What are billable hours and what do students need to know about them?

The billable hour system is when a lawyer records how they spend every minute of their working day to calculate how they bill the client. It used to be the most common method of charging a client for the work of a lawyer. Different bands of lawyers at different firms cost different amounts and clients would pay by the hour for a lawyer’s advice and behind-the-scenes work on their deal or case. This is changing, though.

Billable hours still exist in many areas but other methods of billing, such as fixed-fee or retainer services, have started to take over.

“Fixed fees and capped fees have been part of the market for a number of years,” says Hogan Lovells partner James Doyle. “While we internally record time, the fees are often on a fixed basis. Sometimes charging is done by the number of hours, but increasingly clients are looking for other arrangements.”

While clients can relax in the knowledge that the increasing popularity of fixed-fee and retainer services means they are not in for any nasty surprises, young lawyers are  left wondering whether their failure to rack up the hours might set the clock ticking on their time at the firm, because firms still use a billable hours model for internal purposes, to forecast revenue and benchmark employees’ performance.

“One of my long-term clients is a sophisticated purchaser of legal services, and his response to billable hours is, ‘I don’t really care about the lawyer’s clock, I just want to know how much it will cost me’,” says one graduate recruitment partner. “But that doesn’t affect the hours that we write down. If you are at zero utilisation, you have zero income. So for internal purposes you still write down what you are spending time on, it just doesn’t translate directly into a fee.”

Instead, billable hours are used as a measure of how busy the firm and its lawyers are.

How do you measure a billable hour?

Billable hours, and ultimately utilisation rates, are measured by recording time in six-minute intervals, often onto a dashboard on a lawyer’s computer desktop.

“Like all big international firms we have an electronic time-recording system,” explains Weil Gotshal & Manges graduate recruitment partner Jonathan Wood. “So activities like printing and filing will be stored under a specific client file or under an internal file code for non-chargeable work. We can then track what people are doing and what they are spending their time on.”

Trainees get inducted into this way of life from day one, regardless of their firm’s take on billable hours targets.

“It’s a difficult discipline to maintain because, as with any job, you often get interrupted and are constantly doing different things,” adds Doyle. “You need to be disciplined in putting your timer on for one thing and turning it off for another.”

Just because trainees are measuring their day in six-minute intervals does not mean those intervals are under intense scrutiny.

Firms vary in their commitment to billable hours targets. Some completely eradicate targets for trainees, reasoning that trainees have little control over how they spend their days. Others will put trainee targets in place but approach them differently to the way they might approach qualified solicitor targets.

“Trainees at Taylor Wessing have the same targets as a fee-earner, but there is an understanding that as a trainee the firm is investing in them and their future,” says graduate recruitment partner Tim Worden. “While we look at how busy they are, it is not an integral part of the seat appraisal, whereas with an associate that changes.”

Wood takes a different view. “While we want trainees to be busy, we only want them to record their time for management purposes,” he says. “It is up to us, the partners, to see that what they are doing is enough to keep the firm going.”

Control over the working day

Like most junior employees, trainees have little control over their working days. Unlikely to bring in their own clients, they are mainly at the mercy of senior associates and partners for work.

Despite this, trainees tend to worry about spending enough time on client matters.

Of the trainees who responded to Lawyer 2B’s stress survey, 17 per cent say they find pressure to meet billing targets a cause of stress.

“When you are a trainee or a newly qualified lawyer (NQ), there is really not much more you can do than ask around internally and see if you can get more senior people to give you stuff to do,” says Wood, while Worden emphasises how important it is to seek out work.

“It is true that you are being fed work by partners or senior associates,” he says. “But it is also down to you to make it known that you have the capacity to take on more chargeable work.”

But if your department is simply quiet and trawling the corridors for more work does not throw up any major projects, then setting your sights on business development is often a good idea.

This type of work is incredibly valuable to the firm, even if it cannot be charged to clients, and allows trainees to see the inner workings of the business. It also helps to develop commercial awareness as trainees learn the benefits of certain strategies employed by the firm.

So while billable hours should certainly be on every trainee and NQ’s radar, a fear of them should not be. After all, as Doyle says: “There are soft and hard targets. And it doesn’t follow that if you don’t meet your target then that’s it, you’re out.”