Time and Materials Invoice: Template, NTE Caps + Example

Quick answer: A time and materials invoice bills a client for the actual hours worked at agreed hourly rates plus the actual cost of materials used, often with a stated markup. It lists labor and materials as separate lines, ties hours to dates and workers, and usually shows progress against a not-to-exceed (NTE) cap set in the contract.

Time and materials (T&M) billing is common in construction, repair, IT services and consulting, anywhere the full scope is hard to know before the work starts. The client gets flexibility, and you avoid losing money when a job turns out bigger than it looked. The trade-off is that a time and materials invoice has to be detailed enough for the client to check every hour and every part. This guide covers what to include, how not-to-exceed caps work, a worked example with real numbers and the mistakes that cause disputes.

What is a time and materials invoice?

A time and materials invoice is a bill issued under a T&M contract or work order. Instead of charging one agreed price for the whole job, you charge for two things:

• Time: labor hours multiplied by an hourly billing rate. The rate usually differs by role (lead technician, apprentice, helper) and by time of day (regular, overtime, emergency).
• Materials: parts, supplies and equipment rentals at your cost, plus any markup the contract allows.

The billing rate is meant to cover wages, payroll taxes, insurance, vehicles, tools, overhead and profit. Materials markup covers the time you spend sourcing, picking up and storing parts, plus the risk of returns and warranty claims. If you want a broader comparison of pricing models, see our guide to fixed price vs time and materials contracts.

When should you use time and materials billing?

T&M works best when the scope is uncertain and the client accepts some cost risk in exchange for flexibility. Typical cases:

• Repair and troubleshooting work, where you cannot see the problem until walls, panels or code are opened up.
• Remodeling and renovation where hidden conditions are likely.
• Ongoing IT support, development or consulting where the client keeps changing priorities.
• Extra work outside a fixed-price contract, often billed T&M under a change order.

For tightly defined jobs, a fixed price is usually easier to sell. Many contractors combine both: a fixed price for the base scope and T&M for anything that changes, documented with a change order.

What should a time and materials invoice include?

Start with the standard elements every invoice needs (see what an invoice is and what it must contain), then add the T&M-specific detail.

Section	What to show	Why it matters
Header	Your business name, contact details, invoice number, invoice date, due date	Identifies the bill and sets payment timing
Client and job	Client name, billing address, job site, PO or work order number	Lets the client's accounts payable match it
Billing period	Date range covered (for example, Oct 6 to Oct 17)	Prevents double billing across invoices
Labor lines	Date, worker or role, hours, rate, amount; regular and overtime separated	Lets the client check hours against timesheets
Materials lines	Item, quantity, unit cost, markup if disclosed, amount	Ties each charge to receipts
Equipment	Rentals or owned equipment at hourly or daily rates	Often a separate rate category in the contract
NTE tracking	Cap, billed to date, this invoice, remaining	Shows the client where the budget stands
Totals	Subtotals for labor and materials, sales tax where applicable, total due	Makes tax treatment clear
Terms	Payment terms, accepted methods, late fee policy	Reduces payment delays

How do not-to-exceed (NTE) caps work?

A not-to-exceed cap is the maximum the client agrees to pay for a T&M job unless they approve more. It gives the client a budget ceiling while you still bill actual hours and materials. If the work comes in under the cap, the client pays only the actual cost. If it would go over, you stop and ask.

Good NTE practice looks like this:

1. Write the cap into the contract with what it covers (labor, materials, equipment, or all three) and whether tax is inside or outside it.
2. Track billed-to-date on every invoice. A simple four-line box (cap, previously billed, this invoice, remaining) answers the client's first question.
3. Set a warning threshold. Many contractors notify the client in writing at 75 or 80 percent of the cap.
4. Get a signed change order before exceeding it. Without written approval, amounts over the cap are hard to collect.

A cap is not the same as an estimate. An estimate is a good-faith forecast; a cap is a contractual limit. Our article on invoices vs estimates explains how the two documents differ.

Worked example: a time and materials invoice with real numbers

A small electrical contractor is hired to trace and repair intermittent power loss in a restaurant kitchen. The contract sets these terms: journeyman $95/hour, apprentice $60/hour, overtime at 1.5x, materials at cost plus 15 percent, NTE $4,000 before tax, billing every two weeks, Net 15. The figures are illustrative.

Date	Description	Qty	Rate	Amount
Oct 6	Journeyman: diagnose kitchen circuits, regular time	6 hr	$95.00	$570.00
Oct 6	Apprentice: assist, regular time	6 hr	$60.00	$360.00
Oct 7	Journeyman: replace panel breakers and feeder, regular time	8 hr	$95.00	$760.00
Oct 7	Journeyman: after-hours work to avoid service, overtime	2 hr	$142.50	$285.00
Oct 7	Apprentice: assist, regular time	8 hr	$60.00	$480.00
Labor subtotal				$2,455.00
Oct 7	Breakers, 20A (cost $18.50 each)	6	$21.28	$127.65
Oct 7	Copper wire, 6 AWG, 50 ft (cost $142.00)	1	$163.30	$163.30
Oct 7	Connectors, conduit and fittings (cost $96.00)	1	$110.40	$110.40
Materials subtotal (cost $349.00 + 15%)				$401.35
Subtotal				$2,856.35
Sales tax on materials, 7% (illustrative)				$28.09
Total due				$2,884.44

The NTE box at the bottom of the invoice would read: Cap $4,000.00, previously billed $0.00, this invoice $2,856.35 (before tax), remaining $1,143.65. Because the job has used 71 percent of the cap, the contractor adds a note that the client will be told in writing before the next invoice if remaining work may exceed the cap.

