Introduction
Labor charges sit at the foundation of nearly everything a government contractor bills, claims, or reports. Invoices depend on them. Indirect rates depend on them. Incurred cost submissions depend on them. A contractor can have airtight job costing and a clean chart of accounts, yet still fail an audit because timesheets don't hold up.
"DCAA timekeeping requirements" isn't a single standalone checklist you can download and follow line by line. Expectations come from a mix of FAR and DFARS provisions, your specific contract terms, applicable accounting system criteria, and your own written policies and procedures.
This guide walks through what those requirements actually mean, how to build a compliant timekeeping policy, and what auditors look for during a labor floor check.
Key Takeaways
- Employees must record all hours worked accurately and promptly, coded to the correct contract or cost objective
- Self certification by employees and meaningful supervisor review and approval are both required, not optional
- Every correction needs a documented reason, a visible original entry, and a retrievable audit trail
- Compliance depends on written policies, training, controlled charge codes, and periodic internal reviews, not software alone
What DCAA Timekeeping Compliance Means
DCAA is an auditing agency, not a rule writing body. Its examiners test whether your labor charging practices comply with the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement, your contract clauses, and your own documented procedures. DCAA guidance explains how auditors evaluate compliance; it doesn't replace the underlying regulatory requirements.
The regulatory foundation starts with cost allowability. Under FAR 31.201-2, a cost is only allowable if it's reasonable, allocable, consistent with applicable accounting standards, and adequately supported by documentation.
For labor costs, that documentation is your timesheet. If you can't prove hours were worked on a specific contract, you can't claim the associated cost, regardless of how accurate your bookkeeping otherwise is.
For many DoD contracts, DFARS 252.242-7006 adds another layer. It requires an acceptable accounting system that identifies labor by intermediate or final cost objectives and distributes direct and indirect labor appropriately. Whether this clause applies depends on your specific contract type, so don't assume it's universal.
Why This Extends Beyond Payroll
Timekeeping data flows into far more than a paycheck:
- Job costing and project profitability tracking
- Indirect rate calculations used to bill overhead and G&A
- Monthly and final invoices
- Annual incurred cost submissions
- Contract performance reporting
- Government examination rights under applicable audit clauses
A single weak link, like a supervisor who rubber stamps timesheets without review, can undermine every downstream number.
Core DCAA Timekeeping Requirements
Daily Entry and Total Time Accounting
Employees should record time as they work it, normally each workday rather than reconstructing a week from memory on Friday afternoon. Prefilled entries, estimated hours, and deliberately delayed submissions are all red flags during an audit.
Total time accounting means capturing every hour worked, whether paid or not, across consistent categories:
- Direct labor
- Indirect labor
- Leave and holidays
- Overtime, including uncompensated overtime where applicable
How you treat overtime and uncompensated hours depends on your compensation practices, applicable labor laws, and contract terms. There's no single universal method, so this is worth reviewing against your own policy rather than copying another contractor's approach.
Accurate Allocation to Contracts and Cost Objectives
Employees charge time to the specific contract, task order, CLIN, project, or indirect pool that matches the work actually performed, using current and controlled charge codes.
Vague categories cause real problems. A generic "miscellaneous" code might seem convenient, but it creates allocation risk because auditors can't verify what work it actually represents. Direct labor, indirect labor, unallowable costs, training, business development, and proposal time all need distinct, defined codes.
One rule matters more than any other here: employees shouldn't shift hours between projects to match a budget, hit a billing target, or work around funding limits. Charges reflect the work performed, full stop.
Employee Certification and Supervisor Approval
Two separate people, two separate responsibilities:
- Employees certify that their timesheet is complete, accurate, and reflects actual work performed
- Supervisors review whether entries are reasonable, properly coded, and consistent with what they know about the employee's assignments before approving
Segregation of duties matters here too. Employees should enter their own time. Supervisors, payroll staff, and system administrators should have limited, role specific authority to edit entries, not broad access to change anyone's time at will.
Corrections, Reopening, and Audit Trails
Corrections happen. An employee realizes hours were charged to the wrong task number, or a supervisor catches a miscoding during review. A proper correction procedure documents:
- The original charge
- The corrected charge
- The date of the change
- Who made it
- Why it was made
- Employee concurrence and supervisor approval
Approved timesheets should be locked, then reopened only through a controlled workflow that preserves the original entry rather than overwriting it. An acceptable correction is when an employee discovers a coding error and documents the fix. An unacceptable one quietly changes hours to erase a budget overrun with no paper trail.
Written Policies, Training, and Charge Code Controls
A policy document should spell out:
- Ownership
- Employee and supervisor responsibilities
- Approval deadlines
- Escalation steps
- Prohibited practices
- Consequences for violations
Training should happen at onboarding and periodically afterward, with records showing:
- Policy version in effect
- Attendees
- Completion date
- Any supervisor- or administrator specific instruction
Finance or contracts staff should own charge code creation, approval, and deactivation so employees are never stuck choosing between an outdated code and no code at all.
Secure Records and Retention
Reliable timekeeping depends on access controls:
- Unique user accounts
- Role based permissions
- Restricted administrator rights
- Approval locks
- Backups
- Audit trails for every entry and edit
Paper, spreadsheets, and dedicated software all pass or fail on the same test: do they produce complete, secure, retrievable records? The label on the technology doesn't matter.
