Do Billable Hours Sap Productivity?

by Seb

At a time when freelancing and contracting is becoming an accepted way of life for many knowledge workers, it is often difficult to know how to put a value on the work that they do. For decades billable hours have been a neat and convenient way to turn our time into a commodity that can be recorded and paid for, especially in sectors such as law and accountancy. But are billable hours the best way to fulfil our professional potential? Or do they actually sap productivity?

For knowledge workers charging by the hour makes little sense. Will the value of the end result you achieve change according to the amount of time it has taken you to get there? In the majority of cases the answer is a resounding no.

Take a well-known advertising strapline as an example:

The three little words “Just Do It” must have been worth billions to Nike over the years, but how long did it take Dan Wieden of Wieden and Kennedy to come up with them in 1988? Five minutes? Five hours? Five days? Surely a strapline like that must have taken weeks. Well the story goes that he came up with them instantly when asked for inspiration during a marketing meeting. We’ll never really know for sure how long it took, but the amount of time he spent certainly wouldn’t have had any impact on the eventual value of that brilliant slogan.

Robert C. Pozen, author of Extreme Productivity: Boost Your Results, Reduce Your Hours, believes that we need to focus on results rather than hours when measuring productivity. He sees a huge divide between billable hours, or face time in the office, and true productivity, asking

“If employees need to stay late in order to curry favour with the boss, what motivation do they have to get work done during normal business hours?”

Employees’ productivity should be measured by the results of their work and the value that they bring to the company rather than the number of hours they put in.

The concept of billable hours first emerged in the U.S. in the 1950s, when the American Bar Association wanted a simple way to sell lawyers’ services in measurable units. Even today most law firms and many accountancy firms use billable hours, meaning that an employee is obliged to bill enough hours to their clients to cover their salary. But does this make them more productive?

The fact is that billable hours incentivise employees to drag out projects and to spend their time on mundane, routine tasks, rather than seeking out more dynamic, creative projects that may not take as long to complete. In addition making coffee, chatting with colleagues, and checking e-mails, are all tasks that get absorbed into billable hours, meaning that the number of hours recorded actually has little bearing on the amount of work that has been done.

Billable hours suggest that individuals are interchangeable and that they are only worth the time that they take to complete a task. An hour of one accountant’s time is worth the same as any other accountant of the same level. What they should really be paid for is their effort, their creativity, their skills, and their ideas, commodities that can’t be measured using time. Why should a project that takes 200 hours be any more expensive than one that takes 2 if it provides the same value?  

For today’s freelancers and contractors the same applies. It’s a fact that the more you have to do the more you will get done. Imagine if you could complete ten tasks in a day and get paid individually for each of them. You’d focus more, work far more efficiently, produce more than if you were paid by the hour for just one task. If you know you will be paid an hourly rate, no matter how much you achieve, there is no incentive to work more efficiently. Do customers need to know how much time it takes to complete a job, or do they just need to feel that the result was worth the price?

Unfortunately, the ideal of charging by the hour is still ingrained in the way we do things. Many of the online freelance platforms that are springing up use billable hours as their standard charging mechanism, explaining that it is the easiest way for clients to compare providers, but failing to account for different levels of productivity between providers. Whether the freelancers that use these platforms are really charging by the hour, or whether they actually charge for the amount of time they think the work should take them is certainly up for debate.

There are individuals who are changing their charging structure to reflect a shift away from the idea of work as a commodity that can be measured in time. Adam Davidson writing for the New York Times discusses the ‘Cliff Jumpers,’ a group of accountants who have abandoned billable hours and the never-ending time sheets that accompany them to focus instead on providing non-commodity accounting solutions for specific business groups.

Let’s hope that the days of the billable hour are numbered and that the age of value driven reward are nearby. Agreeing a price for a project or task based on its results and the value it will provide is likely to drive true productivity in a way that billable hours never could.