DCAA Compliant Timekeeping
When businesses win contracts from the US government, their timekeeping must be compliant with the Defense Contract Audit Agency (DCAA) and Department of Labor (DOL) regulations.
What is DCAA compliance?
When you obtain a government contract, DCAA (Defense Contract Audit Agency) is obliged to ensure your company follows the necessary timekeeping and accounting rules. On your part, this means your company should comply with the DCAA requirements to make it easier for the agency to assess you.
Observing these rules is known as DCAA compliance.
The DCAA timekeeping requirements regulate the documentation of employee working hours. In the government’s eyes, time tracking documents provide proof that no time was wasted and no fraud committed regarding work time.
That’s why, to achieve DCAA compliance, it's vital to keep clear timesheets that document each employee’s work hours.
DCAA performs unannounced audits to find out whether contractors abide by their regulations regarding timekeeping. Their representatives may visit your company and talk to employees to check whether everything is in order. This practice is known as a floor check.
A DCAA audit examines if businesses on government contracts do the following:
- Practice daily time tracking
- Keep precise records with audit trails for all changes
- Practice extensive reporting
- Obtain specific supervisor approvals, and more
Benefits of DCAA compliant timekeeping
Following all the DCAA timekeeping requirements has many advantages apart from securing you a government contract. They include the following:
- Streamlined processes and workflows — Having a strict timekeeping policy helps everyone stay organized, prioritize, and divide their work into more manageable tasks.
- Improved efficiency — Daily time tracking allows you to see how employees spend their work hours and if there’s room for more efficiency.
- No delayed payments to your company — Your time tracking procedures help you stay on top of all the necessary documentation, such as reports and invoices, which you can promptly send to your clients.
- You're more likely to get a pass for future contracts — Passing your DCAA audits with flying colors makes you more likely to land another government contract in the future.
- More transparent operations — Employees are in charge of their timesheets and can refer to them at any time.
- Data-driven decisions — Having detailed insight into how employees spend their time can help you better prioritize tasks and make informed decisions about future projects.
DCAA compliant timekeeping checklist
Navigating DCAA timekeeping requirements can get tiresome and complicated, and we’ll get to explaining them in detail in a second.
But first, here’s a simplified list of the DCAA time tracking conditions to help you get the gist of it:
- Everyone in your company needs to track time.
- Employees must record all hours they work (even overtime, vacation, unpaid, etc.).
- Employees must log time themselves (managers and supervisors shouldn't log time for others).
- Employees need to log time daily (all timesheets need to be completed at the end of each day).
- Employees need to specify what project or job they worked on (all logged time needs to be categorized by project/job).
- You need to have clear-cut submission and approval procedures.
- Both the employee and the supervisor need to review and approve the time records.
- Employees must be familiar with the timekeeping procedure and requirements (via training and public procedures).
- You should constantly yet unobtrusively remind employees of time tracking guidelines.
- If approved (i.e. locked) timesheets are changed, you have to have an immutable record of all the changes and an audit trail (so that it's clear what has been changed, when, and why).
- Time reports that show the results of charges to the contract have to be produced at least every month (if not more frequently).
- Whoever is responsible for approving timesheets can't run your payroll (your accountant and timesheet administrator should not be the same person).
- You have to be ready for unannounced inspections (i.e. floor checks). DCAA can visit and interview your employees to see if they are at work and check how well they understand the procedures, whether they are working on the right projects, and if their time records back this up.
DCAA timekeeping requirements
For a more in-depth understanding of DCAA compliant timekeeping, we take a closer look at the agency’s time tracking requirements.
DISCLAIMER: The timekeeping requirements listed here are taken from the Information for Contractors Pamphlet found on the DCAA website.
However, it’s worth noting that the official DCAA Contract Audit Manual (CAM) no longer matches the information found in the pamphlet, and some sections about timekeeping referenced in the CAM’s Keyword Index don’t exist in the relevant chapter of the manual (i.e. 5-909).
We advise you to contact your local DCAA field audit office (FAO) for more information.
