive. On the other hand, billing in larger time blocks may result in inflated charges, which can lead to client dissatisfaction due to overpayment for legal services. The six-minute interval strikes a balance, as it is straightforward to compute using a billable hours chart, allowing for reasonable billing without excessive rounding.

Examining law firm time: billable vs. non-billable hours

Let’s take a closer look at the different ways that time is used in a law firm.

• Billable Hours: As mentioned above, billable hours a law firm charges is the time spent on a particular client’s case or legal matter which can then be billed directly to that client. This is also the time that most law firms spend a lot of energy measuring and tracking. 
• Non-Billable Hours: While this is the time that cannot be charged back to a client, it is still essential to spend this time on important tasks. Lawyer work hours that are on-billable might be filled with tasks such as professional development, attending firm meetings, responding to emails, and participating in networking events. While there is no requirement for spending time on non-billable hours, every minute spent on non-billable hours eats into the available time to complete billable hours. 
  

Both billable and non-billable hours should be treated like a precious resource and tracked and scheduled accordingly using reliable legal billing software like Smokeball.

Pro tip: How to decide between billable vs. non-billable hours?

For many new lawyers and legal professionals, billing clients is unfamiliar. There is often confusion about what can be billed, and what cannot. It may be helpful to create a decisive litmus test to determine if time spent by a lawyer can be billed directly to a client. 

The following questions may be helpful: 

• Was the lawyer’s work necessary to complete the project? 
• Was the time spent for the lawyer’s professional needs or the client’s needs? 
• Was the time spent on a task that was in the client’s agreement?
• Was the time spent by the lawyer the result of an avoidable mistake? For example, if a file is inadvertently deleted by the lawyer while moving files on their hard drive, time spent recreating the file may not be billed to the client.

How to calculate billable hours

As mentioned above, the legal industry has one thing in common with private jet operators: they typically bill clients in six-minute, or 1/10th of an hour increments. This makes calculating the cost of any activity a simple mathematical equation (rate x time spent = cost). Of course, hourly rates may differ depending on who is working on the matter: partners, associates, paralegals, etc.

For instance, a phone call lasting 1-6 minutes would be billed for .1 hours, while a phone call lasting 7-12 minutes would be billed at .2 hours. The charge is calculated by multiplying the hourly rate by the time spent.

For example, a .2-hour phone call billed at $300/hour, would be billed at $60. A half-an-hour spent drafting up a letter, billed at a rate of $150/hour, would be billed at $75.

Strategic decisions regarding who at a law firm is doing a task can boost profitability, and simultaneously pass savings onto clients. While clerical and administrative tasks like filing documents or making photocopies are generally non-billable, paralegals can bill for the preparation of legal documents, conducting research, and communicating with clients.

Sample billable hours chart:

Effective strategies for managing billable hours

For law firms that want to make sure that their billable to non-billable time is profitable, maximizing billable time is critical. Here are some ways to maximize that time in a way that clients understand.

1. Establish a time tracking policy
When lawyers can bill for services, their time is money. Law firms must look at lawyer time this way. Time spent on billable tasks contributes to an attorney’s salary and law firm profit margins, while time spent on non-billable tasks does not, and can cause the pendulum of profitability to swing in the opposite direction. While the firm still has to pay the lawyer, if a client cannot be billed for the time, non-billable hours are actually costing the law firm money. A time tracking policy can ensure time spent on non-billable tasks does not get out of control.

2. Record tasks as you complete them
Legal time tracking software can significantly reduce the amount of time that lawyers spend accounting for their time – so that your attorneys can reduce the gap in billable hours vs actual hours.

3. Track all of your time, not just billable time
It’s helpful to understand how non-billable hours are spent. This is recommended not for the purpose of micromanaging anyone, but for improving efficiency. Can a non-billable employee handle certain tasks? Are lawyers being asked to participate in too many non-billable firm activities?

4. Review your missing time once a week
If you review missing time once a month, it is very easy to lose track of time (literally). Many law firms have an accounting or billing person do a review or audit each Monday to track down any missing time from the previous week.

5. Use descriptive language in billing descriptions
When attorney work hours are tracked with legal office billing software, they should use very descriptive language on each entry so that a non-lawyer – or any outside individual – can understand what work was done on the legal matter. When clients can see the details of the work done on their case, in clear, simple, language, there is less confusion and fewer disputes over billing.

6. Stay Focused
It’s wildly important to avoid distractions when you are supposed to be billing for client work. Time spent on social media, viewing entertaining videos, or browsing memes can add up to hundreds of lost hours over the course of years. That’s money left on the table. If you want to maximize your billable hours, you must remain focused during the workday and commit to completing client tasks that will generate much needed revenue.

How to track billable hours for law firms

Billable hours require intentional tracking rather than automatic logging. To accurately capture these hours, a structured approach is essential. Three prevalent methods include the following:

• Calendar: Many individuals opt to manually record tasks and hours in a calendar, whether on a daily, weekly, or monthly basis. While this method is commonly used, it can lead to disorganization and is susceptible to errors. Additionally, it does not integrate with practice management or billing software, resulting in isolated information.‍
• Excel sheets: Excel sheets offer a more organized alternative to calendar entries, providing a quicker means of tracking and calculating billable hours. However, this method still necessitates manual entry and can introduce errors if hours are not recorded promptly after each task. Furthermore, it also creates a separation of vital time tracking data.‍
• Time tracking software: The use of time tracking software is becoming increasingly integral to the time tracking strategies of law firms. Such software can function as a standalone solution or be incorporated within a comprehensive practice management suite.

Easy billing with legal practice management software

There’s no need to reinvent the wheel from scratch or use non-intuitive, antiquated, and time-consuming methods. Billing clients can and should be easy. Smokeball is award-winning law practice management software that makes running your practice efficient and easy:

• Tracking attorney time: With Smokeball, you can accurately and automatically track your time – and your staff’s time, so you don’t ever miss a billable moment. You can track how much time is spent in programs like Word and Outlook, as well as client phone calls through the RingCentral integration. It’s easy to select what is added to bills.‍
• Billing your clients: Spend less time preparing, editing, finalizing, and printing invoices. When you automate the legal billing process with Smokeball, you can make easy-to-read and easy-to-send invoices. Your accounting team will love the powerful integrations with LawPay and Quickbooks Online, among others.
  

In your law practice, there is nothing more valuable than your time. Although many law firms utilize a billable hours chart to calculate hours, this tool is limited and does not directly track time. 

Legal practice management software is far more effective in tracking all of your time — and then automatically calculating that time for you. Because tracking is done as you go (and on-the-go), you won’t miss out on opportunities to bill. With just a single click, you can bill your clients for tasks and communications.

Level up your firm’s billable hours

The billable hour is a critical part of most law firm’s ability to do business. Policies, training, and incentives are created to improve the utilization of billable hours. It’s important that law firms devise effective strategies for getting the most out of their billable hours while helping both lawyers and their clients understand just how law firms bill.

Smokeball’s legal billing software has powerful tools to track those hours easily and accurately. We can help you enhance billing efficiency and effectiveness through features such as automatic time tracking, customizable workflows, and robust financial reporting. Discover the premier legal billing software that eliminates tedious tasks with cutting-edge automation and increases profitability.

Ready to see why so many law firms love Smokeball? Contact us to request your free demo today.