Tracking Billable Hours: What, Why and How | Teami

Tracking Billable Hours: What, Why and How

Everything professional services teams need to know about tracking billable hours efficiently and accurately for stronger client trust and business growth.

Accurately tracking billable time is a perpetual pain point for professional services firms. Manual methods like spreadsheets are error-prone and administratively burdensome. Without proper time data, critical business insights are lost and profits suffer. 

This article will explain what billable hours are, why tracking them diligently matters, and how to implement processes for maximum accuracy. Readers will discover best practices for capturing billable activities, leveraging automation, and preparing their firm for the future of blockchain-enabled distributed timekeeping. With robust tracking foundations in place, professionals can ditch the drudgery and unlock data-driven decisions to strengthen client relations and fuel growth.

What Are Billable Hours?

Definition of Billable Hours

Billable hours refer to the time spent by a service provider working directly for a client. These hours are typically tracked and billed to the client. Billable hours only include time directly related to client work, such as:

  • Consulting with the client

  • Performing work specifically for the client (analysis, design, development, etc.)

  • Attending meetings with or on behalf of the client

  • Traveling specifically for a client project

Billable hours do not include time spent on non-client tasks like general administration, training, business development, etc.

For many service providers like lawyers, consultants, agencies, freelancers, and SaaS companies, billable hours are a key metric. Tracking billable hours provides visibility into utilization rates, profitability, capacity planning, and pricing models.

Accurately tracking billable time ensures clients are billed for the actual work performed. Time tracking tools like Teami provide automated ways to capture billable hours through time entries, project tracking, and integrated billing.

Importance of Tracking Billable Hours

Carefully tracking billable hours is critical for service providers for several reasons:

  • Billing accuracy: Tracking time spent on client work enables accurate per-hour or project-based billing. Without tracking billable time, invoices may underbill or overbill clients.

  • Utilization rates: The ratio of billable to non-billable time shows utilization. Low utilization may indicate inefficient workflows or inadequate client work. High utilization may suggest overcapacity.

  • Profitability: Billable hours are directly tied to revenue. Analyzing billable hours by client reveals which clients are most profitable.

  • Capacity planning: Billable hours indicate upcoming capacity needs. Historical billable hours help plan for seasonality and growth.

  • Pricing: Billable hours reveal the effort and cost behind deliverables. This informs flat fee or retainer pricing for future projects.

  • Client management: Billable hours provide visibility into the time spent per client. This helps allocate resources and grow strategic client relationships.

  • Productivity: Comparing billable hours across people and teams enables productivity benchmarking and improvements.

Automated time tracking software like Teami takes the manual work out of capturing billable hours. Features like timers, time entries, and reporting provide billable hour insights in real-time. For service professionals paid by the hour, diligent time tracking is imperative.

What Activities are Billable?

Common Billable Activities

When it comes to tracking billable hours, it's essential to understand what types of activities can actually be billed to clients. Here are some of the most common billable activities:

  • Client meetings and calls - Any time spent in direct communication with a client, whether remotely or in-person, is billable. This includes planning sessions, requirements gathering, presentations, trainings, and regular check-ins.

  • Project work - All time spent directly working on a client's project deliverables is billable. This ranges from analysis and design work to development, testing, and revisions. Any hands-on work that moves the project forward can be billed.

  • Research and learning - Time spent researching or learning specifically for a client project is billable. For example, if you need to learn a new technique or toolset to complete the project, that learning time is billable.

  • Travel for client work - Any travel directly related to a client engagement is billable, such as driving to an onsite meeting or flying for an out-of-town project. Travel time must be specifically for a client, not general business development.

  • Project management - Time organizing projects, delegating tasks, or managing resources for a specific client can be marked as billable. General administrative tasks should not be billable.

  • Documentation - Creating documentation like requirements, design assets, user guides, or reports that are delivered to clients as project deliverables can be billed.

Guidelines for Identifying Billable Activities

When in doubt about whether an activity is billable, rely on these general guidelines:

  • Client-specific - Work must be exclusively for the benefit of one client to qualify as billable. General administrative tasks that apply to all clients are not billable.

