What is the difference between "Direct" and "Indirect" labor for billable and non-billable time?

Definition

• "Direct" labor refers to work that is directly billable to a client or project

• "Indirect" labor refers to work that supports the business but is not tied to a specific client or project

Choosing the Correct Type When Setting Up Non-Billable Phases in Your Fee Breakdown

When creating a fee breakdown for a project, you have the option to define the billing type of phases as "non-billable" instead of fixed fee or hourly. When you do so, you are then able to specify whether the phase is "direct" non-billable or "indirect" non-billable.

Choose "indirect" if the phase is on an internal project where you will be recording overhead time. If the phase is general company overhead (e.g., marketing, training, firm-wide meetings, or administrative work), it is indirect labor since it doesn’t belong to a specific project.

Choose "direct" if the phase is on a billable project, but is for time you know you will not be billing the client. If a non-billable phase of your budget supports a specific project (e.g., internal planning, design reviews, or coordination that isn’t separately charged but is still part of the project work), it can still be considered direct labor because it’s tied to the project. This is helpful for tracking profitability , since the time logged will contribute to the overall labor cost even though it won't be recorded as revenue earned or invoiced.

Interpreting Direct and Indirect in Time Reporting

In reports, these terms typically divide the hours you log toward client projects from those you log to internal projects, paid-time-off (PTO), and holidays.