Legal Billing FAQ: Billable Hours, Fees and Finance

What are billable hours?

Billable hours are the time a lawyer or legal professional spends on client work that the firm can charge to that client. Research, drafting, calls, and court time usually count. Internal admin, marketing, and training usually don't. Firms record the time in set increments, often tenths of an hour.

Here's how one entry works at six-minute (0.1-hour) increments, rounding up:

1. A client call runs 14 minutes.
2. The next full increment above 14 minutes is 18 minutes.
3. The time entry shows 0.3 hours.

Convert any amount of time with the billable hours calculator, or check the minute-to-tenth table in the legal billing chart.

What is block billing?

Block billing means putting several tasks into one time entry with a single total, instead of logging each task on its own line. The trouble is that nobody reading the invoice can see how long each task took. That makes the entry harder to review, question, or approve.

Compare the same 4.5 hours written two ways (an invented example):

Itemized entries pair well with consistent increments. The legal billing chart shows how minutes convert to tenths.

What counts as billable time?

Billable time is work done for a specific client that the engagement agreement lets the firm charge for. The agreement and the client's billing rules settle the edge cases. Work that runs the firm itself, like marketing or training, normally stays off the invoice.

A quick way to sort a task:

When a task falls in between, check the engagement letter first. Then log it the same way every time, and convert it with the billable hours calculator.

What is the difference between billable hours and hours worked?

Hours worked is every hour on the job. Billable hours is the part of that time charged to clients. The gap is everything else: admin, email triage, marketing, training, and time that gets written off.

The ratio between the two is the utilization rate:

1. Add up billable hours for a period, such as 1,500 in a year.
2. Add up all hours worked in the same period, such as 2,000.
3. Divide billable by worked: 1,500 ÷ 2,000 = 75% utilization.

Those figures are an invented example. Run your own with the law firm KPI calculator.

What is a billing increment?

A billing increment is the smallest unit of time a firm records. The most common is a tenth of an hour, or six minutes. Each entry rounds up to the next tenth, so a 7-minute task shows as 0.2 hours.

The Northern District of California publishes this conversion chart for tenths:

Some engagement letters use other increments, such as quarter hours. Convert any length of time in the billable hours calculator.

Source: U.S. District Court, Northern District of California, Billing Increment Chart (opens in a new tab)

Can paralegals bill clients?

Yes. In a law firm, a paralegal's substantive legal work is often billed to clients. NALA says it's billed much like a lawyer's time, but at a lower hourly rate. Clerical and administrative work is the exception.

For a full picture of that work, see what a paralegal does in a law firm.

Source: NALA, What Do Paralegals Do? (opens in a new tab)

How do law firms bill clients?

Most firms bill on a regular cycle, often monthly. Lawyers and staff record time and expenses on each matter. Someone reviews the entries, the firm sends an invoice under the fee agreement, and the client pays. Legal billing is the name for that whole process.

A typical cycle runs in five steps:

1. Timekeepers log time and costs against each matter.
2. A billing lawyer reviews entries and makes any write-downs.
3. The firm generates invoices, sometimes in a client's e-billing format.
4. The client reviews and pays, or disputes specific entries.
5. The firm records payment and follows up on anything unpaid.

Firms measure how much survives each step with realization and collection rates. Run both with the law firm KPI calculator.

What is legal e-billing?

Legal e-billing means sending invoices as structured electronic files instead of paper or PDF. Clients use e-billing systems to check each entry against their billing rules. The files usually follow LEDES, the data standard best known for legal e-billing formats.

E-billed invoices tend to need:

• Separate entries for each task, not block entries.
• Task and activity codes on each line.
• Timekeeper names and approved rates.
• The client's matter number and any other required fields.

The codes are explained in the UTBMS codes answer. Clean entries start with consistent increments, shown in the legal billing chart.

Source: LEDES Oversight Committee (opens in a new tab)

What are UTBMS codes?

UTBMS codes are standard codes that label each time entry by the type of work done. UTBMS stands for Uniform Task-Based Management System. The LEDES Oversight Committee maintains the code sets, which e-billing systems use to group legal spend.

An entry usually carries two codes. A task code names the phase of work, and an activity code names what was done. Together they let a client see how much went to discovery versus motions, for example.

Codes work best with clean, itemized entries. The block billing answer shows why, and the legal billing chart covers increments.

Source: LEDES Oversight Committee (opens in a new tab); UTBMS.com (opens in a new tab)

Can lawyers bill for emails?

Usually, yes, if the email is real client work and the fee agreement allows it. Reading a client's question and writing advice counts. Sending a calendar invite or a quick "got it, thanks" often doesn't.

Two habits keep email time easy to defend:

• Describe what the email did, such as "advised client on settlement terms."
• Group several short emails on one matter instead of billing 0.1 for each.

The legal billing chart shows how short tasks convert to tenths.

What is a realization rate?

A realization rate shows how much of the value of recorded time gets billed. Divide the billed amount by the standard value of the time, then multiply by 100. Write-downs and discounts pull it below 100%.

Example with invented figures: $483,000 billed ÷ $525,000 of time at standard rates × 100 = 92% realization.

Calculate yours with the law firm KPI calculator.

What is a collection rate?

A collection rate shows how much of what a firm billed it got paid. Divide collected payments by the amount billed, then multiply by 100. A firm can bill nearly all its time and still collect poorly.

Example with invented figures: $458,850 collected ÷ $483,000 billed × 100 = 95% collection.

The law firm KPI calculator works out realization and collection together.

What is an effective hourly rate?

An effective hourly rate is what a firm collects for each billable hour. Divide collected fees by billable hours. It usually comes in below the standard rate, because write-downs, discounts, and unpaid bills come out first.

The example figures are invented. Find your own in the law firm KPI calculator.

What is a retainer fee?

A retainer fee is money a client pays a lawyer upfront. The term covers two different things. An advance pays for future work and gets drawn down as the lawyer bills. A true retainer pays the lawyer to stay available, whether or not work follows.

The fee agreement should say which kind it is, when the lawyer earns the money, and what happens to any unused amount. Worked examples are in retainer fee types and billing examples.