Billable Hours vs. Actual Hours: What Every Law Firm Needs to Know to Stay Profitable
Tracking time is one of the most important tasks in running a law firm. But many firms, big or small, often confuse or ignore the differences between billable hours, non-billable hours, and actual hours worked. At first, these might seem like simple categories. But knowing how to track and manage them correctly can make a big difference in how much money your firm makes. It also affects how work is assigned, how happy your lawyers feel, and how clients see your firm.
If your firm doesn’t keep clear records of these hours, you risk losing money, wasting effort, and even having billing problems. In this article, we explain what these different types of hours mean, why they are important, and how to track them properly.
Understanding Billable, Non-Billable, and Actual Hours
In a law firm, time has different roles depending on how it’s used. Breaking time down into clear categories helps firms understand what drives revenue, what supports internal operations, and where efficiencies can be gained.
| Time Type | Definition | Importance |
| Billable Hours | Time spent working on client matters that can be invoiced | Primary source of revenue |
| Non-Billable Hours | Time spent on internal or firm-related tasks that clients do not pay for | Essential for firm operations and growth |
| Actual Hours | Total time worked, both billable and non-billable | Reflects total workload and efficiency |
Billable Hours
Billable hours are the time lawyers spend working directly on client cases that can be charged to the client. This includes activities such as drafting legal documents, communicating with clients, going to court, attending depositions, and negotiating agreements. Billable hours are the main source of income for most law firms.
Common billable activities include:
• Drafting contracts, pleadings, and motions
• Conducting legal research related to a client’s case
• Meeting or talking with clients by phone, email, or in person
• Preparing for and attending court appearances or depositions
• Negotiating settlements or other agreements
• Preparing discovery requests and witness lists
Non-Billable Hours
Non-billable hours are the time spent on important tasks that keep the firm running but cannot be charged to clients. These include administrative work, staff meetings, training, marketing, mentoring, and researching new technology. Although non-billable time does not generate direct income, it supports the firm’s overall growth and efficiency.
Typical non-billable activities include:
• Internal meetings and firm communications
• Continuing legal education (CLE) and training sessions
• Marketing and business development work
• Testing or evaluating new software and legal technology
• Pro bono work (unless tracked separately)
• Administrative duties like billing entry and scheduling
Actual Hours
Actual hours are the total hours a lawyer works, including both billable and non-billable time. Tracking actual hours helps law firms understand workloads, avoid attorney burnout, and make better staffing decisions.
Why Tracking All Hours Matters for Law Firm Profitability
Looking only at billable hours gives an incomplete picture of a law firm’s performance. According to the American Bar Association (ABA) and the Legal Trends Report, lawyers typically bill only about 2.5 to 3 hours each day out of an 8-hour workday. The remaining time is spent on non-billable work or lost due to inefficient time management. This means firms lose thousands of billable hours each year, revenue that could be recovered with better time tracking.
Poor management of non-billable work also affects profits. For example, senior attorneys might spend too much time on administrative tasks or mentoring that junior staff could handle, while junior lawyers might not get enough billable work because their workloads are unclear. By tracking all types of hours carefully, firms can assign tasks more efficiently, reduce burnout, and increase profits.
One common way to measure time use is the utilization rate, which shows the percentage of total hours worked that are billable:
| Utilization Rate= | Billable Hours | ×100 |
| Actual Hours |
For example, a lawyer who bills 32 hours in a 40-hour workweek has an 80% utilization rate.
Most firms target utilization rates between 75% and 85%.
Effective and Ethical Time Tracking
Many lawyers still rely on memory or spreadsheets for timekeeping, which can lead to errors and lost billable hours. Research by the ALA and Rocket Matter indicates that delaying time entry until the end of the day can result in missing up to 25% of billable hours.
Using AI-Powered Time Tracking Software
Modern time tracking software significantly improves accuracy and ease. Some of the main leading legal time tracking software solutions such as Accurate Legal Billing offer features including:
• Built-in timers and automatic reminders to log time
• Passive tracking of emails, phone calls, and documents
• Mobile apps for recording time on the go
• Integration with billing and case management software
• Reporting tools to monitor productivity and identify gaps
• Standardized and detailed time entry templates for audit readiness
These tools minimize lost time, prevent billing errors, and reduce administrative burden on attorneys.
Calculating Billable Time and Value
Most firms bill in 0.1-hour increments (6 minutes). To ensure accuracy, lawyers should:
1. Enter time immediately after completing a task
2. Use consistent matter or client codes
3. Confirm that all billable time complies with client agreements
4. Regularly review time entries to catch any missing hours
For example, if a lawyer bills $300 per hour and logs 6.2 billable hours, the billable amount is $1860.
Final Thoughts
It’s important for law firms to keep track of all types of work time to see how tasks are divided and where things can get better. Having clear rules, following ethical practices, and using good tools helps firms make more money, prevent staff from getting too tired, and keep clients happy.
If you're a legal professional looking to better understand how time is spent and calculated within your firm, consider using AI-powered time tracking tools like Accurate Legal Billing (ALB). ALB offers a reliable and efficient way to manage time precisely. With intelligent tracking features, insightful reports, and seamless billing integration, ALB ensures every hour is recorded, valued, and used wisely.
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