Billable (licensed) users are counted based on two simple criteria:
- The user account still exists in your organization's Entra ID directory (it has not been permanently deleted).
- The account currently holds an active Microsoft 365 license.
If both conditions are true, the account is counted as a billable user. This applies to any of the standard Microsoft 365 subscription licenses that grant access to core services such as Exchange Online, SharePoint, OneDrive, or Teams — including no-cost license types that Microsoft provides for specific scenarios (for example, education tenants).
Does disabling a user account affect billing?
No. Whether a user account is disabled (sign-in blocked) has no effect on whether it is counted as billable. The only factor that determines billing status is whether a Microsoft 365 license is currently assigned to the account. A disabled account that still holds a license is billed the same way as an active account with a license.
Why would a disabled account still have a license?
Some organizations intentionally keep a Microsoft 365 license assigned to a disabled account for a period of time — for example, to prevent Microsoft's automatic content-retention timers from deleting the mailbox or OneDrive of an employee who is temporarily inactive (such as during a seasonal leave). As long as the license remains in place, the account continues to be counted as billable, since it is the license — not the account's active/disabled state — that determines this.
What happens if the license is removed instead?
Once a Microsoft 365 license is removed from an account, it is no longer counted as billable. This does not automatically change whether the account's Microsoft 365 workloads (mail, OneDrive, Teams) are backed up — that is controlled separately by your organization's backup settings (such as which groups or users are included), not by the presence of a license on any individual account. If Entra ID backup is enabled, the user's directory record itself also continues to be backed up regardless of license status, for as long as the account exists in Entra ID. Backup data already collected remains subject to your organization's own retention settings, independent of Microsoft's own retention timeline for mailbox and OneDrive content once a license is removed.