Success in the federal contracting world isn’t just about winning bids—it’s about passing audits, proving accountability, and maintaining long-term eligibility. One of the most scrutinized aspects of any contract is labor cost reporting, which begins with timekeeping.
Whether you're bidding on your first federal contract or preparing for a Defense Contract Audit Agency (DCAA) audit, knowing how to meet DCAA timekeeping requirements is non-negotiable.
Contractors working with the federal government are held to a higher standard of recordkeeping than private-sector businesses. The DCAA enforces specific timekeeping practices to prevent fraud, ensure labor cost accuracy, and support audit integrity.
Failure to follow these rules, whether due to employee error or system gaps, can result in lost contracts, withheld payments, and even legal penalties.
What Are the Key Requirements for DCAA-Compliant Timekeeping?
The DCAA does not endorse specific systems but enforces strict timekeeping rules to ensure accurate labor cost tracking. Whether you’re a prime contractor or a subcontractor, meeting these standards is non-negotiable.
1. Daily Time Entry
Employees must record their time every working day. Backdating, weekly summaries, or bulk entries are prohibited. The DCAA expects real-time or same-day time entry to reduce fraud risk and promote transparency.
Modern systems typically track timestamps automatically, helping organizations prove compliance during an audit.
2. Employee Responsibility for Time Entry
Only the employee may enter their own time. Supervisors, HR, or project leads are not permitted to fill in time on someone else’s behalf, even if the employee is out of the office.
This ensures accountability and eliminates potential tampering.
3. Editable, Traceable Corrections
Any corrections made to a timesheet must be documented with a reason. The original entry must remain visible, and the system should log when the change was made, by whom, and why.
Auditors will often review change logs during evaluations, especially if discrepancies arise in labor charges.
4. Accurate Job and Project Coding
Each time entry must be assigned to the correct project or contract charge code. Misallocating hours can result in misreported costs, which not only affect billing but can also trigger broader compliance issues.
Using a controlled set of charge codes reduces these risks and ensures consistent reporting across departments.
5. Supervisor Review After Submission
Employees submit their time, which supervisors then review and approve. The sequence matters—the manager may not alter timesheets before submission, preserving the integrity of the record.
Any rejections or adjustments must follow a formal process, including documentation and employee resubmission.
6. Clear Separation of Direct and Indirect Time
Time must be classified correctly. Direct time applies to billable contract work. Indirect time includes internal meetings, training, PTO, or administrative duties. These categories affect how overhead and fringe rates are calculated and reimbursed.
Improper classification of labor skews cost pools and can disqualify indirect rate recovery.
7. Secure and Role-Based Access
Only authorized personnel should have access to timekeeping records. Employees should be able to submit and view their own time, and supervisors should have review rights. Finance and HR may access reports, but system configuration must prevent unauthorized edits.
Security roles must match the organization’s policies and contract requirements.
8. Retention of Timekeeping Records
Federal auditors can review timekeeping records years after the contract is completed. Time logs, approvals, charge codes, and audit trails must be preserved and retrievable.
Businesses that fail to retain records face disallowance of costs and penalties, even if the work was delivered properly.
Who Must Comply with DCAA Timekeeping Rules?
These requirements apply to any contractor—prime or sub—performing work funded by a U.S. government agency. Compliance is particularly important for organizations using:
- Time & Materials (T&M) contracts
- Labor-Hour and Cost-Reimbursable agreements
These contract types are closely tied to hours worked, making timekeeping central to contract execution and billing accuracy.
1. Startups and Small Contractors Are Not Exempt
New or small firms sometimes underestimate the importance of compliance in early phases. However, the DCAA expects every contractor to meet the same standards regardless of size. If you’re billing labor to a government contract, you must follow the rules from day one.
2. Subcontractors Must Follow the Same Standards
If your firm is a subcontractor under a federal prime contract, your records can be audited by the DCAA as part of the prime’s compliance oversight. Inaccurate timekeeping from a subcontractor can put the entire contract at risk.
Compliance isn’t just about your firm and maintaining valuable business relationships.
Benefits of Using Software for DCAA Timekeeping Compliance
Although DCAA doesn’t require a specific digital platform, most compliant contractors rely on software to meet expectations efficiently. The following benefits make a strong case for automation:
1. Enforced Daily Entry and Time Stamps
Digital systems can restrict access to yesterday’s entries, require daily submissions, and automatically capture timestamps, making it easier to demonstrate compliance.
2. User Authentication and Role Control
Login credentials tie time entries to individual users. Role-based access ensures employees only have the permissions they need, preventing unauthorized changes and maintaining system integrity.
3. System-Logged Audit Trails
Systems that log all edits, approvals, and resubmissions create clear, defensible audit trails. A full record is available for review when changes occur, minimizing disputes or confusion.
4. Pre-Defined Charge Codes
Rather than relying on manual entry, most systems use dropdown menus or templates with approved codes, ensuring that labor is always tied to the right contract or task.
5. Automated Reminders and Supervisor Notifications
Employees receive alerts to submit time, and managers are notified when timesheets are ready for review. These features help maintain routine and reduce late entries, one of the most common audit triggers.
6. Integrated Reporting Capabilities
Pulling labor reports, variance analyses, and contract-specific summaries saves time and ensures accurate documentation for internal and external audits.
Preparing for a DCAA Timekeeping Audit
If your business is selected for a timekeeping audit, here’s what to expect and how to prepare:
- Auditors will review timesheets, including timestamps and change logs
- Employee interviews may be conducted to confirm understanding of timekeeping policies
- System demonstration may be required to prove capabilities and controls
- Labor distribution reports will be reviewed against invoices and contracts
Preparation should start long before the audit notification. Having systems and workflows that naturally align with DCAA expectations puts your organization on solid footing.
The Right Tools Make Compliance Manageable
DCAA compliance doesn't have to be complex or disruptive. It requires structure, discipline, and visibility—but with the right systems in place, these elements become part of your business rhythm. Compliant timekeeping protects your revenue, reputation, and eligibility for future federal contracts.
Do You Want to Learn More About DCAA Timekeeping Requirements?
Do you need a timekeeping system that checks every compliance box without overwhelming your team? WrkPlan offers a fully integrated, cloud-based ERP designed specifically for government contractors. With built-in controls for DCAA-compliant timekeeping, audit-ready reporting, and role-based access, WrkPlan simplifies labor tracking from entry to invoice.
Contact us today to learn more about our timekeeping and project accounting tools!
