The Future of the Billable Hour

Increasing use of AI can lead to a potential drop in hands-on time spent on casework. Are billable hours still the best method for charging clients?

By Alex Heshmaty

February 2026

The roots of the billable hour in law firms go back to the early 1900s when young lawyer Reginald Heber Smith was working at the Boston Legal Aid Society.

In an effort to reduce inefficiencies and improve access to justice, after consultation with Harvard Business School, he successfully applied a variety of new recordkeeping and management techniques to the Society, resulting in 65% more legal aid cases being cleared. When he became managing partner at local firm Hale and Dorr in 1919, he implemented various new management techniques, such as timesheets, with the aim of improving efficiency. Although initially designed as a form of recordkeeping, timesheets gave rise to the new fee structure known as the billable hour, which Smith outlined in a book called Law Office Organization, published in 1940.

In the following decades, his method became the dominant fee structure for law firms across the world, usurping fixed fees, and took on a force of its own with the rise of the bonus culture in the 1980s. This structure led to billing targets, which have often been accused of causing stress and burnout among junior lawyers.

In recent years, there has been talk of a move away from billable hours. Law firm administrators should consider the potential benefits and learn the associated challenges to determine whether shifting from billable hours will improve the lives and profits of lawyers.

Why Move Away From the Billable Hour?

Optimal fee structures for businesses are constantly being debated, but the hegemony of the billable hour in the legal sector has been particularly challenged over the last decade or so, for a variety of reasons including:

Commercial Pressures

Since the financial crash in 2008, many clients have been progressively tightening their belts and are less willing to keep an open checkbook pertaining to legal matters. They want more certainty when it comes to legal expenses and are increasingly drawn toward the concept of fixed fees to help them plan ahead.

Unbundling of Legal Services

Modern clients tend to be much more savvy about the specific components of legal service they require and the variety of companies (not just law firms) that can fulfill their legal needs. For example, they will be aware that it is possible to obtain a template contract from an online store for a fraction of the cost that a lawyer would charge and will therefore often manage this themselves, possibly asking their lawyer to only handle contractual negotiations or disputes as and when they arise.

This heightened awareness of an increasing range of "unbundled" legal service options means that clients will often want a clearer idea of precisely which legal service components a law firm is charging them for and exactly how much they will need to pay.

Mental Health

The scourge of stress and burnout as a result of extremely challenging billing targets, particularly among junior lawyers, has been receiving increased attention over recent years. In general, law firms are more aware of their responsibilities as employers to protect the mental health of their staff. Although a move away from billable hours to fixed fees may not necessarily reduce the pressure on junior lawyers in and of itself, focusing more on outcomes rather than hours worked can potentially provide a healthier way of working.

In general, law firms are more aware of their responsibilities as employers to protect the mental health of their staff.

Technology

As capital expenditure on technology solutions trends upwards, law firm administrators are increasingly under pressure to justify this spend. Products such as generative artificial intelligence (GenAI) promise enhanced efficiency but often come with a hefty price tag. There is a dilemma here when it comes to the billable hour: If money is being invested in technology, which reduces the time spent on a matter, and therefore results in lower fees (because fewer hours have been billed), is this actually a bad investment?

One answer may be to switch to fixed fees to reap rewards for efficiency gains. Another possibility is to take on more work from more clients and complete it faster. What is certain is that clients are fully aware of the debate around the use of GenAI in law firms and will sometimes demand that legal fees are reduced because they know that it will take less time to complete a matter using AI.

Types of Alternative Fee Arrangements

There are various ways in which a fee structure can be changed, but some of the more common types of alternative fee arrangements (AFAs) include:

Fixed fees: Also known as "flat fees," this is perhaps the most obvious type of AFA. It involves estimating the amount of time a certain piece of legal work will take to complete and fixing the cost at the outset. The advantage is that both parties are on the same page in relation to expectations, and there are no unwelcome surprises for the client when they receive their final bill. However, this is only suitable where the workload is unlikely to significantly change during the course of the matter being completed.
Capped fees: Under this form of AFA, legal services are billed on an hourly basis up to a certain amount or cap. If the work requires fewer hours than this capped figure, the client is billed according to the number of hours completed, but if it goes beyond this cap the law firm must absorb the cost.
Blended fees: With blended fees, the client pays a single hourly rate, irrespective of the seniority of the lawyer who carries out their work.
Contingency fees: Contingency fees are often used in personal injury claims where clients do not pay any fees unless their claim is successful, at which point the law firm deducts a percentage of compensation to cover their fees.

Other "value-based" billing arrangements include retainers, subscription fees, volume discounts and hybrid models.