  • Direct work product - Billable activities produce something directly tied to project deliverables outlined in the contract. Meetings must have agendas and action items related to the project.

  • Within scope - Anything defined as in scope in the project plan or contract is billable. Out of scope work should be approved by the client prior to billing.

  • Detailed tracking - Billable tasks should be tracked at a granular level, never rounded or estimated. Be specific on project tasks and clients.

  • Agreements first - Have clear agreements on what is billable before work begins. Activities assumed but not contracted as billable should be approved by clients.

  • No duplication - The same work should only be billed once, regardless of number of people involved. Avoid billing for overlapping efforts.

  • Productive time only - Billable hours reflect active productivity on client work. Excess meeting time, distractions, or inefficiencies should not be billed at full rate.

Accurately tracking and billing for client work ensures you are compensated for the time invested while maintaining trust through transparency. Defining billable activities upfront and tracking them diligently is key. Time tracking tools like Teami provide automated time capture to take the guesswork out of billing for billable hours.

Billable Time vs Non-billable Time: Differences

Definitions and Examples

Billable time refers to any hours worked that can be invoiced and billed to a client. These are hours spent directly working on client projects and deliverables. Examples of billable time include:

  • Consultations, calls, emails, and meetings with clients

  • Analysis, design, development, testing for client projects

  • Documentation, reports, and artifacts created for clients

  • Research and learning needed to complete client work

  • Travel to client sites or conferences for a specific client

Non-billable time is any time not attributable to a client and therefore not invoiced. 

Common non-billable activities include:

  • General administrative tasks like expense reporting

  • Internal meetings, training, and team building

  • Sales calls and pitches for prospective clients

  • Professional development activities

  • Commuting or other routine travel

  • Downtime between projects

  • Paid time off

The key distinction is that billable time is client-specific while non-billable time benefits the business generally. Time should only be marked billable if it's tied to defined client projects or requests.

Importance in Business Growth

Properly categorizing time as billable or non-billable is critical for service businesses to analyze profitability and maximize growth.

Tracking billable hours provides visibility into utilization rates, or the ratio of billable to total hours worked. Low utilization signals excess capacity or operational inefficiencies. High utilization may indicate the need to expand capacity by hiring.

Billable time directly converts to revenue while non-billable time reduces potential billings. Evaluating the ratio and looking at trends helps businesses identify opportunities to grow billable hours through improved sales or project delivery.

Distinguishing between the two types of time also enables accurate cost analysis. The true cost of delivering projects can be calculated by including both the billable and non-billable time invested by teams. This intelligence informs pricing and profitability targets.

Setting targets for billable hours and measuring utilization motivates teams to focus their efforts on revenue-generating activities aligned to client needs. Accurately capturing and reporting on both billable and non-billable time provides the visibility needed to make strategic decisions for efficiency and growth. Automated time tracking software like Teami takes the guesswork out of categorizing billable vs non-billable time.

How to Track Billable Hours: Manual Methods

Traditional Methods

Before timesheet software became ubiquitous, tracking billable hours manually was the norm. Common traditional methods include:

  • Paper timesheets - Recording time entries by hand on preprinted paper forms. Workers fill out details like date, client, project, task, and hours for each day or week.

  • Paper logs - Maintaining a separate notebook or journal for time entries. This provides more flexibility than structured timesheets.

  • Spreadsheets - Using Excel or Google Sheets to log time with customized fields for capturing billable vs non-billable time. Allows for basic reporting.

  • Online web forms - Some businesses have web portals for submitting timesheets weekly. Provides centralized collection but still manual entry.

  • Post-it notes - Writing time increments on post-its and compiling them daily. Simple but prone to inaccuracy.

  • Memory/guesstimating - No formal tracking at all. Billable hours are estimated after work is completed. Highly error prone.

While these manual approaches are low-tech, they can be sufficient for independent contractors or very small teams. However, most businesses need automated time tracking today.