Creating a company-wide timekeeping policy
The first step in ensuring compliance is to write up a formal timekeeping policy that reflects the DCAA requirements.
This policy will serve as a guide for your employees and provide the DCAA auditors with information on what to expect from your time tracking system.
Ensuring familiarity with timekeeping procedures
Everyone must be familiar with timekeeping procedures to ensure employees track their hours properly.
These procedures should be clearly laid out and easy to understand, for both employees and the supervisor.
During a floor check, DCAA representatives may question any employee, so it's important that everyone is prepared.
Practicing daily time tracking
All employees should track time every day individually in real-time. This also includes unpaid hours, overtime, and paid time off.
Employees should log their time only for the current day, and refrain from adding backdated entries or entries for the future.
Since all activities should be recorded daily as they happen, it's best to turn to a digital solution for this purpose, i.e. time tracking software, such as Clockify. It's easier to use, faster, and more precise than keeping time manually.
Also, with DCAA compliant timekeeping software, you and your employees will be able to add time anywhere, across multiple devices, and have all data synced.
With Clockify, employees can log their activities as time entries by using the work hours tracker.
Alternatively, they can manually enter time in the timesheet.
To prevent people from adding backdated entries, Clockify allows you to lock timesheets and implement timesheet approval. Enabling these features safeguards the time records against data tampering.
Keep in mind that supervisors aren't allowed to log time for their employees, unless there is a valid reason for it, such as timekeeping for employees on sick leave or a business trip.
Labor cost calculations
DCAA calculates your project costs based on the number of hours your team worked, regardless of whether they're paid by the hour or not.
Clockify automatically calculates labor costs based on hours worked. You simply define the hourly rate for each employee, and whenever you run a time report you'll also get labor costs, in addition to seeing hours worked.
Obligatory overtime recording
Regardless of whether employees are paid by the hour or have fixed salaries, all overtime must be recorded.
This is because employees' average hourly rate varies depending on the number of hours they've worked, i.e. it changes if they've worked overtime.
As mentioned in the previous point, without overtime recorded, it's impossible to calculate correct labor costs.
In Clockify, you can estimate the number of hours it'll take to finish each task assigned to a team member, which translates to how many regular working hours they are expected to spend on those tasks. You'll be able to track the progress of each project on the projects page (tracked vs estimated time) and the progress of each task once you click the chart icon of the individual project.
You'll be able to see the estimated vs tracked time for each task and check whether anyone worked overtime on their task or is close to the limits.
Alternatively, you can check your employees’ work hours in the weekly report and see whether anyone has clocked in over 8 hours a day or 40 hours per week.
There are two types of overtime:
- Uncompensated overtime — For exempt employees (salaried employees earning a minimum of $684 per week) under the Fair Labor Standards Act (FLSA). Overtime that isn't paid as the contract provides the employee with a fixed salary, which stays the same, no matter the number of hours worked.
- Paid overtime — For nonexempt employees (other salaried and hourly employees) under FLSA. This type of overtime has to be paid.
Both types of overtime should be included in your employees' timesheets.
Not recording overtime can be interpreted as fraud. That’s because the company’s profits increase as every hour of overtime lowers the effective hourly rate it pays its exempt employees.
Recording paid time off
Paid time off includes:
- National holidays,
- Sick leave, vacation,
- Personal time,
- Family and parental leave, and
- Pay during bereavement.
By providing timekeeping data on paid time off, you ensure you avoid labor accounting fraud in the eyes of the government.
In general, all work-related time must be reported.
Categorizing all logged time by project/task
DCAA requires the company to specify on what task and project the employees spent their work time.
Each time an employee starts working on a task, they should create a time entry under the project the task belongs to.
To make sure all entries fall under a specific project in Clockify, you can go to your workspace settings and select "Project" as a required field. This way, employees won't be able to track time on an activity unless they select a project.
You can make tasks linked to specific projects by default, so when employees select a task, they will automatically select the project the task falls under as well.
