Non-billable time
Definition and origin of the term
The term Non-billable time refers to the time spent by employees in the course of their professional activity that cannot be directly billed to clients or external customers. In contrast to billable time this time is therefore not invoiced directly. Typical examples of non-billable time include internal meetings, training sessions, administrative tasks or general organizational work.
The origin of this term is primarily found in service companies, for example in law firms or consulting firms. In such organizations, employees’ working time is traditionally divided into billable and non-billable time in order to better measure and manage efficiency, profitability, and their contribution to the company’s success.
Significance in the law firm or business context
Impact on compensation
The distinction between billable and non-billable time plays a significant role in the compensation structure of many law firms and businesses. Targets for billable time are often defined since it directly contributes to revenue generation. Employees who deliver a higher proportion of billable time may often receive performance-based pay components or bonus payments.
Performance evaluation
Non-billable time is also important for performance reviews. A balanced ratio between billable and non-billable time shows how efficiently employees meet the expectations of their position. Companies ensure that non-billable time is used purposefully and in the interest of the overall business. Too much non-billable time may be seen as a sign of inefficiency or suboptimal work organization. However, certain proportions of this time are indispensable for quality assurance and adherence to internal standards.
Career development
For individual career paths, the ratio of different types of time can be important. Those who consistently demonstrate a high proportion of billable time are often perceived as particularly high-performing. Nevertheless, the quality of work in non-billable time – such as committed involvement in internal projects or training activities – also plays a role in career advancement opportunities.
Framework conditions: Legal, organizational and industry standards
Legal requirements
There are no statutory requirements for recording or handling non-billable time. The collection and categorization take place within the framework of internal guidelines and are often determined by the company’s structure and size. However, labor laws, data protection policies, and internal company guidelines must always be observed when documenting working hours.
Organizational standards
A clear distinction between billable and non-billable time is firmly established in many companies. Special software solutions or time tracking systems are usually used to ensure transparency and traceability. Recording non-billable time is not only for monitoring individual performance but also for optimizing processes and resource allocation.
Industry practice
There are differences in the handling and weighting of non-billable time across sectors. For instance, in large international law firms, detailed targets are set for both types of time, while in smaller firms the approach tends to be more flexible. In general, the more transparent and traceable the recording, the greater the potential for optimization and fairness in performance evaluation.
Impact on career paths and development opportunities
Significance for entry-level professionals
For newcomers, the expectations regarding the distribution between billable and non-billable time are often initially lower. Learning internal processes, onboarding, and participation in training sessions mostly count as non-billable time and are viewed by companies as a necessary investment in development.
Long-term development
With increasing experience, employees are expected to contribute to the company’s success also by increasing billable time. At the same time, opportunities arise to assume responsibility for internal projects, knowledge sharing, or mandate management, which frequently count as non-billable time and establish sustained trust in one’s own abilities.
Advantages and disadvantages as well as typical points of discussion
Advantages
- Quality assurance: Time spent on internal consultations, training, and development brings long-term benefits for the quality of mandates and work.
- Team development: Participation in internal projects or training fosters cooperation and innovation.
- Individual development: Non-billable time allows employees to develop skills beyond regular client work and to showcase themselves.
Disadvantages
- Pressure on productivity: A high proportion of non-billable time can negatively affect performance evaluations and lead to pressure.
- Profitability: Companies must ensure that non-billable time remains proportionate to maintain profitability.
- Unclear evaluation: The value of internal work is sometimes given less consideration than the direct contribution to revenue generation.
Points of discussion
- Appropriate targets: How high should the proportion of non-billable time be at most?
- Fair evaluation: How is performance in non-billable time acknowledged on par with billable activities?
- Transparency: To what extent does open communication about the different types of time foster motivation and workplace atmosphere?
Practical examples and scenarios of application
Example 1: Internal training
An associate attends a full-day training session on a new legal topic. Since this time serves self-education and quality assurance but cannot be directly attributed to a mandate, it is recorded as non-billable.
Example 2: Participation in team meetings
Weekly internal meetings for team coordination or planning joint projects are generally recorded as non-billable time, as they serve internal organization.
Example 3: Administrative tasks
Preparing internal reports, maintaining time tracking records, or coordinating with HR are considered non-billable time – provided no specific mandate is affected.
Frequently asked questions (FAQ)
What counts as non-billable time?
Non-billable time typically includes internal meetings, training, mentoring, onboarding, administrative activities, and work on internal company projects.
How is non-billable time recorded?
Recording is usually done using electronic time tracking systems, where activities are specifically categorized and assigned to the relevant projects or mandates, or to the “internal” category.
Is a high proportion of non-billable time bad?
Not necessarily. Especially during the onboarding phase or when taking on internal responsibilities, a certain proportion can be advisable and necessary. However, in the long term, increasing efficiency is a central goal.