Pros and Cons of Manual Tracking

Manual time tracking does have some benefits:

  • Simple setup - Easy to implement with minimal tools like paper and spreadsheet software.

  • Flexible entry - Workers can enter details in a freeform manner with no restrictions.

  • Tactile process - The physical act of writing time down is straightforward.

  • Low tech - Requires no new software adoption or training.

However, manual time tracking has significant downsides:

  • Prone to human error - Forgetting entries or estimating hours leads to incorrect data.

  • Easily lost or damaged - Physical logs can be misplaced, destroyed, or impossible to decipher later.

  • No automation - Everything requires manual administrative effort to collect, organize, analyze, and bill for recorded time. Extremely labor intensive at scale.

  • Hard to visualize - Data is siloed so there are no roll-ups or reporting without extensive manual manipulation.

  • No integration - Data doesn't automatically flow into project management, billing, or payroll systems. Requires duplicate data entry and re-keying.

  • Micromanaging - Detailed logging associated with manual processes can feel like overhead.

For modern businesses, the cons of manual time tracking vastly outweigh the pros in most cases. The risk of human error is too high. Automated software removes friction while providing greater accuracy, insights, and integrations.

Ethical Considerations in Tracking Billable Hours

Ethical Guidelines and Transparency

Tracking and billing for time ethically is crucial for building trust and credibility with clients. Here are some best practices:

  • Be fully transparent about how time is tracked and billed. Explain your processes upfront so there are no surprises.

  • Only bill for actual time worked. Never inflate or pad hours. Round down, not up.

  • Bill in increments that match work performed. Don't bill large blocks of time for small tasks.

  • Differentiate between productive work time and unproductive time. Only bill fully for focused, active work.

  • Provide detailed time logs that itemize daily activities. Don't lump multiple days together.

  • Allow clients to review and dispute any questionable time entries. Be willing to adjust invoices accordingly.

  • Track billable time contemporaneously as work happens. Don't recreate time logs long after the fact.

  • Have written policies for determining what is billable and communicate those clearly. Stick to contractual agreements.

  • Get client signoff before billing for any out-of-scope work not covered in contracts.

Transparent communication and timely record keeping are key. Ethical tracking builds trust that you bill accurately and fairly for the value delivered.

Building Client Trust

To build enduring trust and prevent billing disputes:

  • Set client expectations upfront about how you track and bill for time. Leave no room for surprise.

  • Show clients you have nothing to hide. Share granular time logs that document all billable activities.

  • Flag any time entries that could be considered borderline. Let the client decide what to pay for.

  • Be conservative early on. Don’t nickel and dime new clients while building the relationship.

  • Frame billing as a partnership focused on the client's needs, not just revenue goals.

  • Educate clients on actual costs incurred delivering services. Show good value for fees.

  • Be proactive communicating with clients. Align often on priorities to focus time on high-ROI activities.

  • Have candid conversations about scope creep before it happens. Don't blindside clients with added fees.

  • If billing disputes occur, offer to walk through the time logs. Aim to understand the client’s perspective.

  • When you make a billing mistake, own up to it quickly. Offer a goodwill discount or credit.

Ethical practices require discipline but build lasting, referral-worthy relationships. With software like Teami, time tracking can increase trust through accuracy and transparency.

Tracking and billing for hours worked comes with legal obligations that businesses must comply with. Adhering to laws and regulations is crucial for avoiding litigation.

In the United States, the Fair Labor Standards Act (FLSA) mandates that employers track all hours worked by non-exempt employees. Rounding hours worked either up or down is generally not permitted under the FLSA. Time tracking must be accurate.

For exempt employees tracking billable hours, rounding to the nearest quarter hour is typically allowed. However, rounding practices cannot consistently favor the employer.

Businesses that bill the government for services must comply with the False Claims Act. This prohibits knowingly submitting inaccurate time logs or invoices. Rigorous billing controls and audits are required.

The Sarbanes-Oxley Act (SOX) enforces strict internal controls over time tracking and invoicing to prevent accounting fraud. Compliance includes segregation of duties, monitoring, secure audit trails, and data integrity.

