For businesses that charge clients based on time, knowing how employees spend their working hours is essential. But not every hour worked can be charged to a client.
Billable hours are hours spent on work that can be charged to a client. Non-billable hours are hours spent on work that supports the business or employee but cannot normally be charged directly to a client.
The distinction matters for professional services businesses, consultants, agencies, law firms, accounting firms, freelancers, and other project-based teams. Tracking both types of time helps businesses understand where working hours go, calculate client charges accurately, monitor project profitability, and identify time-consuming activities that do not generate direct revenue.
This guide explains the difference between billable and non-billable hours, how to calculate them, examples of each, and how to track them effectively with time tracking software.
What Are Billable Hours?
Billable hours are working hours that can be charged to a client or included in a client’s project invoice.
For example, a web development agency may charge a client for the time spent designing a website, developing features, testing the site, or attending project meetings.
If a developer spends two hours fixing a client’s website and the client’s agreement allows the agency to charge for that work, those two hours are billable.
The important point is that whether time is billable depends on the agreement between the business and its client. An activity that is billable for one client may be non-billable for another.
Examples of billable hours
Depending on the business and client agreement, billable work can include:
- Designing a client’s website
- Writing software for a client project
- Consulting with a client
- Preparing a client report
- Conducting research for a client assignment
- Reviewing a client’s documents
- Providing legal services
- Developing marketing campaigns for a client
- Testing a client deliverable
- Attending meetings directly related to a client project
For accurate billing, businesses should record the time spent on each project or task rather than relying on estimates at the end of the month.
What Are Non-Billable Hours?
Non-billable hours are working hours that cannot be directly charged to a client.
Employees still spend time working during these periods, but the business generally absorbs the cost instead of including the time on a client invoice.
Non-billable work is not necessarily unproductive. In fact, many essential business activities are non-billable.
Examples of non-billable hours
Common examples include:
- Internal team meetings
- Employee training
- Administrative work
- Business development
- Sales activities
- Marketing for the company’s own business
- Internal project planning
- Creating proposals
- General research
- Recruiting
- Performance reviews
- Company meetings
- Fixing internal systems
- Professional development
For example, suppose a consultant works eight hours in one day. Six hours are spent on client projects and two hours are spent in an internal training session.
The six client hours may be billable, while the two training hours are non-billable.
Billable vs. Non-Billable Hours
The easiest way to understand the difference is to ask one question:
Can this time legitimately be charged to a client under the applicable agreement?
| Billable Hours | Non-Billable Hours |
|---|---|
| Client project work | Internal company work |
| Client meetings | Internal meetings |
| Client-specific research | General professional development |
| Client deliverables | Internal documentation |
| Work included in a client contract | Sales and business development |
| Client support covered by an agreement | Administrative tasks |
The classification should always reflect the company’s contracts, pricing model, and internal policies.
Why Tracking Billable and Non-Billable Hours Matters
Tracking only total working hours does not tell you how employees or teams are spending their time.
Two employees could each work 40 hours in a week, but their business impact could be very different.
One employee might record 32 billable hours and 8 non-billable hours. Another might record 20 billable hours and 20 non-billable hours.
Without categorizing time, managers may not see this difference.
It improves client billing accuracy
If clients are charged based on time, accurate records help businesses create invoices based on actual work performed.
Instead of estimating that a project took 15 hours, a company can use its time records to see exactly how much time was logged against the project.
It helps measure project profitability
Revenue alone does not show whether a project is profitable.
Suppose a project generates $5,000 in revenue. If the team spends 20 hours delivering it, the economics may look very different from a project that generates the same revenue but requires 60 hours.
Tracking project time helps businesses compare estimated and actual effort.
It reveals where employees spend their time
Non-billable time is not automatically bad. However, unusually high amounts of non-billable work may indicate opportunities to improve processes.
For example, if employees spend several hours every week manually preparing internal reports, automation could potentially reduce that administrative workload.
It improves project planning
Historical time records can help managers estimate future projects.
If similar projects consistently take more time than originally estimated, the business can adjust future estimates based on actual data.
It helps identify operational bottlenecks
Time tracking can reveal recurring activities that consume significant amounts of working time.
Managers can then investigate whether those activities should be automated, reassigned, simplified, or removed.
How to Calculate Billable Hours
Calculating billable hours is straightforward when employees record their time accurately.
For example:
An employee works 8 hours in a day.
- Client Project A: 3 hours
- Client Project B: 2 hours
- Internal meeting: 1 hour
- Administration: 2 hours
Total working time = 8 hours
Billable time = 5 hours
Non-billable time = 3 hours
The employee therefore has a 62.5% billable utilization rate for that day.
