Billable Hours: Understanding How Law Firms Bill

//Billable Hours: Understanding How Law Firms Bill

The billable hour is like the golden calf for many law firms and attorneys—all worship it but many don’t really understand what it means or how law firms really bill. In this brief article, you will learn about the billable hour, how law firms bill clients, and its impact on lawyers and clients.

What Are Billable Hours?

Billable hours are the lawyer hours that clients pay for directly. There are tasks that a lawyer does that is just part of the work needed to work at a law firm but then there are tasks that are directly related to the client’s case. Time spent on tasks directly related to a client’s case can be billed for the most part to the client.  These are the hours that law firms want to maximize so that they can run a profitable business.

Examining Law Firm Time

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

  • Billable Hours – This is the time spent on a client’s case 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 can’t 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, client development, calendaring, thinking and strategy, attorney development, law office web design, leadership training, law firm functions, networking and promotion.

Both billable and non-billable hours should be treated like a precious resource and tracked and scheduled accordingly.

Lawyer Hours and Compensation

While lawyers aren’t directly paid according to their billable hours, some law firms require associates meet a minimum target number of billable hours for the year and may give bonuses based on those hours.  And despite the fact that a lawyer’s base salary isn’t impacted by billable hours, lawyers whose billable hours don’t meet a certain threshold may find themselves facing layoffs when law firms look to reduce staff.

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. Equity partners are paid a base salary but the vast majority of their compensation may come from their equity share in the law firm. Once a law firm has paid all of their expenses, the profit/equity leftover is shared amongst the equity partners. If lawyer hours in the law firm didn’t include enough billable hours, equity partners could face a serious decline in their compensation.

How Many Lawyer Work Hours Are Required?

When maximizing the amount 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. When new lawyers and law students ask “How many billable hours in a year they will I be expected to work?” they realize that it’s a lot of hours and that it can seem very difficult to track that time, especially when almost every minute must be productive and profitable.

It’s important to note that while the majority of traditional law firms focus on billable hours, public interest law firms don’t bill their hours to a “client” and small law firms outside of large cities may not have such a high billable hour requirement for their associates.

What You Don’t Track Gets Wasted

When it comes to billable hours, the failure to properly track lawyer work hours can result in wasted time and lost productivity. For lawyers who are working 70 or even 80 hours a week, it can become easy to forget how that time was spent and how much of that time really is billable hours. Fortunately, when law firms use legal practice management software like Smokeball, they can easily track lawyer work hours and create a billable hours chart that allows partners and associates to see at-a-glance how much of their time is spent on specific tasks and billable hours. Whether you’re charging clients a flat, contingency, or hourly fee, Smokeball’s automatic lawyer time tracking software and law firm billing software can help you maximize your associates’ billable time and get the most out of the work they do. When combined with Smokeball’s law firm profitability reports and Firm Insights, you have powerful management tools and insights in how profitability your firm is by team member or even matter type.

Lawyer Lifestyle and Billable Hours

When law firms are making their billable hours targets they need to consider their profitability but they also need to consider the practicality of demanding that lawyers work incredibly long hours as a standard instead of an exception. No human being can work non-stop, not even talented and driven super lawyers who are passionate about practicing law.  Law firms must take into account:

  • Lawyer Downtime
  • Vacation Time
  • Personal/Sick Days
  • Family Emergencies
  • Important Non-Billable Time
  • Sustainability

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 but there are limits to how much time any associate can squeeze out of a workday. If a law firm is tracking their 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.

Maximize Billable Time

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 billable time in a way that clients understand.

  • Increase quality but billable time on client cases. High quality time on a client case improves customer satisfaction and is profitable for the law firm because clients refer others and return when they need lawyer services in the future.
  • Use descriptive language. When lawyer work hours are tracked with legal billing and time tracking software, they should use very descriptive language on each entry so that a non-lawyer can understand what work was done. When clients can see the details of the work done on their case there is less confusion and fewer billing disputes.
  • Educate your clients. Let clients know what type of services they will be billed for. This way there are fewer surprises when they receive an invoice.

The billable hour is a critical part of most law firms’ ability to do business. It’s important that law firms devise effective strategies for getting the most out of their billable hours while helping lawyers and clients understand just how law firms bill.

By |December 18th, 2018|

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