Companies submitting timesheets for billing government contracts fall under the Federal Acquisition Regulation (FAR). This requires certification of the accuracy of all direct and indirect hours charged.

Adhering to state and local labor laws around overtime, meal breaks, rest periods and other employment regulations also relies on accurate time data. Using time tracking software like Teami helps ensure legal compliance.

Despite best compliance efforts, legal issues related to time tracking still occur. Common challenges include:

  • Wage and Hour Disputes - Employees challenging unpaid overtime or wages based on inaccurate time data. Robust time tracking can provide supporting evidence.

  • Wrongful Invoicing - Clients allege overbilling due to inflated hours, errors, or unauthorized charges. Detailed audit logs validate billed hours.

  • Contract Violations - Government claims of fraudulent timesheets in violation of FAR or contract terms. Stringent controls demonstrate compliance.

  • Whistleblowing - Employees reporting improper or unethical billing practices internally or to government regulators.

  • Time Theft - Employees logging hours not actually worked or falsifying time records. System safeguards prevent and detect fraud.

Businesses can implement controls and processes to mitigate the risks of legal issues:

  • Maintain detailed time tracking with precise start and end times, not just hours. Log time as it happens, not after the fact.

  • Require time entry descriptions to document billable activities at a granular level. Standardize on what is billable.

  • Set system permissions so only designated managers can edit or approve others' time entries after submission.

  • Enable layered editing and audit trail functionality to log all changes or deletions of time entries.

  • Run reports to identify any anomalous time outside expected hours or duplications. Investigate anything suspicious.

  • Allow clients and managers to review time logs online before invoices are finalized.

  • Perform internal audits and system checks regularly to verify accuracy of time data.

  • Implement mandatory vacation policies so any time theft by individuals is identified during absences.

  • Train all employees regularly on timekeeping compliance and ethical billing practices.

Establishing rigor around time tracking controls, security, and monitoring helps insulate businesses from legal risks while building trust. Advanced software like Teami provides built-in tools to enforce compliance and prevent billing fraud. With a proactive approach, organizations can effectively manage any legal issues that emerge related to billable hours.

Tips for Accurate Invoicing and Efficiency

Invoicing Methods and Tools

Creating professional, accurate invoices is crucial for getting paid on time and maintaining good client relationships. Here are some tips for efficient, error-free invoicing:

  • Use invoicing software like FreshBooks, Zoho Invoice or Teami. Automating invoicing from timesheet data minimizes manual work and reduces human error. Set up recurring invoices for retainer clients.

  • Include detailed time logs as backup documentation. This provides transparency into what hours were billed. Let clients review logs before finalizing invoices.

  • Set up automation rules to flag any billing entries outside of specified ranges for manager review. This catches anomalies before invoices go out.

  • Build in double-checking mechanisms, like peer review of invoices, to detect any inconsistencies early. Have a second set of eyes before sending to clients.

  • Standardize invoicing processes across your team to ensure consistency. Follow templates and protocols to avoid mistakes.

  • Carefully review final PDF invoices before emailing to clients. Scan for any formatting issues and incorrect client/project details.

  • Compare invoices against contracts or statements of work to verify billing rates and deliverables match. Prevent scope creep.

  • Send professional invoices promptly upon completion of work or milestones. Never let invoices pile up and languish.

  • Make invoices visually clear and easy to understand. Group line items logically and highlight totals prominently.

  • Be diligent following up on invoices. Personal outreach accelerates payments and builds rapport.

Investing in invoicing best practices prevents embarrassing errors, improves cash flow, and strengthens client retention over the long haul.

Enhancing Efficiency in Tracking

Accurately capturing billable hours in real-time is essential but can be tedious. Here are tips for tracking time more efficiently:

  • Use automated time tracking tools like Teami, Hubstaff or Toggl which can run passively in the background. This eliminates relying on memory.

  • Build time capture into your natural workflows. Set reminders to start and stop timers around meetings and dedicated work blocks.

  • Take advantage of mobile apps to log time on the go without toggling between programs. Enter time no matter where you are.