The calculation is:
Billable utilization = Billable hours ÷ Total working hours × 100
In this example:
5 ÷ 8 × 100 = 62.5%
Businesses can calculate this percentage over a week, month, quarter, or other reporting period.
What Is a Good Billable Utilization Rate?
There is no universal billable utilization rate that applies to every business.
A reasonable target depends on the industry, role, pricing model, employee responsibilities, and amount of work that naturally needs to be non-billable.
For example, a salesperson may spend a significant amount of time on business development. A manager may spend considerable time on team management. A consultant working directly on client projects may have a much higher proportion of billable time.
For this reason, businesses should avoid comparing employees solely on billable percentage.
A better approach is to establish expectations based on each role and then monitor trends over time.
How to Track Billable and Non-Billable Hours
Accurate tracking requires more than simply recording when an employee starts and finishes work.
A useful system should capture what the employee worked on, how long they worked on it, and whether the time is billable.
Step 1: Define what counts as billable
Before introducing a tracking system, establish clear rules.
For example:
Billable:
- Client development
- Client meetings
- Client support
- Client-specific research
Non-billable:
- Internal meetings
- Training
- Administration
- Sales
- Internal projects
The exact definitions should reflect your contracts and business model.
Step 2: Create projects and tasks
Instead of recording generic entries such as “worked for 7 hours,” organize time around projects and tasks.
For example:
Project: Website Redesign
Task: Homepage Development
Time: 2 hours
Billable: Yes
This provides much more useful information than a generic timesheet.
Step 3: Record time as work happens
Employees are generally more likely to produce accurate records when they track time during or immediately after completing work.
A start/stop timer can make this easier because the system records the beginning and end of each session.
Manual time entry can still be useful when employees need to correct forgotten entries or record work completed away from the timer.
Step 4: Mark time as billable or non-billable
Each relevant time entry should have a clear classification.
This allows managers to separate client work from internal work when reviewing reports.
Step 5: Review the data regularly
Time tracking becomes more useful when managers actually review the information.
Look for:
- Projects exceeding estimated hours
- Unusually high non-billable time
- Missing time entries
- Repeated administrative tasks
- Differences between estimated and actual project time
- Changes in billable utilization over time
How Day Off Helps Track Billable and Non-Billable Hours
Day Off combines employee time tracking, project management, attendance, work schedules, and leave management in one platform.
For teams that need to track time against projects, Day Off’s Task Tracker allows employees to record working time against specific projects and tasks. Each session can be saved with its start time, end time, duration, and billable status.
Track time with a start/stop timer
Employees can start a timer when they begin a task and stop it when they move to another activity.
This creates a record of the actual time spent working instead of relying entirely on end-of-day estimates.
Connect time to projects and tasks
Day Off allows tracked sessions to be associated with projects and tasks.
For example:
Project: Client Website
Task: Frontend Development
Time: 2 hours 30 minutes
Status: Billable
This makes it easier to understand how much time a team is spending on individual projects.
Mark time as billable
Day Off’s time history includes a billable status, allowing teams to identify which tracked sessions are billable. Time entries can also be edited when a correction is necessary.
This is useful when an employee forgets to stop a timer or needs to correct a start or end time.
Compare estimated and actual project time
Day Off’s Projects feature allows businesses to define estimated hours for projects and compare those estimates with the total time spent. Projects can also be associated with clients and marked as billable.
This gives managers another useful metric:
Estimated project hours vs. actual project hours
For example:
- Estimated: 40 hours
- Actual: 47 hours
- Difference: 7 hours
A recurring difference like this may indicate that future projects need more accurate estimates.
Connect time tracking with attendance
Billable tracking answers what employees worked on, while attendance tracking answers when employees worked.
Day Off supports both.
Its Attendance Review can compare scheduled hours with actual clock-in and clock-out activity and provide information such as late arrivals, early departures, breaks, time off, net working hours, and overtime.
This distinction is important because total attendance time and billable time are not necessarily the same.
An employee may work for eight hours but spend only five hours on billable client work.
Keep PTO and time tracking connected
Employees also need time away from work.
Day Off connects time tracking and attendance with leave and PTO management, allowing businesses to keep working time, approved leave, and absences within the same system.
This can make it easier for managers to understand why an employee may have fewer tracked working hours during a particular period.
Example: Tracking a Consultant’s Workday
Consider a consultant who works eight hours.