Retention periods vary by record type under FAR Subpart 4.7. Labor distribution records and time cards typically fall under a shorter retention window than payroll registers. That period can extend if your contract clauses or an agency requirement call for longer retention. Check your specific contract and record retention schedule before setting a company wide timeline.
How to Build a DCAA Compliant Timekeeping Policy and Process
What the Policy Should Contain
A sample policy framework typically covers:
- Purpose and scope
- Definitions
- Daily entry rules and total time accounting
- Charge codes, approvals, and corrections
- System access and retention
- Training, reporting, and disciplinary escalation
That's a starting point, not a government approved template. Tailor it to your contract mix, workforce structure, accounting system, and the specific FAR or DFARS clauses in your agreements.
What a Compliant Timesheet Should Capture
At minimum, each timesheet needs:
- Employee identity and work date
- Pay period
- Hours broken out by cost objective
- Direct or indirect classification
- Project or task code
- Leave, holiday, or overtime category where relevant
- Employee certification and supervisor approval
- Correction history, if applicable
Picture one employee's Tuesday: four hours on a contract task, two hours on an indirect proposal effort, and two hours of approved leave. The specific hours and codes here are illustrative; your actual structure depends on your contracts and labor categories.
How to Implement the Process
- Map your contracts and cost objectives to identify what charge codes you actually need
- Design charge codes that are specific enough to avoid ambiguity
- Document the policy in writing, not just institutional knowledge
- Configure workflows for entry, review, and approval
- Train employees and supervisors before go live
- Test corrections and approvals before relying on the system for a live payroll cycle
- Begin periodic monitoring once the system is operating
When evaluating software, look for:
- Daily entry reminders
- Project and task coding
- Approval workflows and role based access
- Locked periods and correction history
- Audit trail exports that integrate with your accounting or job cost system
Platforms like QuickBooks Online, Deltek Costpoint, and Unanet can all support DCAA compliance, but fit depends on your contract mix, team size, and growth plans. Software does not create compliance on its own; accurate employee behavior and genuine management oversight do.
How to Monitor Ongoing Compliance
Run recurring checks for:
- Late or bulk submitted entries
- Missing approvals
- Unusual or unexplained edits
- Supervisor entered time without documentation
- Inactive charge codes still in use
- Negative leave balances
- Inconsistent direct to indirect charging patterns
When you find an exception, document the corrective action, trace the root cause, retrain if needed, and follow up to confirm the fix held.
Audit Readiness: Reviews, Floor Checks, and Common Findings
During an accounting system review or labor floor check, auditors test whether actual employee behavior matches your written policy. They check whether employees understand charge codes, whether approvals reflect real review rather than a rubber stamp, and whether labor charges match the work performed.
DCAA's floor check program can be unannounced, scheduled, or a combination of both, so don't assume every check arrives without warning.
Common findings worth fixing before an auditor finds them first:
- Batch or estimated time entries instead of daily recording
- Missing employee certifications
- Automatic or default approvals
- Undocumented timesheet changes
- Supervisors routinely entering employee time
- Vague or catch all indirect codes
- Unsupported overtime
- Unauthorized system access
- Records that can't be retrieved when requested
Before an audit, pull together:
| Item | Why it matters |
|---|---|
| Policy version history | Shows the current policy was in effect during the audit period |
| Training records | Demonstrates employees and supervisors understood the rules |
| Sample timesheets | Lets you spot check your own compliance first |
| Correction logs | Proves changes followed the documented process |
| Charge code listings | Confirms codes are current and properly controlled |
| User access reports | Verifies segregation of duties |
| Labor distribution reports | Checks consistency across contracts |
| Prior finding responses | Shows corrective actions were actually completed |
Conclusion
Audit ready timekeeping is a coordinated internal control process. It connects employees, project managers, supervisors, accounting, contracts, payroll, and leadership, all working from the same documented procedures.
Assured Financial Services works with federal contractors reviewing DCAA timekeeping policies, labor distribution, indirect rate structures, and broader accounting system controls. We can't promise DCAA approval or a specific audit outcome, but we can help you identify gaps before an auditor does.
Our founder brings more than 15 years of combined experience across corporate finance and federal government contracting finance, and leads every client engagement personally. If your timekeeping process needs a second look, a tailored review is a practical next step.
Frequently Asked Questions
What are the timekeeping requirements for federal contractors?
Record all hours daily, allocate them to the correct cost objective, obtain employee certification and supervisor approval, and document corrections with a full audit trail. Training and contract specific retention complete the core requirements.
Can you provide an example of a timekeeping policy?
A sample policy covers purpose, scope, daily entry, charge codes, approvals, corrections, access, retention, and training. Use it as a starting framework and tailor it to your contracts, accounting system, and FAR or DFARS clauses.
How often should employees record their time for DCAA compliance?
Employees should record time daily, as the work happens, rather than reconstructing hours later. Check your own policy and contract terms for any additional submission deadlines beyond daily entry.
Can employees correct an approved timesheet?
Yes, but the process must preserve the original entry, document the reason for the change, identify who made and approved it, and maintain a complete, retrievable audit trail. Silent edits without documentation are a common audit finding.
What does DCAA look for during a timekeeping audit or floor check?
Auditors check that practice matches written policy: daily entries, correct charge codes, real certifications and approvals, documented corrections, segregation of duties, training evidence, and records you can retrieve on request.
