Timekeeping & Labor Charging — The Most Audited Control You Own
Also known as: Labor distribution, total time accounting, floor checks, labor mischarging controls
What you do here: Record every hour daily, by cost objective, with employee entry and supervisor approval
At a Glance
- Who it applies to
- Every contractor charging labor to a federal contract — cost-type, T&M, and anyone pricing from labor costs
- What it obligates
- Daily, employee-entered time by cost objective, supervisor-approved, with an auditable correction trail
- Governing authority
- SF 1408 accounting-system criteria; FAR 31.201-2 / 31.202 allowability and direct-cost rules
- How it's tested
- Floor checks — unannounced interviews comparing what an employee is doing to what they are charging
- The stakes
- Labor mischarging is the classic government-contract fraud allegation, with False Claims Act exposure
What It Is
Labor is the largest cost element on most services contracts and the only one with no external invoice to corroborate it — you cannot produce a vendor receipt for an engineer's Tuesday. That combination is why timekeeping is the most heavily scrutinized control in government contract accounting, and why the SF 1408 makes a timekeeping system that identifies employees' labor by intermediate and final cost objectives, and a labor distribution system charging direct and indirect labor to the appropriate objectives, explicit criteria of an adequate accounting system. The expected practice is well settled. Time is recorded daily, contemporaneously, not reconstructed at the end of a pay period. The employee records their own time — not a supervisor, not an administrator working from a schedule. Every hour is captured against a specific cost objective: a contract, a task order, a CLIN, an indirect account for general and administrative work, or a paid-absence account. Corrections are made visibly, with the original entry still legible, the change initialed or system-logged, and a reason recorded. A supervisor with knowledge of the work reviews and approves. And the labor distribution ties to the general ledger, so what was charged on timesheets is what hit the job-cost records and the invoice. One concept deserves special attention for salaried staff: total time accounting. If an exempt employee works 50 hours in a week but records only the 40 they are paid for, and puts all 40 on a single contract, that contract has absorbed the full week's salary while the other 10 hours of effort — possibly spent on a different contract or on bid-and-proposal work — vanish. Recording all hours worked and distributing the salary across them keeps each cost objective bearing its fair share. How this is tested is equally distinctive: auditors perform floor checks, which are unannounced visits in which an employee is asked what they are working on, what account they charge it to, and whether they understand the company's timekeeping policy, with their answers compared to the timesheet. A floor check tests the culture as much as the ledger.
When It Applies
- Continuously — every pay period on every contract where labor is charged directly or indirectly.
- During a preaward accounting system survey, where timekeeping is an explicit SF 1408 criterion.
- During an incurred cost audit, where labor is typically the largest cost tested.
- During unannounced floor checks, where auditors interview employees about what they are working on and charging.
- On T&M and labor-hour contracts, where hours billed against labor categories must be supported by qualified individuals' actual time.
Key Features
| Feature | What It Means |
|---|---|
| Daily and contemporaneous | Time is recorded as work is performed. Week-end reconstruction from memory or a calendar is the most common finding. |
| Employee-entered | The individual who performed the work records the time. Supervisors approve; they do not author. |
| All hours, by cost objective | Every hour goes somewhere — a contract, a task, an indirect account, or paid absence. Nothing is left unrecorded. |
| Visible corrections | Changes preserve the original entry, identify who made the change and why, and are approved. Erasure destroys the audit trail. |
| Supervisory approval by someone who knows the work | Approval is a substantive control, not a signature block — the approver must be in a position to know what the employee actually did. |
| Total time accounting for salaried staff | Recording all hours worked, including uncompensated overtime, keeps a single contract from absorbing effort that benefited other work. |
| Tested by floor check | Unannounced interviews compare an employee's actual activity and understanding of the policy against what the timesheet says. |
The SDVOSB Angle
Small firms are structurally exposed here in ways large primes are not. In a ten-person SDVOSB the owner may be the CEO, the capture lead, the contract PM, and a billable technical resource in the same week — and the temptation to book the whole week to the contract that has budget is real and quiet. It is also precisely what labor mischarging means, and it carries False Claims Act exposure that dwarfs the dollars involved. The same structural risk shows up in the approval chain: when the person performing the work also approves the timesheet, the control does not exist. Two practical answers scale down to a very small company. First, have someone other than the charger approve — a second officer, a controller, or a fractional CFO — and if the owner's own time genuinely cannot be approved by a subordinate, document a compensating control such as a monthly review by an outside accountant. Second, take total time accounting seriously for the owner and other exempt staff: recording all hours worked and distributing salary across them is what keeps a single contract from silently absorbing unpaid effort that actually went to business development, which is both an allocability problem and an unallowable-cost problem. There is a business upside as well. A firm that knows, by cost objective, where its labor actually goes can price the next bid from real data instead of instinct — which is exactly the input a price-to-win analysis needs.
How to Comply
- Adopt a written timekeeping policy and have every employee acknowledge it — floor checks test whether employees know the policy.
- Require daily, contemporaneous entry by the employee who performed the work, against a specific cost objective.
- Capture all hours worked for exempt staff, including uncompensated overtime, and distribute salary across them.
- Route approval to a supervisor with actual knowledge of the work; never let the charger be the sole approver.