Their day might look like this:
| Activity | Time | Classification |
|---|---|---|
| Client A research | 2 hours | Billable |
| Client A meeting | 1 hour | Billable |
| Client B analysis | 2 hours | Billable |
| Internal team meeting | 1 hour | Non-billable |
| Proposal preparation | 1 hour | Non-billable |
| Administration | 1 hour | Non-billable |
Total working time: 8 hours
Billable time: 5 hours
Non-billable time: 3 hours
Billable utilization: 62.5%
The value of tracking this information is not simply knowing that the consultant worked eight hours. The business can see how those eight hours were distributed.
Common Mistakes When Tracking Billable Time
Even businesses with time tracking software can encounter problems.
Tracking time at the end of the week
Trying to reconstruct an entire week’s work from memory can result in inaccurate records.
Tracking closer to the time work happens generally makes the record easier to verify.
Treating all working time as billable
Not every activity performed during working hours should automatically be charged to a client.
Billing rules should be based on the applicable client agreement.
Using vague time descriptions
Entries such as “client work” provide limited information.
More specific descriptions, such as “Client A — API integration testing,” make records easier to understand later.
Ignoring non-billable work
Non-billable time is still business data.
If a team spends hundreds of hours each month on administration, that may represent an opportunity to improve internal processes.
Relying entirely on estimated hours
Estimates are useful for planning, but actual time records provide evidence of how long work really took.
Comparing estimates with actual time can improve future project planning.
How to Improve Billable Time Tracking
A successful system should be simple enough that employees actually use it consistently.
Consider these practices:
- Keep project and task names clear. Employees should know exactly where to record their time.
- Use consistent billable categories. Avoid having different employees classify the same type of work differently.
- Track time throughout the day. This reduces reliance on memory.
- Review time entries regularly. Managers can identify missing or unusual records before they become difficult to correct.
- Compare actual hours with estimates. This helps improve project planning.
- Monitor non-billable time. Look for recurring activities that could be streamlined.
- Do not use billable utilization as the only performance metric. Roles have different responsibilities, and quality matters alongside quantity.
- Document client billing rules. Employees need to understand which activities can and cannot be charged.
Billable Hours vs. Non-Billable Hours: Frequently Asked Questions
Are meetings billable hours?
They can be. A meeting may be billable when it is directly related to a client’s project and the applicable agreement allows that time to be charged. Internal meetings are generally non-billable.
Is training billable time?
Training is usually considered non-billable when it is general employee development. However, client-specific training or training explicitly included in a client engagement may be treated differently.
Is administrative work billable?
Internal administrative work is generally non-billable. Whether a specific administrative activity can be billed depends on the client’s agreement and the nature of the work.
How do you calculate billable utilization?
Use:
Billable utilization = Billable hours ÷ Total working hours × 100
For example, if an employee works 40 hours and 30 are billable:
30 ÷ 40 × 100 = 75%
Should employees track non-billable hours?
Yes. Tracking non-billable hours gives businesses a more complete picture of how working time is being used.
It can also reveal administrative workloads, internal meetings, training requirements, and other activities that may affect project capacity.
What is the easiest way to track billable hours?
A time tracking system with project and task tracking can simplify the process. Employees can record time as they work, associate it with a project, and classify the session as billable or non-billable.
Frequently Asked Questions About Billable and Non-Billable Hours
What is the difference between billable and non-billable hours?
Billable hours are hours spent performing work that can be charged to a client under the terms of an agreement. Non-billable hours are working hours that cannot be directly charged to a client, such as internal meetings, administration, training, or business development.
The classification depends on the work being performed and the terms agreed upon with the client.
How do you calculate billable hours?
To calculate billable hours, add up the time spent on activities that qualify as billable under your client agreements.
For example, if an employee works 40 hours in a week and spends 30 hours on billable client work, the employee has 30 billable hours and 10 non-billable hours.
You can also calculate billable utilization using:
Billable utilization = (Billable hours ÷ Total working hours) × 100
In this example, the billable utilization rate is 75%.
What are examples of billable hours?
Common examples of billable time include client meetings, consulting, client-specific research, software development, design work, legal services, accounting work, and other services performed specifically for a client.
Whether an activity is billable ultimately depends on the client’s contract or billing agreement.
What are examples of non-billable hours?
Non-billable time can include internal meetings, employee training, administrative work, recruiting, sales activities, business development, internal projects, and general professional development.
Non-billable does not mean unproductive. Many non-billable activities are necessary for running and growing a business.
Should employees track non-billable hours?
Yes. Tracking non-billable hours gives managers a complete picture of how employees spend their working time.