Challenges of Switching From the Billable Hour to an AFA

One of the key problems with a move away from billable hours to an AFA is that it's not suitable for open-ended legal work, such as litigation, where time required cannot be estimated with any degree of accuracy. According to Brian Inkster, founder and Chief Executive Officer of Inksters, "The billable hour lends itself to more complex types of work where it is difficult to know what will ultimately be involved." He says that, although advocates of fixed fees or "value pricing" will say that you can scope each section of the work involved, this is "easier said than done for lawyers not trained in such skills."

Another issue is that flat fees could lead to work being rushed, especially where time pressures are placed on lawyers to minimize time spent in order to increase profits. On this point, Filippo Falchi, managing director at Major, Lindsey & Africa, notes that, from a client's point of view, "the billable hour helps ensure that lawyers will devote all the time needed to a given file, lessening the risk of cutting corners to save time."

Conversely, allowing too much time to be spent on fixed fee work could damage the profits of the firm. Inkster says that the main challenge for law firms that adopt fixed fees is" ensuring that they are not undercharging as a result." A balance will always need to be struck. Falchi says that firms "catering to smaller start-up clients, which might have tighter or more variable budgets, have successfully shifted away from the billable hour model," but for upper mid-market and large-cap players, "the billable hour model seems to continue being the flavor of choice."

There is also the administrative work that needs to be carried out to make a transition to a new system of billing clients, as well as any associated training and a potential cost of purchasing new billing software.

Last but not least, there may be resistance from law firms in a move away from billable hours. Falchi points out that the incumbent fee structure" could be seen as effectively incentivizing less than-optimal use of time: the longer a matter takes, the higher the legal bill." But Inkster argues that the "story spun that the billable hour encourages lawyers to spend more time on a case than they would necessarily need to is a fallacy."

Fee Structures and Mental Health

The billable hour fee structure and the associated billing targets have often been blamed for causing stress and burnout among lawyers, particularly those at an earlier stage of their careers. A report by Lawcare, a mental health charity focused on the legal sector in the U.K., indicated that nearly 60% of lawyers have poor mental wellbeing, with the 26-35 age group most affected. This is not a new phenomenon, with studies from the 1990s also finding similar issues with stress among young lawyers, caused in part by billing targets.

Nearly 60% of lawyers have poor mental wellbeing, with the 26-35 age group most affected.

However, although there is an argument that focusing more on outcomes than hours billed is generally a healthier approach, there is no proof that moving away from billable hours to other fee structures reduces stress or prevents burnout. Ultimately, it comes down to the expectations placed upon them by management. Inkster argues that a shift to fixed fees "could increase stress if lawyers end up doing more work for less fees, which is likely if they don't scope the work properly." Similarly, Falchi does not believe that AFAs would bring about positive change from the standpoint of mental health, arguing that it could actually "bring about a negative change for associates' mental health" due to the increased focus on productivity and output.

Predictions on the Fate of the Billable Hour

The death of the billable hour has been predicted for at least the past couple of decades, and yet it is still the most widely used fee structure in the legal industry. However, the pendulum does appear to be shifting back toward the era of fixed fees, which was prevalent before Reginald Heber Smith shook things up.

According to a study by Thomson Reuters, 64% of corporate legal teams and 58% of law firms anticipate a reduction in the reliance on hourly billing by 2030. Nevertheless, Inkster predicts that the billable hour will still be the primary fee structure in law firms in 10 years' time, at least "for the areas of work where it is predominantly used at the moment." He notes that the end of the billable hour has been predicted "for many 10-year cycles before this one with no real change."

As technology disrupts the legal sector and unbundling particular components of legal work and automating them becomes more prevalent, clients will increasingly demand more certainty over pricing, so AFAs will likely become more popular. However, legal services that cannot be easily measured, such as ongoing litigation, will almost certainly keep the billable hour alive.

"Firms and clients have been announcing the death of the billable hour for decades," Falchi says, but despite all the talk, "little progress has been made." Ultimately, firms will likely continue to see a mixture of the billable hour and AFAs, depending on the type of work and the impact of technology.

Some firms will continue to solely rely on billable hours whereas others will abandon it altogether. A close eye will also need to be kept on legal technology development, as this could impact the viability of both fee structures and levels of fee. But the legacy of Reginald Heber Smith is unlikely to be forgotten any time soon.

About the Author

Alex Heshmaty

Freelance Writer
Legal Words

Alex Heshmaty is a U.K.-based freelance copywriter and journalist, specializing in law and technology. He runs content marketing agency Legal Words, offering blogging and content creation for a wide range of businesses, including law firms and IT companies. Heshmaty has written extensively about the impact of technological developments on both lawyers and their clients.

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