- Preserve corrections with the original entry, the change, the approver, and the reason visible.
- Reconcile the labor distribution to the general ledger and to what you invoiced, every period.
- Run your own internal floor checks periodically so an external one holds no surprises.
Watch Out For
- Timesheets filled out on Friday for the whole week — the single most cited timekeeping deficiency.
- An administrator or supervisor entering time on employees' behalf from a schedule or plan.
- Charging a contract because it has remaining budget rather than because the work was performed on it — this is mischarging, not budgeting.
- Exempt employees recording only paid hours, which lets one contract absorb effort that belonged to other objectives.
- Whiting out or overwriting a correction, which destroys the audit trail the control depends on.
- The owner approving their own time with no compensating control, which is a control failure regardless of intent.
- Treating an unannounced floor check as an intrusion — refusing or coaching employees converts an audit issue into an integrity issue.
Run the Numbers
Frequently Asked
What are DCAA timekeeping requirements?
There is no single 'DCAA timekeeping regulation'; the expectations flow from the accounting-system criteria on Standard Form 1408 — a timekeeping system that identifies employees' labor by intermediate and final cost objectives and a labor distribution system that charges labor to the appropriate objectives — together with the FAR Part 31 requirements that costs be allocable and supported. In practice, an acceptable system records time daily and contemporaneously, is entered by the employee who performed the work, captures all hours against a specific cost objective, preserves corrections with the original entry visible and a reason recorded, requires approval by a supervisor with knowledge of the work, and reconciles to the general ledger and to what was billed.
What is a floor check?
A floor check is an unannounced audit procedure in which an auditor visits a work location and interviews employees about what they are currently working on, which account or contract they charge that work to, whether they record their own time daily, and whether they understand the company's timekeeping policy. The answers are compared against the timesheets and labor distribution records. Floor checks test the operation of the timekeeping control rather than its documentation, which is why employee awareness of the policy matters as much as the policy itself.
What is total time accounting and why does it matter?
Total time accounting means recording all hours actually worked by an employee, including uncompensated overtime for salaried exempt staff, and distributing that employee's salary across all the hours recorded. It matters because if an exempt employee works 50 hours but records only the 40 they are paid for — all against one contract — that contract absorbs the entire week's salary while the extra 10 hours of effort, which may have benefited another contract or an indirect activity such as bid and proposal work, disappear from the records. That distorts allocability under FAR 31.201-4 and can shift unallowable effort onto a federal contract.
Why is labor mischarging treated so seriously?
Because labor is usually the largest cost on a services contract, it has no external documentation to corroborate it, and mischarging it means the government pays for work it did not receive. That is why the government treats it as a fraud issue rather than a bookkeeping error: knowingly submitting invoices supported by mischarged labor can trigger False Claims Act liability, with treble damages and per-claim penalties, along with suspension or debarment exposure. The controls — daily employee entry, cost-objective charging, independent approval, and visible corrections — exist specifically to make mischarging both hard to do and easy to detect.
Primary Sources
- FAR 31.202 — Direct costs
- FAR 31.201-4 — Determining allocability
- FAR 31.201-2 — Determining allowability
- FAR 9.106 — Preaward surveys (SF 1408 accounting system)
Plain-English reference, not legal, accounting, or tax advice. Cost allowability and accounting determinations are fact-specific, and the FAR, the Cost Accounting Standards, and the statutory dollar thresholds quoted here are amended and escalated for inflation over time. Always read the current FAR text and the cost and payment clauses in your specific contract, confirm the applicable thresholds and your accounting treatment with the contracting officer or cognizant administrative contracting officer, and consult a qualified government-contract accountant or counsel before relying on a cost position, signing a certificate, or submitting a claim.
Change log (1)
- LaunchedPublished the federal cost principles, indirect rates & government accounting requirements reference covering how the government decides what an SDVOSB may charge it — the five allowability tests of FAR 31.201-2, reasonableness and allocability (FAR 31.201-3 / 31.201-4), the expressly unallowable costs of FAR 31.205 with directly associated costs (FAR 31.201-6) and the FAR 42.709 / 52.242-3 penalty, the direct-vs-indirect consistency rule (FAR 31.202 / 31.203), the fringe/overhead/G&A pool-and-base structure behind a wrap rate, provisional billing rates (FAR 42.704), the incurred cost submission and final indirect rate settlement (FAR 52.216-7(d) / 42.705 / 42.708 quick closeout), the adequate accounting system tested on the SF 1408 (FAR 16.301-3 / 9.106), timekeeping and labor charging with floor checks and total time accounting, DCAA audits versus DCMA administrative contracting officer determinations, certified cost or pricing data and defective pricing (FAR 15.403-1 / 15.403-4 / 15.406-2 / 52.215-10), and the Cost Accounting Standards with the small-business exemption at 48 CFR 9903.201-1 — each with an at-a-glance quick-facts card, a when-it-applies list, a key-features table, an SDVOSB-specific angle, a how-to-comply checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR / U.S.C. / CFR citations, and cross-links into the glossary, contract types, payment methods, thresholds, clauses, forms (SF 1408), regulation explainers, contracting roles, how-to guides, FAQ, and the price-to-win, size-standard, win-probability, and limitations-on-subcontracting calculators.