What Are Non-Billable Hours?

Non-billable hours are work hours that a client should not pay for, and they may or may not be mentioned in the payroll invoice. These work hours include team meetings, staff training, networking, conferences, and any other internal company dealings in which the client is not directly affected.

Non-billable hours invoiced to the client might raise a few eyebrows from their side, but sometimes it’s right to include hours spent on meetings or calls with clients regarding project progress and on project research.

Despite the fact that they are non-billable hours, these hours are crucial for creating:

  • Work transparency
  • An increase in staff expertise
  • Good project communication.

Why Track Non-Billable Hours?

Tracking non-billable hours will show how much time a company or an individual spends on development and business growth. Let’s take a look at several of the benefits of tracking non-billable hours.

Optimize Revenue

For example, let’s say that you have a project with an hourly rate of $150 per 100 hours of work, but when you add up the non-billable hours, that same rate dilutes to $120 due to 25 hours of non-billable work. This non-billable work may include client inbound calls, project revisions, and administrative work.

Based on this data, the manager can decide whether the project feels unsustainable, so they can renegotiate parts of the agreement to keep the project profitability and optimize the revenue.

Bill Accurately

Hidden billability is a term used to refer to non-billable hours that have managed to slip by in the cracks. We’re talking about client phone calls, answering emails, and other short tasks that add up over time and eat up the project hours.

When managers track all hours including billable and non-billable, they can see everything that the employees have worked on and identify whether there was work done that should be billed to a client, instead of being listed as non-billable.

Business Growth

Tracking both billable and non-billable hours might hold the key to business growth. In order for a company to grow, it needs more recruiting, training, marketing, etc., and all of these things happen in a narrow timeframe between administrative work and client-related work.

By using the data from every working hour in the past, a manager can make accurate predictions and allocate sufficient time for such non-billable hours and activities. Later on, the manager can estimate whether they have met the targeted effort resource allocation or not.

Narrow Down Potentially Billable Hours

Recording the total amount of work hours, including billable and non-billable hours, will allow a company to identify the work hours that should actually be billed but are currently not. For the long-term plans of the company, it’s better to take notice of skippable billable hours that are most commonly listed as non-billable.

For example, the hours spent on answering emails are often overlooked and classified as non-billable hours, even though they’re directly client-related. Freelancers, for instance, can get a much better rate for their project if they value all the hours they've put into it and companies can bill clients for each hour that was worked for any project-related tasks.

Use Non-Billable Hours More Effectively

By keeping track of the total work hours, managers can easily see where employees wasted a big portion of their work hours. By identifying the non-billable hours that are taking up more time than they should, managers can make appropriate changes to streamline the process.

How to Reduce Non-Billable Hours

It would be great if we all spend our time at work doing tasks we can actually charge our clients for, but non-billable hours can’t and shouldn’t be avoided. When used constructively, non-billable hours can be used to help the company grow, and employees develop their expertise. Still, there are a few ways to reduce them without sacrificing the benefits they bring to the business.

One of the best aces up any company’s sleeve for reducing non-billable hours is using as much automation in the non-billable processes as possible. Companies can reduce their administrative workload by making payment reminders automatic, which, in turn, makes things a lot easier and quicker. The best way to do this is by adopting a timekeeping software that will automate the process of billing, including reports on the billable and non-billable hours.

Another tip would be to digitize work documents to make it quicker to access them without searching through drawers and cabinets filled with papers.