Understanding Billable Hours

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By Alison Monahan

To most non-lawyers (law students included), BigLaw is a mysterious black box. What really goes on in those huge, vaguely intimidating office towers? What do so many lawyers possibly spend so much time on?

A question I received recently nicely highlights one perception of BigLaw attorneys:

How much does time/billing padding happen? Do partners/bosses turn a blind eye to the practice or actively discourage it? Also, are associates/partners likely to participate in it if your client expects 10 hours of work and you finish the work in 8 hours and surf the web for the 2 hours but bill 9 hours?

I love this question for several reasons.

First, it hones in on one of the weirdest aspects of BigLaw — the billable hour. What other career rewards people simply for showing up for a long time?

Second, it rather quaintly assumes that BigLaw partners are interested in keeping hours down, while associates are interested in keeping them high. As we’ll discuss, this is partly true, but not quite in the way that the questioner understands it.

Finally, this question makes everything seem so straightforward. Work for eight hours, bill for nine — that’s bad! Unfortunately, in the BigLaw real world, things are more ambiguous, and the pressure created by billable hours is more subtle.

The Basics of Billable Hours

On the face of it, billable hours are pretty simple. An attorney at the firm works for one hour, and the client gets charged for their time at an agreed-upon hourly rate. In a solo practice, the attorney would pay expenses and keep the rest of the money as compensation for the hour of work.

In a large firm, things are more complicated. The clients still (generally) pay by the hour, but the pot of money is divvied up differently.

  • Associates are paid a salary, which isn’t dependent on how many hours they work. Associates don’t get overtime. In most cases, they also get a bonus at the end of the year, which, depending on the firm, might be based on their billable hours. (Generally, there’s a required minimum level of billable hours to qualify for the bonus at all, and many firms include tiers of additional bonus money for additional hours.)
  • Partners, on the other hand, might receive some base compensation, but the bulk of their compensation comes via equity in the firm. (This assumes they’re “equity partners.” Non-equity partners are glorified associates, and receive a salary.) Where does their equity share originate? It’s what’s left over after the firm’s expenses, including salary, have been paid. So, it’s the difference between what clients have paid (hours billed x hourly rate) and the cost of running the business, split between all the partners.

Understanding Partner and Associate Incentives

As should be apparent, partners and associates in a large law firm have very different economic incentives.

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