  • Set up shortcuts, browser extensions, or text expander snippets to quickly launch timers or fill out timesheets.

  • Categorize frequently repeated tasks and clients to auto-populate time logs with one click. Skip repetitive typing.

  • Assign billable hour targets and reminders for employees to stay on track throughout the week. A little nudge helps consistency.

  • Review timesheets daily rather than waiting until end of week. Fix any missing entries or incorrect allocations while fresh.

  • Automate transfer of approved timesheets into invoices and accounting systems. Eliminate re-entry and save hours.

  • Analyze past time logs to set standards for billable tasks. Use historic data to refine time estimates.

  • Block time on calendars for non-billable work so you stay focused on tracking billable tasks when at your desk.

  • Set hourly alerts to remind yourself to log time if you get in the zone. Don't allow sessions to run over.

With the right workflows and software automation, you can achieve timesheet Nirvana. The efficiency gains free up capacity to grow your business.

Top Billable Time Tracker Apps

Reviews and Recommendations

When selecting time tracking software to monitor billable hours, there are many options to evaluate. Here are reviews of the most popular billable time tracker tools on the market, with recommendations based on business size and needs:

  1. Teami offers comprehensive time tracking tailored to professional services teams. It captures billable time automatically through integrations with calendars, project management tools, and email. Robust reporting provides billable vs non-billable insights and utilisation rates. Easy-to-use mobile apps allow on-the-go time entries. Pricing starts at $7 per user/month. With advanced features and affordable pricing, Teami is highly recommended for growing agencies and service firms.

  2. Harvest is a leading time tracking app for freelancers and agencies. It offers simple manual time entry via desktop and mobile, with invoicing, expenses, and reporting. Set hourly rates to track billable totals. Monitor productivity with project dashboards. Seamless integration with popular tools like QuickBooks and Basecamp. Plans from $12 per user/month make Harvest a top choice for solopreneurs and small teams.

  3. TSheets specializes in automated GPS-based time tracking for field services teams. Capture clock in/out, locations, mileage and geo-verified timesheets via mobile. Job costing, scheduling, dispatching and custom fields available. Integrates with 

  4. Quickbooks and Xero. Costs $8 per user/month with $16 and $40 enterprise plans. The premier construction and field services time tracking tool.

  5. Time Doctor provides robust time monitoring for remote teams. Features include screen monitoring, productivity ratings, attendance tracking, and budgeting. Integrates with project management and payroll systems. Web and mobile apps available. Pricing at $7 or $10 per user/month based on features. Ideal for managers ensuring team productivity across global locations.

  6. Clockify is a free time tracker app with features including productivity metrics, map view locations, and budget versus actual reporting. Mobile apps, browser extensions, and desktop apps available. Integrations offered with Google Calendar, Jira, QuickBooks. Lacks automated capture but provides free basic manual tracking for cost-conscious teams.

Integrations and Customizations

The top time tracking tools offer an array of integrations and customizations to fit seamlessly into any tech stack and tailor the software to your workflows.

Integrations allow time data to flow automatically between the tracker and other platforms like accounting, invoicing, CRM, and project management. This eliminates duplicate manual entry and ensures data consistency across systems.

Common integrations include:

  • Accounting: QuickBooks, Xero, Sage, NetSuite

  • Invoicing: Freshbooks, Zoho Invoice, Ronin

  • Project Management: Asana, Jira, Trello, Basecamp

  • CRM: Salesforce, HubSpot, Zoho CRM

  • Payroll: Gusto, Paychex, ADP

Custom fields can be defined to capture any details needed for a particular client or project. Track custom metrics or attributes like service types, project codes, locations, or categories.

Rule-based automation streamlines time tracking workflows. Set up project-specific rules to automatically start timers or notify users to log time. Configure rate-based rules for automatic billing calculations.

Role-based permissions allow customizing app access and settings across teams. Set up manager-only administrative views versus employee-only time entry access.

Open APIs enable deep customization via third-party developers. Build custom integrations, automations, and reporting tailored to unique business needs.

