Time and Materials Billing for Contractors: How to Stop Leaving Money on the Job

Here's a stat that should make you sit up: according to Engineering News-Record's March 2026 economics report, time and materials (T&M) work is surging across the construction and service industry. More flexible contracts, more hourly billing, more material pass-throughs.

Sounds great, right? More T&M means more flexibility and less risk of eating costs on bad estimates.

Except here's the problem: most contractors are terrible at tracking T&M work. And if you can't prove it, you can't bill it. And if you can't bill it, congratulations — you just donated your labor to someone's kitchen remodel.

Let me break down how time and materials billing actually works, when to use it vs. a fixed-price contract, and how to make sure you're capturing every dollar you earn.

What Is Time and Materials Billing?

If you're already familiar, skip ahead. But I've met enough contractors who confuse T&M with cost-plus that it's worth a quick primer.

Time and materials billing means the client pays for:

Labor hours at an agreed-upon rate (your hourly rate + overhead + profit margin)
Materials at cost, usually with a markup (10-20% is standard)
Equipment rental if applicable

That's it. No fixed total. The final invoice depends on how long the job takes and what materials you use.

T&M vs. Fixed-Price vs. Cost-Plus

Contract Type	Who Bears the Risk?	Best For
Fixed-Price	Contractor (you eat overruns)	Well-defined scope, repeat jobs
Time & Materials	Client (they pay actual costs)	Uncertain scope, repairs, change-heavy work
Cost-Plus	Client (costs + fixed fee)	Large projects, trust-based relationships

The key difference between T&M and cost-plus? In T&M, your profit is baked into your hourly rate and material markup. In cost-plus, your profit is a separate line item (usually a percentage or flat fee on top of actual costs).

Why T&M Work Is Exploding in 2026

A few things are driving the trend:

1. Material price volatility. Lumber, copper, PVC — prices have been on a rollercoaster since 2020. Contractors got burned locking in fixed prices only to watch material costs spike 30% mid-job. T&M shifts that risk to the client.

2. Labor shortages. When you can't predict crew availability, committing to a fixed timeline (and price) is risky. T&M gives you breathing room.

3. Change order fatigue. Both contractors and clients are tired of the change-order dance on fixed-price jobs. T&M acknowledges upfront that scope will evolve.

4. Smaller, more complex jobs. The home service market is moving toward renovation, remodeling, and custom work — jobs that are inherently hard to estimate. T&M just makes more sense here.

The Revenue Leak Problem

Here's where most contractors stumble. T&M billing requires you to document everything in real-time. Every hour. Every trip to Home Depot. Every extra box of screws.

And most contractors are tracking this with... a notepad in their truck. Maybe a spreadsheet at the end of the week. Maybe just memory.

The result? You consistently under-bill by 10-20%. That's not a guess — industry studies consistently show contractors leave significant revenue on the table through poor T&M documentation.

Here's what typically goes missing:

Drive time and material runs — yes, you can bill for these
Small materials — caulk, tape, fasteners, consumables. They add up fast.
Extra labor — the helper you called in for two hours
Equipment wear — your saw blade, drill bits, sandpaper
Administrative time — measuring, estimating mid-job changes, client communication

Each one feels trivial. Together, they're the difference between a profitable job and a break-even one.

How to Track Time and Materials on a Job (Without Losing Your Mind)

Let's be practical. Here's a system that works for crews of 1-15:

1. Set Your Rates Before You Start

Your T&M rate isn't just your hourly wage. It needs to cover:

Base labor rate
Payroll taxes and insurance (usually 25-35% on top)
Overhead (truck, tools, office, insurance)
Profit margin (15-25%)

Example: If you pay a tech $30/hour, your T&M billing rate should be somewhere around $75-95/hour after overhead and profit. Don't guess at this. Calculate it.

2. Track Hours Daily, Not Weekly

Weekly time tracking is how revenue leaks happen. By Friday, nobody remembers that extra 45 minutes they spent on Tuesday troubleshooting a plumbing issue.

Best practice: Log hours at the end of each day. Even better — use an app that lets your crew clock in and out per job in real time.

3. Photograph Everything

This is your insurance policy. Before you start, during the work, when materials arrive. Photos with timestamps are almost impossible to dispute.

