Mastering Government Contractor Time Tracking Compliance

Picture a mid-size defense services firm receiving a DCAA floor-check notice on a Monday morning. By Friday, auditors have flagged a double-digit share of labor charges on a cost-plus contract as unsupported because employees had been logging time weekly instead of daily, and several entries had been backdated after the pay period closed. The contracting officer issued a cure notice within 30 days. That sequence, floor check to cure notice in under six weeks, is not unusual. The Defense Contract Audit Agency completed more than 5,000 audits in a recent fiscal year, and incurred cost audits routinely surface timekeeping deficiencies as the leading cause of questioned costs.

If your organization holds cost-reimbursable, time-and-materials, or labor-hour contracts, timekeeping is not an administrative detail. It is a direct input into your invoices, your indirect rate calculations, and your audit posture. This guide covers the regulatory framework, implementation specifics, and the operational habits that separate contractors who pass audits from those who do not.

The Regulatory Framework You Are Actually Accountable To

Three overlapping bodies of regulation govern how federal contractors record and report labor hours. Understanding where they intersect is more useful than treating them as separate checklists.

Federal Acquisition Regulation (FAR)

FAR 52.215-2 (Audit and Records -- Negotiation) requires contractors to maintain books, records, documents, and other evidence sufficient to reflect properly all costs claimed. FAR 31.201-2 establishes that a cost is allowable only if it is adequately documented. For labor, adequate documentation means contemporaneous time records tied to specific contracts or cost objectives. "Contemporaneous" is the operative word: reconstructed timesheets, even honest ones, are a red flag in any incurred cost audit.

DCAA Timekeeping Requirements

The DCAA does not issue regulations, but its Contract Audit Manual (CAM) Chapter 6 describes what auditors look for when they evaluate a timekeeping system. The core criteria are:

• Employees record their own time (supervisory entry is a deficiency).
• Time is recorded daily, not weekly or at pay period close.
• Corrections are made with an audit trail showing the original entry, the correction, the reason, and the approver.
• The system prevents or flags backdated entries.
• Labor is charged to the correct contract line item number (CLIN) or indirect cost pool.

A floor check is an unannounced visit during which auditors ask employees what they are working on and then compare the answer to what the timesheet shows for that day. If the employee has not yet entered time for the day, that is a finding. If the entry does not match what the employee describes, that is a more serious finding.

Building a Timekeeping System That Survives an Audit

System Selection Criteria

The market offers many time tracking tools, but DCAA-adequate systems share specific technical characteristics. When evaluating options, verify the following before purchase or configuration:

• Immutable audit trail: Every entry, edit, and approval must be logged with a timestamp and user ID. The system should not allow deletion of records, only corrections with documented reasons.
• Daily entry enforcement: The system should either require daily submission or generate supervisor alerts when an employee has not entered time by end of business.
• Contract and CLIN-level charge codes: Employees must be able to charge time directly to a contract number and, where applicable, a CLIN or work breakdown structure element. Charging everything to a single "government work" code is not adequate.
• Separation of direct and indirect codes: Overhead, G&A, bid and proposal (B&P), and IR&D must be separate charge codes, not catch-all buckets.
• Employee self-entry with supervisor approval: The workflow must show that the employee entered the time and the supervisor reviewed it, not the reverse.

Charge Code Architecture

One of the most common audit findings is misallocation: direct labor charged to overhead, or indirect effort buried in a contract's direct labor. Before go-live, work with your contracts and finance teams to map every active contract, task order, and indirect pool to a unique charge code. Document the mapping in a charge code dictionary that employees can reference. Update it within 48 hours of a new award or task order modification. A charge code that does not exist in the system is a charge code that will be misallocated.

Subcontractor and Consultant Labor

If your contract includes subcontractors or independent consultants billing labor hours, their timekeeping obligations mirror yours. Flow down FAR 52.215-2 in your subcontracts. Require daily certified timesheets from subcontractors and retain them with your prime contract records. DCAA auditors reviewing your incurred cost submission will ask for subcontractor timesheets to support the labor costs you passed through.

Training: What Employees Actually Need to Understand

Generic compliance training does not prevent timekeeping deficiencies. Employees need to understand three specific things:

1. How to correct an error without creating a problem: Employees who make a mistake often either leave it uncorrected (bad) or delete and re-enter (worse, if the system allows it). Train them to use the system's correction workflow: enter the correct hours, select the reason code, and submit for supervisor approval. A corrected entry with a documented reason is not a finding. An unexplained discrepancy is.
2. What a floor check looks like and how to respond: Employees should know that an auditor may ask them, in person, what contract they are working on today. The answer should match their open timesheet. This is not a trick; it is a routine verification. Employees who understand this are far less likely to be caught with a blank timesheet at 2 p.m.

Deliver this training at onboarding, at the start of each new contract, and annually. Document attendance. If a DCAA auditor asks whether employees were trained on timekeeping procedures, "yes, and here are the sign-in sheets" is the only acceptable answer.

Internal Audit: Frequency, Scope, and Corrective Action

Do not wait for DCAA to find your problems. A quarterly internal timekeeping review should cover:

• Percentage of employees entering time daily versus weekly (pull system logs, not self-reports).
• Number and pattern of corrections: frequent corrections on the same employee or the same contract warrant a conversation.
• Supervisor approval lag: approvals that consistently happen days after submission suggest supervisors are rubber-stamping rather than reviewing.

When you find a deficiency, document it, correct it, and write a brief corrective action memo. If DCAA later identifies the same issue, you can show that you found it first and addressed it. That posture is meaningfully different from being caught unaware.

Connecting Timekeeping to the Broader Compliance Picture

Timekeeping compliance does not exist in isolation. The labor hours on your timesheets feed your incurred cost submission (ICS), which DCAA audits annually on cost-type contracts. They also feed your forward pricing rate proposal (FPRP) and any claims or requests for equitable adjustment (REA). A timekeeping system that produces unreliable data contaminates all of those downstream documents.

Practical Takeaway

Pull your timekeeping system logs for the last 30 days and answer four questions: What percentage of employees entered time daily? How many corrections were made, and were they documented with reasons? Are all active contract CLINs represented as separate charge codes? Do subcontractor timesheets exist for every week of billed labor? If any answer is "I don't know," you have a gap that DCAA can find before you do. Fix it on your schedule, not theirs.