Almost all entrepreneurs will be confronted with keeping track of their hours. This is especially important for small entrepreneurs like freelancers as certain tax credits are dependent on the amount of hours you spend on your company. But many hours you spend on your company cannot be assigned to a paying customer. How do you deal with those non billable hours that cannot be directly attributed to the service or product you provide?

What are billable hours?

Billable hours are working hours you can invoice to a customer. If the amount you invoice is dependent on the number of hours you work, that of course makes sense. But billable working hours do not necessarily have to show up on your invoice. If you have a fixed price per project (regardless of the amount of hours), the hours you work on that project are billable hours. So “billable hours” basically means hours you get paid for.

If you invoice your customers for each hour you work, you should definitely use the Gekko Hours app. It is not just a great way of keeping track of your hours, but it also allows you to convert those hours into professional invoices. And automatically updates your company records. For more information, please check Gekko Hours.

What are non-billable hours?

If billable hours are for paid work, then non billable hours are for work that you do not get paid for. So this means work that is part of your business, but that no customer would ever pay you for. Unfortunately, any business has quite a lot of that. Think of hours that you spend on accounting or on acquiring new customers or marketing activities. This is basically “overhead” time that often only has a limited relationship with the actual product or service you sell. But they are still very necessary to keep your business running. 

How do billable and non-billable hours influence the “urencriterium”

In the Netherlands, most entrepreneurs keep track of their hours to ensure they are in line with the urencriterium, the required number of hours you have to spend on your business to get the ondernemersaftrek tax break. But do billable hours and non billable hours have a similar impact on the urencriterium? The answer here is simple: yes, both billable and non billable hours are used equally to determine whether you apply for the urencriterium. 

However, you should keep in mind that it is a lot easier to prove to the Dutch Belastingdienst that you actually worked, if you got paid for that time. If you worked for three hours and then sent an invoice for three hours, the Belastingdienst will almost always accept that you worked during that time, regardless of any other activities you had. However, if you indicate that you thought about the strategy of your company for three hours, it becomes a lot harder to prove that you were actually spending time on your business.

Therefore you need to ensure that you only mark a limited number of hours per (working) day towards the urencriterium, whether those hours are billable or not. Basically, it is considered unlikely that if you spend 8 hours working for your customer, that you spend another 3 hours after that working out strategy on that same day. The Belastingdienst will probably doubt you have a standard 12 hour working day (even if it is true). That also applies to hours you record on the weekend. Unless you have clear proof that you were actually working during that time, it is hard to use those hours for your urencriterium.

When should I keep track of non-billable hours?

The required number of hours for the urencriterium is 1225 hour in 1 year. If you would work full time on your business, that is very easy to get to. After all, if you work 40 hours for 48 weeks, you are well above 1900 hours in one year. Therefore, if you are a full time entrepreneur and do not have any other professional activities, you should not have any issue proving that you reached the required amount of hours. Even if you only have a limited number of billable hours, you should have no problem explaining that the rest of the time you spend on non-billable hours. You do not need a detailed overview of your hours for that.

However, if you do not work as a full-time entrepreneur, but for example have a part time job, it becomes significantly harder to prove you reached the required number of hours for the urencriterium. The Belastingdienst will not accept that besides working for 8 hours, you also “spend time thinking about your business” on that day. Therefore, you really need to prove that you worked on specific hours and keep track of those hours. Keeping track of non-billable hours is therefore key and you should also make sure that you can actually prove that you worked in the hours you register.