It can reveal how much time is being spent on meetings, administration, training, internal projects, and other activities. This information can help businesses identify processes that could be simplified or automated.
Are meetings considered billable hours?
Some meetings are billable and others are not.
A meeting with a client about a project may be billable if the client agreement allows meeting time to be charged. An internal team meeting would normally be considered non-billable.
Businesses should define their meeting-billing rules clearly so employees classify time consistently.
Is employee training billable?
General employee training is typically non-billable because it benefits the employee or business rather than a specific client.
However, training performed specifically for a client or included as part of a client engagement may be billable. The applicable contract should determine how the time is classified.
How can I track billable and non-billable hours?
The simplest approach is to use time tracking software that lets employees record time against projects and tasks and classify each time entry as billable or non-billable.
A system such as Day Off allows teams to track time against projects and tasks, record time sessions, and identify whether tracked time is billable. This makes it easier to separate client work from internal work and review time records later.
What is the best way to track billable hours for multiple clients?
Create a separate project for each client and track employee time against the appropriate project and task.
For example:
- Client A → Website redesign → 2.5 hours
- Client B → Consulting → 1.5 hours
- Client C → Technical support → 3 hours
Each time entry can then be reviewed and classified according to the client’s billing rules.
Why should businesses track both billable and non-billable time?
Tracking both types of time provides a more complete picture of employee capacity and business operations.
Billable hours help with client billing and project profitability, while non-billable hours help businesses understand the time spent on internal operations, administration, training, sales, and other activities.
Looking at both categories can also help managers make better staffing and project-planning decisions.
What is billable utilization?
Billable utilization measures the percentage of an employee’s working time spent on billable activities.
The basic formula is:
Billable utilization = Billable hours ÷ Total working hours × 100
For example, an employee who works 40 hours and records 28 billable hours has a billable utilization rate of 70%.
There is no universal utilization target that applies to every role or industry. A consultant working primarily on client projects will naturally have different expectations from a manager, salesperson, or HR employee.
Can PTO affect billable utilization?
Yes. If utilization is calculated using total scheduled or available working time, paid time off can affect the calculation.
For example, an employee who takes a week of vacation should not necessarily be compared with an employee who worked every scheduled day during that period.
For meaningful reporting, businesses should define whether PTO, public holidays, sick leave, and other absences are excluded from the available working-time calculation.
What is the difference between time tracking and attendance tracking?
Time tracking records how employees spend their working time, often by project, task, or activity.
Attendance tracking records when employees are working or absent, such as clock-in and clock-out times, scheduled hours, overtime, and leave.
They answer different questions:
- Attendance: When was the employee working?
- Time tracking: What did the employee work on?
- PTO tracking: When was the employee unavailable?
Using these systems together can give managers a clearer picture of employee capacity and project time.
Can time tracking help improve project estimates?
Yes. Historical time tracking data can be used to compare estimated project hours with actual hours.
For example, if similar projects are repeatedly estimated at 40 hours but consistently take 50 hours, managers can use that historical information when planning future projects.
The goal is not simply to track more time, but to use actual data to make future estimates more realistic.
Is non-billable time bad for a business?
No. Non-billable work is a normal and necessary part of running a business.
Training, management, administration, sales, recruiting, internal meetings, and product development can all create long-term value even though they cannot be directly invoiced to a client.
The goal should be to understand non-billable time and manage it effectively—not eliminate it completely.
How can Day Off help with billable time tracking?
Day Off combines time tracking with project and task management, attendance, work schedules, and PTO management.
Teams can record working sessions against projects and tasks, classify time as billable, edit time entries when corrections are needed, and compare actual project hours with estimates. Businesses can also manage employee attendance and time off within the same platform.
This gives managers a broader view of working time, project time, billable hours, and employee availability instead of treating each area separately.
Final Thoughts
The difference between billable and non-billable hours is simple, but tracking the two accurately can have a significant impact on a service-based business.
Billable hours help businesses understand how much time can be charged to clients. Non-billable hours show the time required to operate and support the business.
Tracking both gives managers a more complete picture of employee capacity, project costs, client work, and operational efficiency.
The most effective approach is to make time tracking part of the normal workflow: define clear billing rules, organize work by projects and tasks, record time consistently, classify entries correctly, and review the results regularly.
For businesses that want to combine time tracking, project and task management, attendance, work schedules, and PTO management, Day Off provides these capabilities within one platform. Its time tracker supports project/task-based sessions and billable status, while its attendance and leave features provide additional context around employee working time.