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billable hours

Contributor(s): Ivy Wigmore

Billable hours are the amounts of an employee’s work time that can be charged to a client. Employers charge clients at sometimes varying rates for different employees. Billable hours are a common metric in IT consulting and legal firms, as well as others where it’s important to quantify how much time a company’s employees spend working for the company’s clients. 

Although policies for billable hours vary from one company to another, the idea is that the client is only charged for time that the employee is performing work for them. So, for example, breaks, personal time, vacation time and meetings about unrelated matters are not billable. Some things, like attending to correspondence and talking to co-workers are harder to either include or exclude.  

The amount charged to clients has to be adequate to cover the employee’s salary and other business expenses. Calculating an appropriate rate is essential, particularly for companies that depend on income from clients for most or all of their revenue. Typically, employees are expected to have billable hours equivalent to at least three times their salaries. 

Billable hours for a particular client or project may also be pooled. That can enable more effective use of human resources and less expense to the client. For example, a project manager might have a rate of $1,000 a day but employees assigned lower rates may do much of the work for a given project. The client may be charged a combined rate based on the billable hours of all employees involved in the project. 

This was last updated in July 2018

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