With robust integrations and configuration options, time tracking platforms like Teami readily adapt to any use case while delivering actionable billable hour insights. The flexibility helps maximize productivity and profitability.

The Future of Tracking Billable Hours

Tracking billable hours is poised to undergo major changes in the years ahead as new technologies transform timekeeping processes. Key trends shaping the future include increased automation, artificial intelligence integration, decentralized work models, and blockchain applications.

Automation will continue revolutionizing billable hour tracking through passive data collection and seamless integrations. Time tracking apps are leveraging AI to automatically log activities based on calendars, emails, calls, and workflows. This eliminates reliance on manual processes. Integrations with other business systems will enable real-time syncing of billable data to streamline invoicing and billing. Smart automation frees professionals to focus on high-value work rather than administrative tracking.

AI is also enabling interactive time assistants that guide accurate time capture via natural conversation. Imagine asking your assistant: "Did I remember to log that client call earlier?" Machine learning will empower assistants to track, verify, and enhance timesheet accuracy.

As remote and decentralized work becomes the norm, blockchain-based time tracking solutions will emerge to validate billable hours across distributed teams and contractors. Cryptographic verification of timestamps and activity logs will prevent timesheet fraud.

Ultimately, the future of time tracking will be frictionless, intelligent, and hyper-accurate. Professionals can expect to ditch manual tracking entirely in favor of automated systems synchronized across tools. Machine learning will enhance timesheet data quality and analysis. Blockchain will add verification for remote work. Voice-driven assistants will enable easy time logging and correction via conversational interaction.

Preparing for Future Changes

To ready themselves for the coming transformations in billable hour tracking, businesses should take the following steps:

  • Start transitioning to automated time tracking now to get ahead of the curve. Cloud-based apps like Teami with robust integrations offer an easy first step to phasing out legacy manual processes.

  • Evaluate tools with built-in AI capabilities or extensibility via APIs to future-proof investments. Prioritize flexibility and scalability.

  • Analyze current time tracking pain points and identify where intelligent features like auto-correction of common errors would drive the most impact.

  • Examine opportunities to integrate time capture directly into workflows and existing platforms rather than siloed after-the-fact logging. Embed tracking seamlessly into daily habits.

  • Proactively clean up project naming conventions, client details, and other tracking metadata to maximize accuracy of automated systems. Consistent naming enables algorithms.

  • Audit and standardize billable policies and activities now to set the stage for automated classification and coding by AI.

  • Plan for disruptive blockchain-based verification of remote team timesheets, anticipating the need for cryptographic signatures.

  • Train teams on documenting time entries thoroughly. Well-written descriptions will be crucial training data for machine learning.

  • Stay on top of advances in conversational interfaces and voice technology to incorporate into future tracking.

The future of tracking billable hours promises much greater accuracy, integration, and intelligence. However, successfully adopting these emerging technologies requires laying the right groundwork today. With focus and foresight, professional services firms can position themselves to maximize value as billable time tracking evolves.

In Summary

Tracking billable hours is a critical process for professional services firms to maximize profitability and growth. As summarized in this article, diligently capturing billable time provides essential visibility into utilization rates, productivity, and pricing models. However, manual tracking methods are prone to human error and extremely labor intensive to administer.

Automated time tracking systems like Teami eliminate reliance on memory and manual data entry through passive tracking features and seamless integrations. Intelligent software also enables advanced reporting to uncover optimization opportunities. As remote and decentralized work becomes pervasive, blockchain verification will likely transform distributed timekeeping.

To prepare for the future, organizations should proactively clean up tracking metadata, standardize billable policies, and transition to automated solutions. Although tracking billable time elicits distaste due to administrative tedium, technology innovations promise more accurate and integrated experiences. Professionals can look forward to ditching manual processes entirely in favor of automated systems synchronized across tools.

With the right time tracking foundations in place today, firms can maximize emerging technologies to enhance data quality and business insights. By optimizing time capture accuracy and transparency, professional services leaders can strengthen client trust and accelerate growth. The future of billable hour tracking looks bright.

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