What are billable hours?

Billable hours are the hours of work an employee or contractor spends directly on tasks or projects that can be charged to a client. These are the hours that generate revenue because they’re tied to a specific service agreement or contract.

For example, a consultant might bill 4 hours for preparing a client presentation, or a cleaning service might bill 3 hours for servicing a client’s property. Any time spent on non-client work, like internal meetings or administrative tasks, is considered non-billable.

For small businesses that provide services, accurately tracking billable hours is essential for invoicing clients, maintaining profitability, and managing workloads. With Homebase, you can track work hours seamlessly, making it easier to manage payroll and distinguish billable from non-billable time.

Why billable hours matter

Billable hours directly affect a company’s revenue. When they’re not tracked accurately, businesses risk undercharging clients or missing out on revenue entirely. Billable hours help:

• Generate accurate invoices for clients
  
• Measure profitability of specific projects or services
  
• Improve resource allocation by understanding how much time is spent on client work
  
• Support transparent reporting so clients know exactly what they’re paying for
  
• Maintain fair compensation for employees and contractors whose pay depends on hours worked
  

Without a reliable way to track billable hours, small businesses may lose money and damage client trust.

How billable hours work

Tracking billable hours typically involves three key steps:

1. Define what’s billable – Decide which activities can be charged to the client (e.g., project work, meetings, consultations).
   
2. Log hours accurately – Employees or contractors record time spent on specific client tasks using a time-tracking tool.
   
3. Review and invoice – Managers verify the hours and create invoices based on the recorded time and agreed-upon rates.
   

For example, a design agency may charge a client for 10 billable hours at $100 per hour, resulting in a $1,000 invoice.

Examples of billable vs. non-billable hours

To clarify what qualifies as billable, here are common examples:

Billable hours

• Time spent completing client projects or deliverables
  
• Client meetings, calls, or consultations
  
• Research and preparation directly related to a client task
  
• On-site visits or travel required for client work
  

Non-billable hours

• Internal team meetings unrelated to a client project
  
• Administrative tasks like filing, payroll, or staff training
  
• Marketing and business development activities
  
• Idle time caused by scheduling gaps or delays
  

Distinguishing between the two ensures you only charge clients for work that directly benefits them.

Industries that rely on billable hours

Billable hours are critical in many service-based industries, including:

• Law firms – Attorneys bill for consultations, case research, and court appearances
  
• Consulting agencies – Consultants bill for strategy sessions, project management, and client reports
  
• Creative services – Designers, copywriters, and marketers bill for project-specific deliverables
  
• Trades and field services – Electricians, cleaning crews, or technicians bill for hours spent on-site
  
• Healthcare services – Therapists and specialists bill for patient appointments and treatments
  

In all these fields, accurate time tracking directly impacts revenue and client satisfaction.

Benefits of accurate billable hour tracking

Tracking billable hours accurately helps small businesses:

• Maximize revenue by ensuring no client work goes unbilled
  
• Improve project profitability by comparing billed hours to labor costs
  
• Increase client trust with detailed, transparent invoices
  
• Optimize staffing by understanding how much time different projects require
  
• Support fair pay for employees and contractors based on actual work performed
  

Ultimately, better tracking leads to healthier cash flow and stronger client relationships.

Challenges with billable hours

Despite their importance, billable hours can be challenging to manage:

• Forgetting to log time can lead to unbilled work and lost revenue
  
• Disorganized records make it difficult to verify and invoice clients
  
• Client disputes may arise if they question the accuracy of billed hours
  
• Administrative burden of manually tracking hours can waste time
  
• Overestimation or underestimation of time needed for projects can affect profitability
  

Using reliable time-tracking software helps avoid most of these pitfalls.

Legal and ethical considerations

While billable hours are a standard practice, there are legal and ethical responsibilities:

• Honesty and transparency – Always bill clients for actual work performed, not padded hours
  
• Clear contracts – Define billable rates, activities, and payment terms in writing
  
• Compliance with labor laws – Employees must still be paid accurately for all hours worked, even if not billable
  
• Record retention – Keep detailed time records in case of client audits or disputes
  

Maintaining clear, ethical practices helps build long-term trust with clients.

Best practices for managing billable hours

To manage billable hours effectively:

• Define billable vs. non-billable tasks clearly so employees know what to log
  
• Use time-tracking software to automate hour logging and reduce human error
  
• Track time in real time rather than reconstructing it after the fact
  
• Review timesheets weekly to catch errors early
  
• Provide detailed invoices showing a breakdown of tasks and hours billed
  
• Analyze trends to improve future project estimates and pricing
  

These practices ensure you’re capturing all client work accurately and efficiently.

How Homebase helps with billable hours

Homebase makes time tracking simple and accurate for service-based businesses. With Homebase, you can:

• Track hours worked in real time with digital time clocks
  
• Differentiate between billable and non-billable time for better reporting
  
• Prevent missed punches that could lead to lost revenue
  
• Integrate time data directly with payroll for fast, accurate employee payments
  
• Generate clear reports to support client invoicing and profitability analysis
  

By automating time tracking, Homebase saves time, reduces errors, and ensures every billable hour is accounted for.

Explore Homebase Payroll to track billable hours accurately, pay employees on time, and improve your business’s cash flow with seamless time and payroll management.