Industry Trends

Why Timesheets Are Bad for Your Accounting Staff

Gusto Editors  
Accounting team reviewing timesheets

Do accountants benefit from using timesheets?

Although timesheets are commonplace in the accounting industry, they can create different issues for your firm, accountants, and clients. They often prevent accountants from doing their best work for clients, and your firm may want to consider doing away with them entirely. 

Gusto, along with our partners at CPA Academy, presented an edifying webinar all about the different problems that come with using timesheets. Our webinar titled, “Value Pricing: Timesheets are Dumb for Your Customers, Your Staff, and Your Firm,” featured the accounting and pricing expertise of Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Editor-at-Large at Gusto. You can watch the full webinar here

If you want to learn more from Greg and Caleb after reading this article, which is Part Three of the series, you can also read Parts One, Two, and Four to learn more about the problems associated with using timesheets. 

In this article, you’ll learn all about utilization and realization rates, how timesheets can be detrimental to accountants, and the ethical impact of timesheets. 

Utilization and realization rates in accounting firm timesheets

Accounting firms often view timesheets as a fair and simple way to bill clients for services, but they come with many disadvantages. One notable downside of firms using timesheets is that they’re bad for individual accountants, especially when firms engage in fixed pricing agreements with clients. Greg described how using timesheets can create what he refers to as a “sweatshop effect,” meaning that accountants will often have to work for free to fulfill the needs of their clients. 

‘The sweatshop effect’ is the fact that if you work at a firm that bills time [and] keeps track of time—even if you do a fixed price agreement—actually … what you’re doing is you’re creating a sweatshop environment for everyone who’s involved with this process. It turns into a sweatshop, and part of that is all these metrics that we’re familiar with.

Greg Kyte

Before going deep into how timesheets obligate accountants to work for free, it’s essential to understand the metrics that impact accounting timesheets: utilization and realization rates. Utilization rates are the number of billable hours divided by the total number of hours an accountant works, and realization rates are the number of billable hours collected divided by the total billable hours. The higher an accountant’s utilization and realization rates, the more valuable they are to their firm. 

Female sitting in front of computer reviewing a timesheet

Accounting firms that use timesheets and track utilization and realization rates aim to improve their annual billable goal, meaning, they want to bill clients a certain number of hours per year. Accountants’ careers often depend on reaching their firm’s annual billable goal: 

Ultimately, what they want to do is realize the actual cash into [their] bank account as a firm based on what [they] billed out. … Annual billable goal [is] the big thing. [Accounting firms are] basically like, ‘Hey, you need to bill this many hours this year,’ and really [this affects] everything in terms of promotions and just your status in the company. … This really [comes] down to where you [are] compared to your annual billable goal.

Greg Kyte

Firms often require accountants to improve their utilization and realization rates to reach their annual billable goals, but different problems emerge when accountants aim to enhance their utilization and realization rates. 

How time tracking hurts accountants

The problem with improving utilization and realization rates is that accountants will work off the clock to get more value from their billable hours. Greg observed that accountants work for free to improve their metrics and reach their firm’s annual billable goal:

Ultimately, the solution to all of these—to the utilization rate, the solution to the realization rate, the solution to the annual billable goal—all of them is [to] work more hours. … With [finessing] your utilization rate, you’re like, ‘Okay, I spent two hours today checking emails that I needed for work. I’m just going to write down that I checked them for one hour because that’s going to affect my utilization rate.’

Greg Kyte

Accountants improve their metrics and help their firms reach their annual billable goals by performing free labor. This is especially the case when accountants work slowly. They often offer write-offs because they surpassed the number of hours a client expected them to work. Although accountants will essentially work for free to improve their rates, they’re still required to work a certain number of billable hours:

You’re still expected to work a certain number of hours on a given day or any given week or in a given month. So … you had to donate that time. You were volunteering that time to your firm.

Greg Kyte

When accounting firms use timesheets, they put accountants in the position of working for free to improve metrics and add more value to their firms. As mentioned previously, Greg drew comparisons between using timesheets and operating a sweatshop because it leads to overworking and working for free: 

You have everything motivating everyone at that firm to work more. The timesheet … incentivizes working harder rather than working smarter. … The biggest thing for me for ‘the sweatshop effect’ is that as an accountant, you are paid [a] salary, but you are [used] hourly. The more hours that they can [use you]—that doesn’t change the cost structure of the firm. The firm is completely motivated to push you to work more and more hours.

Greg Kyte

Firms typically pay accountants salaries, but timesheets treat them as if they’re hourly. The use of timesheets can hurt staff morale because it often forces accountants to work longer without additional compensation.

Accounting staff in a conference room working on a client project

Ethical disadvantages of timesheets

Using timesheets can also negatively impact an accountant’s ethical behavior. Greg alluded to the fraud triangle and how it relates to the use of timesheets. There are three factors within the fraud triangle: pressure, opportunity, and rationalization. 

There’s absolutely pressure to lie on your timesheet. There’s absolutely opportunity; nobody audits people’s timesheets at any firm. [Finally,] you can rationalize it.

Greg Kyte

Perhaps the most common lie that accountants commit on their timesheets is underrepresenting the number of hours they worked. Timesheets encourage dishonesty because of the pressure of reaching favorable utilization and realization rates. 

In addition to the pressure of underrepresenting the total of hours worked, accountants also face the temptation of inflating their total number of hours:

There [are] definitely ways to rationalize pushing hours that you didn’t actually work for a client. [Accountants say,] ‘We’re very valuable [to] that corporation and even though we’re billed at this rate, what we do is [worth] so much more.’ … That’s the biggest rationalization people have for padding timesheets for certain clients. They go, ‘Well, if they pay the bill, then we must be worth it.’

Greg Kyte

Accountants will often over-represent the total number of hours they worked for a client. If a firm charges clients by the hour, that then leads to more income for the firm. When firms charge clients fixed prices, they increase the price during negotiations through the misrepresented number of hours indicated on accountant timesheets. 

Although over-representing or under-representing the total number of hours worked may appear relatively innocuous, performing unethical behavior can impact accountants’ work performances:

Research shows that if you’re unethical in one place, … it doesn’t mean for sure you’re going to be unethical in another place, but it primes you to be unethical in those other places as well. … [Misrepresenting a timesheet] primes you to be dishonest. The scientific research shows that [it] primes you to be less ethical.

Greg Kyte

When you engage in unethical behavior in one area of your life, that can impact other areas. If you lie on a timesheet, the research shows that you’re more likely to cut corners and lie in other ways, including within accounting work. Unethical accountants can ruin a firm because they may perform fraudulent tax work for clients, leading to legal issues. When accountants engage in dishonest tax work, that also negatively impacts the reputation of your firm. 

Learn more about the disadvantages of time tracking

Timesheets incentivize accountants to work harder and longer hours rather than perform optimal accounting work. Accountants often need to work long hours for free to improve their utilization and realization rates while also aiming to achieve their firm’s annual billing goals. Timesheets also encourage accountants to engage in unethical behavior because there’s often pressure to under-represent or over-represent the total number of hours worked. When accountants engage in unethical conduct by misrepresenting timesheets, that can lead to dishonesty in other areas of their accounting work, which can be highly detrimental to your firm and clients. 

If you’re ready to learn more about why timesheets are a waste of time as well as the benefits of value pricing, read Parts One, Two, and Four of this webinar article series. You can also watch the entire webinar here

Looking for more ways to improve your firm? Consider joining Gusto Pro. With Gusto Pro, you gain access to invaluable expert resources that can help you build a resilient firm and support your clients into the future. Learn more about Gusto Pro.

Gusto Editors
Gusto Editors
Back to top