Does non-billable time affect salary and career opportunities?
It is considered alongside billable time. A balanced and meaningful use of both time types can positively influence development opportunities, although the focus in the medium to long term is usually on increasing billable time.
Can non-billable time be reduced?
Through optimized workflows, targeted planning, and mindful prioritization of internal tasks, the proportion of non-billable time can be reduced. Nevertheless, a certain proportion always remains necessary for quality, teamwork, and further development.
Summary:
Non-billable time is a fixed component of the modern working world in service-oriented companies and contributes to quality assurance, internal development, and maintaining efficient work processes. Conscious engagement with its characteristics is key to fair performance evaluation and successful personal development.
Frequently asked questions
Which labor law requirements apply regarding non-billable time?
Non-billable time refers to periods during working hours that employees or service providers contribute under employment law but cannot be disclosed to the client as billable services. From an employment law perspective, a distinction must be made between claims for payment against the employer and billing to clients. According to § 611a BGB, employees are entitled to compensation for all contractually agreed work services – regardless of whether this time is billable to a client. Internal activities such as meetings, training, internal coordination, or idle waiting times usually count as working time from an employment law standpoint and must therefore regularly be compensated. Employers are obliged to pay for periods during which employees are contractually available, even if these times are not billable externally. To comply with the Minimum Wage Act (MiLoG), the employer must also monitor non-billable time to ensure that the average working hours do not lead to the minimum wage being undercut. The only legal exception can exist if these are breaks or periods not defined as working time under the Working Hours Act (ArbZG).
How does non-billable time affect working time recording under German law?
According to recent rulings by the Federal Labor Court and the interpretation of § 16 (2) Working Hours Act (ArbZG), employers are obliged to record the entire working time performed by their employees – this also includes periods that cannot be billed to clients. Legally relevant is the objective working time, not its economic usability. Accordingly, supposedly “unproductive” time portions, such as internal agreements, training, or preparation times, must be documented. Failure to comply with this obligation can have employment law consequences such as fines and increases the risk of labor court disputes, for example in cases of overtime disputes.
What liability consequences can arise for companies if non-billable time is handled incorrectly?
Companies that incorrectly declare non-billable time as billable to clients or fail to record this time in working time records expose themselves to considerable liability risks. If non-billable time is billed to clients, for example, this may constitute fraud (§ 263 StGB). Conversely, withholding non-billable working hours from their employees leads to claims for damages under employment law, particularly in cases of non-payment of owed wages or underpayment of the minimum wage (§ 612 BGB, § 1 MiLoG). In addition, breaches of record-keeping obligations under the Verification Act (NachwG) and the Working Hours Act (ArbZG) can be penalized by fines.
What impact does non-billable time have on co-determination by the works council?
The works council has a mandatory right of co-determination under § 87 (1) Nos. 1 and 2 Works Constitution Act (BetrVG) in the design of working time regulations and related recording and compensation systems. Accordingly, the classification of non-billable time as paid working time regularly affects the co-determination rights of the works council, especially when such time impacts overtime, flextime accounts, or bonuses. Company agreements on working time recording and remuneration should precisely regulate how non-billable times are handled to avoid conflicts and legal disputes.
How should non-billable time be legally treated under service and work contracts?
Unlike employment contracts, where the work performed is owed rather than the result, billability under service and work contracts depends on contractual agreements. According to § 631 BGB, remuneration for work contracts is generally success-based; time for remedying defects, rework, or waiting times not commissioned by the client is generally not eligible for separate remuneration. In service contracts (§ 611 et seq. BGB), however, working time is decisive, so internal activities generally serve as the basis for remuneration unless otherwise agreed. A clear contractual definition of billable and non-billable times is therefore recommended to avoid future legal disputes.
What role does non-billable time play with regard to short-time work or work stoppage from a legal perspective?
If non-billable times accrue during short-time work, for example because employees cannot perform or perform reduced tasks due to a lack of assignments, this is relevant under employment law. According to § 95 SGB III, short-time work is only possible for actual lost working hours; internal, but not directly revenue-related, activities do not count as full work stoppage and are therefore not eligible for short-time work. Employers must ensure that no planned work is performed during short-time work, otherwise repayment of short-time allowance or criminal consequences may result.
Are there any special features regarding tax or social security treatment of non-billable time?
For tax and social security purposes, only contractually payable working time is relevant for the assessment of wage tax and social contributions, regardless of whether it is billable externally. Non-billable but paid working time is therefore, like any other working time, subject to tax and contributions. There are no specific tax arrangements or exemptions for non-billable time. Only in the case of travel expenses or reimbursements can non-billable times play a role in the tax-deductible working time arrangement – this must be determined on a case-by-case basis.