Notice the details: hours are tied to dates and roles, overtime is a separate line at the contract rate, each material line shows the underlying cost, and tax is applied to materials only because that is the (illustrative) state rule. Use the sales tax calculator to check the tax line for your own rate.

How to create a time and materials invoice step by step

1. Collect timesheets for the billing period. Daily logs signed by the client's site contact are the strongest backup.
2. Total hours by worker and rate type. Keep regular, overtime and emergency time on separate lines. Our guide on how to invoice for overtime covers rate multipliers and wording.
3. List materials from receipts, apply the contract markup and keep the receipt numbers in your file.
4. Add equipment and other allowed charges such as rentals, disposal fees or permits, only if the contract allows them.
5. Calculate subtotals and tax separately for labor and materials.
6. Update the NTE tracking box and add a note if you are near the cap.
7. Assign the next invoice number from a consistent sequence; the invoice number generator can help you set one up.
8. Attach backup (timesheets, receipts) and send it with clear payment terms.

You can build the whole layout in our free invoice generator: add one line per labor entry and per material, set the tax rate, and download a PDF to send.

How much markup can you add to materials on a T&M job?

Whatever the contract says. Some T&M agreements allow materials at cost only, others allow a flat percentage, and some use a sliding scale (higher markup on small parts, lower on expensive equipment). Commercial and government contracts often spell out the exact allowed percentage. If the contract is silent, the safest approach is to disclose your markup in the proposal so nobody is surprised. Our guide to materials markup explains typical ranges and the formula, and markup vs margin shows why a 15 percent markup is not a 15 percent profit margin.

Common mistakes on time and materials invoices

• Lumping all hours into one line. "Labor: 30 hours" invites questions. Break it down by date and role.
• Billing overtime without contract authority. If the contract has no overtime rate or requires prior approval, overtime at a premium may be rejected.
• Hidden markup. If the client expects materials at cost and later sees supplier receipts, undisclosed markup damages trust fast.
• Ignoring the cap. Blowing through an NTE without a change order is the most common reason T&M work goes unpaid.
• Overlapping billing periods. Always state the date range, and never bill the same hours twice.
• Applying sales tax to everything. Labor is often treated differently from materials; check your state's rules.
• No backup. Missing receipts and timesheets slow approval, especially on commercial jobs.

For a wider list of invoicing errors, see common invoice mistakes.

Time and materials vs labor and materials vs fixed price

Model	How the price is set	Who carries cost risk	Best for
Time and materials	Actual hours x rates + materials (+ markup)	Mostly the client, limited by any NTE cap	Uncertain scope, repairs, changes
Labor and materials (lump sum lines)	Quoted labor amount + quoted materials	Mostly the contractor	Defined small jobs
Fixed price	One agreed price for the scope	The contractor	Clear, repeatable scope
Cost-plus	Actual costs + fee or percentage	The client	Custom builds, open-book projects

If your jobs are quoted as labor plus materials rather than billed hourly, our labor and materials invoice guide is the better fit. Large staged projects may use progress billing instead.

What documentation should back up a T&M invoice?

Because the client is paying for actual effort, the paperwork behind a time and materials invoice matters as much as the invoice itself. Keep these records for every billing period:

• Daily timesheets or job logs with start and stop times, the worker's name or role and a short description of the task. A client signature or email confirmation each day is the gold standard.
• Supplier receipts and delivery tickets for every material line, with the job name or PO written on them.
• Equipment logs showing hours or days for rented and owned equipment.
• Change orders and approvals for any work outside the original description, and any written increase to the NTE cap.
• Photos of hidden conditions (rot, damaged wiring, failed pipes) that explain why the job took longer than expected.

Commercial clients and general contractors often require this backup with each invoice, and some will not process payment without it. Even when a homeowner does not ask, having it ready settles questions quickly. Keep the records with your copy of the invoice for at least as long as your accountant recommends for tax records. If you work as a subcontractor on larger projects, ask the general contractor for their backup requirements before you send the first invoice.

Tips to get T&M invoices approved faster

• Send a rate sheet with the contract so every rate on the invoice matches a published number.
• Get daily sign-off on hours from the client's site contact.
• Bill on a regular cycle so invoices stay small and easy to review.
• Use the client's PO or work order number on every invoice.
• Set clear payment terms and follow up with polite payment reminder emails if a due date passes.

A clear time and materials invoice protects both sides: the client can verify every hour and part, and you get paid for the real work the job required. Separate labor from materials, track the not-to-exceed cap on every bill and attach your backup. When you are ready, create your time and materials invoice in the free invoice generator. It is free, needs no sign-up and builds a downloadable PDF right in your browser.