The Ethics of Hourly Billing

One of the most obvious but often overlooked ethical conflicts within the workplace is workers who are paid hourly. By definition, those who are paid hourly get paid based on how many hours they work. (Indeed, 2023) It seems like a simple concept. But as information technology professionals, most of what we do involves making systems and processes more efficient.

But what does that mean if we're paid hourly?

Even if it might not seem that way, there is a finite amount of IT work that an organization can realistically need. So, by creating more efficient systems and processes, we're effectively reducing our earning potential even though we're adding value to the organization.

There are downsides to being salaried as well, where a reduction of overall headcount may occur instead of a reduction of hours.

Diving deeper, hourly billing is rooted in the Labor Theory of Value, a foundation of Marxism, where the value of labor is emphasized in the production process and ideal distribution of wealth. (Taylor, 1996) The idea that a worker's time is valuable is popularized by workers who argue they should be compensated based on how much time they spend working rather than the value they provide. This is where the concepts of minimum wages and pay ceilings come from. An example would be saying, "Workers who work 60 hours per week should make more per year than those who work 40 hours because the 60-hour worker works harder."

Photo by Hans Eiskonen / Unsplash

By being a truly effective IT professional by providing the maximum value to your employer or client, you're optimizing yourself out of a job. So what's the alternative? Make things more complicated? Here are a few approaches that are taken:

• Put effort into developing complex and hard-to-understand policies, procedures, and guidelines to ensure that bureaucracy slows down the organization and increases the amount of required labor.
• Increase the barrier of entry by requiring additional qualifications, certifications, government-mandated licenses, and other means to reduce and limit the talent pool.
• Avoid tools that make us more efficient, such as modern IDEs (integrated development environments) and GitHub Copilot (AI code autocomplete).
• Unionize to pressure employers to let us increase the amount of time we spend by limiting change and innovation to protect union member jobs while increasing benefits and compensation.

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All of those options are commonly taken (not just in IT), but are they ethical? That question is answered based on your personal opinions and economic ideas. An alternative could be to incentivize employees to create value in a way that attempts to minimize the disincentivizing nature of increased efficiency and automation, but there are few mainstream examples of that within IT.

So that brings us to the title of this article: The Ethics of Hourly Billing

If employees aren't incentivized to be good at their jobs, that raises the question of how employees can behave ethically. I'm of the persuasion that people never behave counter to their incentives, so to create an ethical workforce, hourly compensation can't be the sole motivator.

A few types of employees may include:

• Employees who see it as their moral duty to society to do their best at their jobs.
• Those who simply do not consider the true economic incentives associated with their job.

Most people probably fall within these two categories rather than maliciously sabotaging their workplace but likely do participate in activities that ensure their job security without even realizing it.

The traditional solution to this problem in the tech startup world is stock options mirroring the long-standing practice of incentivizing executives by getting stock and/or full equity. When employees can earn favorable stock options, restricted stock, phantom stock, etc. they're given an opportunity to invest in their efforts and hopefully benefit from the profits of the company. But this doesn't necessarily make sense for every company (especially for small companies and those owned privately).

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Startups are often messy. Sometimes the incentive to build a company up enough to be able to get an exit payday results in a sacrifice in quality control and security that ultimately hurts the startup's growth. Just giving employees stock probably isn't the answer either because that just incentivizes employees to work towards raising the company's valuation, which doesn't necessarily equal true business success.

So, what's the best solution to this ethical dilemma? I don't know. It's clear that employees whose roles are to minimize inefficiencies and to effectively automate their own jobs (and the jobs of others) aren't incentivized to act in the best interest of their company causing an ethics conflict. But it's not clear the best way to universally fix this issue. And complex hard-to-understand questions like this are why economists have job security. 😉😂

If you'd like to read more on this topic, I wrote another post on hourly billing and labor theories over on The Church Factory, where I take a look at the similarities between traditional hourly billing and value-based pricing. Surprisingly, there are similarities, but also big differences.

If you’re a freelancer or independent consultant pricing your services based on value is essential. However, there is a common theme among value pricing advocates that suggests hourly workers don’t value price, which simply isn’t true.

The Ethics of Hourly Billing on The Church Factory

References

Indeed. (2023). What Is an Hourly Employee and How Do Employers Pay Them? Www.indeed.com; Indeed. https://www.indeed.com/career-advice/career-development/hourly-employee

Taylor, K. S. (1996). Human Society and the Global Economy. www.d.umn.edu; University of Minnesota. https://www.d.umn.edu/cla/faculty/jhamlin/4111/2111-home/value.htm