Hourly billing in consulting.......that was a whole new world to me when I graduated. Growing up, my father worked for the local newspaper (on the advertising/business side) and was salaried, so to me 'salaried' meant you came in, did your work, and got a check every two weeks for 1/26 of your annual salary. And I think that's how it is for engineers working in most government agencies and for manufacturers.
So 'timesheets' in the orientation for my first job was a bit of a surprise. FWIW, they were paper at the time, so that sort of dates me. But it seemed like essentially a paper timeclock - instead of punching in and punching out you just entered your hours manually, but it seemed basically like an hourly timeclock in a factory or on a construction site.
As I spent time in the business, I found it was a necessary evil for accounting for consulting work. The jobs are priced based primarily on the cost of labor to complete the job. Tracking hours is necessary for management to see if a job is being completed for more or less time (and money) than they estimated or are charging for it. It can identify if a project is taking more time than anticipated, and they can step in and make corrections to get it back on track so they don't lose money on the job.
It also ties in with how a project is quoted to a client - 'Lump Sum' (you guarantee the customer a complete project for a certain price - if it costs you less you still get the whole amount and make a bigger profit, or vice versa if it costs you more), or "Time and Materials' (where you're basically billing the client for every hour spent like hourly work).
To your question about the accuracy of tracking hours: Say you spent the whole day working on a single job. You would charge your project for 8 hours (assuming you were in the office or at home working for 8 hours, exclusive of a lunch break). Taking a quick bathroom break or running to the kitchen for a cup of coffee is part of normal life so you wouldn't deduct that time out. Ditto for answering a quick email. It gets messier if you're working on multiple projects every day (which is pretty common). You still roll in bathroom and coffee breaks to the jobs you're billing to. It helps if you can split your work up into tasks that are at least close to even 15, 30, or 60 minute blocks that align with your company's policy on the smallest interval used for timekeeping. If you're basically working continuous on a project for 85-90% of the time you're charging (ie. like no more than a 5 minute break in a half hour) I wouldn't lose sleep over it. I would not bother tracking bathroom and coffee breaks and emails (unless a specific email is an issue taking 10-15 miniutes or longer).
Companies typically also have 'overhead' or 'general' charge numbers for tasks that aren't billable to a job. Use of those is generally discouraged if there's any billable work. Companies can have goals of 90-95% billable for regular production workers to 75% (give or take) for people who do a lot of marketing. I don't recall the exact number, but it typically takes multiple billable hours to make up for the use of 1 unbillable hour. Companies have varying policies on this. Some will have employees charge this number not only for time when they have no project work, but also for time spent on internal department meetings or other company meetings. Others will expect employees to 'spread' these hours over jobs they work on during the day as they consider these meetings to be a cost of doing business and directly related to work in general. You don't charge coffee and bathroom breaks to this number!
If you work on government jobs, there are specific rules for timekeeping that your company should make you aware of.
Personally....while I understand the necessity of timekeeping, it's one of the least appealing aspects of the consulting line of work, particularly if you work on multiple smaller projects or tasks throughout the day. It can lead to challenges when certain jobs have tight budgets and other ones don't.
There's some other interesting side topics of the hourly billing aspect of consulting......differing policies. Some companies pay overtime - time and a half for workers under a certain salary, 'straight time' for workers in a higher salary band, or no overtime ('it's part of the job' ) for higher salary bands, or even for all salary bands. Overtime pay seems more prevalent in companies that primarily do T&M work. The 'it's part of the job' policy seems more prevalent in companies that do Lump Sum work (no overtime means more profit). Some companies have an 'hours bank' for overtime hours worked. Instead of paying employees extra in their paycheck for OT hours worked, they give them PTO or vacation credit for the extra time worked. This seems to make a lot of sense - the big challenge to consulting is balancing the peaks and valleys of the workload - this encourages or incentivizes employees to put in extra time during the peak times when there's too much work to do and not enough time, and allows them to take paid time off when the workload gets a little 'thin'.
One last topic.....what does 'salaried' mean? To most people it means a guaranteed annual salary. During some of the past recessions it was not uncommon for some consulting firms - when work dropped off dramatically - to 'go down to 32 hours', basically having people work only 4 days (or 3 in some cases) and correspondingly only paying them 80% (or 60%) of their normal salary. It was a tradeoff - you're still getting paid the same rate on a daily basis for your work on an hourly rate, but you're essentially an hourly employee, not salaried in the true sense. In some cases - depending on state and local laws - this may have been on shaky legal ground. What made it more palatable for some is that the 'shared sacrifice' allowed the entire staff to keep their jobs (albeit at a reduced salary) in lieu of some of their peers being laid off. But this could lead to a slippery slope of changing the profession from salaried professionals to hourly or contract employees (which may be appealing to some, but not others).
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Greg Thein, PE
Cleveland, OH
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Original Message:
Sent: 11-15-2022 06:04 PM
From: Daniel Bressler
Subject: How Exact is Time = Money?
How does your firm track the hours spent on a project? You'll tell me that depends on whether a company is hourly or salary.
I understand that every firm has its own method for tracking hours spent on a project but I have several rhetorical questions to hopefully start a conversation about the billing practice.
Who do you bill your 10-minute coffee break too? Do you even bill for a coffee break? What about answering emails in the morning? Do you switch your timesheet for every answered email? Does your company have 15-minute or 30-minute intervals for billing? What if you only worked 10 minutes or 25 minutes on a project? Do you round up and take the extra time for yourself?
How diligent are engineers expected to be in the accuracy of their timesheets?
While yes, time is money, and nobody (I hope) is trying to immorally or unethically calculate their times, how exact is one expected to be?
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Daniel Bressler EIT, A.M.ASCE
Structural Engineer
Brooklyn NY
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