How do billable hours work ?

Almost all firms make money by billing their clients hourly. This is known as billable hours, the more hours billed means more money for the firm. If lawyers do not bill sufficient hours each year, they will not make adequate money to cover their salaries. The billable hours of the firm also cover partner and overhead’s profit share. Most businesses do not use billable hours, as they normally do not charge hourly to a paying customer.

The idea of billable hours started in the 1950’s. Before this, state law has restrictions on legal fees; usually the losing side of a legal case pays the fee. Lawyers also supplemented their fees with additional benefits from satisfied clients or with annual retainers. However, these laws on maximum-fee were repealed when regulations fell out of political favor. Lawyers started to use a combination of billable methods such as set fee tasks and retainers.

By 1975, the Supreme Court eventually restricted set fee tasks, saying that they were a typical example of violated and price fixing anti trust laws. It was seen that the clearer way to value legal services is through billable hours and it became the standard method of charging for legal service.

Today, most law firms set billable hours that must be met annually. This number of hours ranges from 1,700 to 2,300 hours for every associate. Some firms are not fond of this charging method for their service, some says that the pressure in maintaining or achieving the target billable hours cause losing out on other aspects of being a lawyer. Lawyers may have to reject cases that are more satisfying in order to work for paying clients.

Law firms, such as public interest law firms and other smaller law firms, do not share the same interest and place emphasis on billable hours. They often require less hours for their lawyers because law firms like these spend their time on community-related activities, trainings and client development.

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