I cannot overstate this: photos win billing disputes. When a client says "that didn't take 6 hours," a timestamped photo at 8:00 AM and another at 2:15 PM ends the conversation.

4. Save Every Receipt

Digital is better than paper. Snap a photo of the receipt, tag it to the job, and move on. If you're buying materials at multiple stores, make sure every receipt is captured that day.

5. Invoice Frequently

Don't wait until the end of a 3-week job to drop a $15,000 invoice. Send weekly invoices for T&M work. This:

Keeps the client informed (no sticker shock)
Improves your cash flow
Makes disputes smaller and easier to resolve
Creates a paper trail if things go sideways

6. Set a Not-to-Exceed (NTE) When Possible

Even on T&M work, clients appreciate a ceiling. "This job will be billed time and materials, but we don't expect it to exceed $8,000." It builds trust and gives the client a budget to work with.

If you're approaching the NTE, communicate before you hit it, not after.

Time and Materials vs. Fixed-Price: When to Use Each

This is the question I get asked most. Here's my honest take:

Use Fixed-Price When:

You've done this exact type of job 50+ times
Scope is crystal clear and unlikely to change
Materials are predictable and stable
The client wants certainty (and you're confident in your estimate)

Use Time & Materials When:

The scope is fuzzy or likely to change
You're doing repair/diagnostic work (you literally can't know until you open the wall)
Material prices are volatile
The job involves custom or one-off work
The client keeps adding "while you're here, can you also..."

The Hybrid Approach

Smart contractors are increasingly using a hybrid model: fixed price for the defined scope, T&M for anything outside it. This gives the client budget certainty on the main work while protecting you from scope creep.

"Your bathroom remodel is $12,000 fixed. If we find anything unexpected behind the tile, that work will be billed time and materials at $85/hour plus materials."

Clean. Fair. Professional.

How Tallie Helps With T&M Billing

Look, I'm going to be upfront — I'm a co-founder of Tallie, so take this with the appropriate grain of salt. But we specifically built features for contractors juggling T&M and fixed-price work:

Real-time time tracking — your crew logs hours from their phone, tagged to the job
Material cost capture — snap a receipt photo, it gets tagged and tracked automatically
Professional T&M invoices — itemized breakdowns that clients actually understand
NTE alerts — get notified when a T&M job approaches your estimate ceiling
Hybrid estimates — create proposals with fixed-price and T&M sections in one document

We're still in beta (if you want in, sign up here), but this is exactly the kind of problem we're obsessed with solving.

Frequently Asked Questions

What markup should I charge on materials for T&M work?

Industry standard is 10-20% on materials. Some contractors go as high as 25% for specialty items they need to source. Whatever you choose, put it in writing before the job starts. Surprises kill client relationships.

Can I switch from fixed-price to T&M mid-job?

Technically, yes — but only with the client's written agreement. This usually happens when unexpected conditions are discovered (mold behind drywall, old pipes that need replacing). Have the conversation immediately, get agreement in writing, and document the change in scope.

How do I handle disputes on T&M invoices?

Documentation is everything. Timestamped photos, daily logs, material receipts, and weekly invoice summaries make disputes nearly impossible. The contractors who struggle with T&M disputes are almost always the ones with poor documentation.

Is T&M billing legal? Do I need a special contract?

T&M billing is completely legal and widely used. But you absolutely need a written agreement that specifies: hourly rates, material markup percentage, invoicing frequency, payment terms, and any not-to-exceed limits. A handshake agreement on T&M work is asking for trouble.

What's the best way to present T&M pricing to a client who wants a fixed price?

Frame it as protection for both parties: "I could give you a fixed price, but to cover my risk, I'd need to pad it by 20-30%. With T&M, you only pay for what the job actually requires — which usually ends up being less." Most clients respond well to honesty.

The Bottom Line

Time and materials billing isn't going away — if anything, it's becoming the default for complex service work. The contractors who thrive with T&M are the ones who track religiously, communicate proactively, and invoice promptly.

The ones who struggle? They're still scribbling hours on the back of a receipt and wondering why their margins are thin.

Don't be the second contractor. Get your T&M tracking dialed in, and watch your revenue recover the 10-20% you've been leaving behind.

Written by Archie, Co-founder at Tallie — job management software built for contractors who'd rather be on the job site than fighting with spreadsheets.