To make sure all entries have a specified task, just select "Task" as a required field in your workspace settings. Employees won't be able to track time on an entry without selecting a task.
Recording all changes
All changes in time tracking data need to be recorded so that the government has an insight into why the changes were made.
To make sure all the data is correct and in sync, you can again turn to Clockify's locked timesheets feature. This way, no one will be able to make changes to entries after a date and time you select.
Clockify also allows you to keep track of all the changes via an audit log. By activating this feature, you can see who changed what and when.
Employees signing off time entries
All time entries must be personally signed off by the employee.
In Clockify, once the user is done with a task, they can click "End", and the time entry will be added to their personal list of all time entries they worked on.
Employees and supervisors co-approving time records
Users can submit their weekly timesheets for official approval. Then, supervisors can see their timesheets in a detailed report and make sure everything is categorized properly.
When employees and supervisors make sure everything is in order, admins can officially approve timesheets. Once a timesheet is approved, it can no longer be edited by anyone.
If there is a mistake and employees need to make changes to approved timesheets, they can log additional time and submit the new entry for approval.
Alternatively, admins can withdraw approval and edit the timesheet. When an admin withdraws approval, an audit log of the changes will remain so that you (and DCAA) can easily trace them.
Separation of timekeeping from labor-related responsibilities
You should separate responsibility for timekeeping from that for payroll and other labor-related activities.
The payroll staff should not have any control over employees’ time tracking data.
When the monthly time tracking is done, the manager can request that all employees generate summary reports on their tracked time and then export them as a PDF. Once the manager receives the reports, they can forward them to payroll.
Clockify summary report example
Allocating charges to appropriate cost objectives
Make sure to include the hourly rates for all team members in the workspace, to properly calculate billable hours.
If you have a default hourly rate for the entire Clockify workspace, simply indicate the price in the workspace settings, and all projects and team members' rates will be calculated according to this rate.
You can also set specific hourly rates for each project on the project's page.
Alternatively, you can set hourly rates for individual team members working on each project, and the rates will be calculated based on that data.
Once you have the hourly rates sorted out, it'll be easy to calculate the price for each project, in compliance with the DCAA requirements.
To calculate the price for a project, go to the summary report, select the period when your team worked on that project, and filter results by the said project. You can then generate results as a PDF report and send it out.
Properly assigning tasks to employees
The project's manager should clearly indicate who's in charge of what task — the manager assigns the job, the employee performs it.
In Clockify, you can simply:
- Define and add tasks in the project's Task tab,
- Add team members in the Team tab, and
- Assign team members with the tasks corresponding to their job descriptions.
Securing time tracking software accounts
Employees must properly secure their accounts within the company’s time tracking software.
Once users receive invites to join Clockify, they get a link to generate their own, secure passwords.
DCAA encourages password changes at least once every 6 months to keep data completely secure.
If you want to go the extra mile to secure user access, you can rely on Clockify’s single sign-on system (SSO) feature that comes with the Enterprise plan.
All timesheets must be signed, preferably electronically.
But, the supervisor can print out the timesheets and manually sign them if necessary.
Issuing information on costs monthly
Information on costs and billing has to be issued at least once a month.
You can easily generate this data monthly in Clockify. Just go to the summary report, select "last month” in the date picker, and you'll get a chart showing how many hours you've tracked in the previous month.
You'll get info on how much of it was billable vs non-billable each day of the month. You can also find information about your earnings in the header of the chart.
Once you have the desired data, you can export the document as a PDF or Excel and prepare it for the DCAA representatives.
Exporting a report in Clockify
Obligatory participation in timekeeping
Finally, all employees within the company must participate in timekeeping and cooperate to meet the necessary requirements.
NOTE: Using time tracking software is not enough to be DCAA compliant
Clockify does allow you to track time in a way that's compliant with the DCAA regulations, but using Clockify or any other time tracking software doesn’t make you DCAA compliant by default.
For example, in Clockify, admins can edit employees' timesheets (albeit, with a clear audit log). However, bear in mind that, according to DCAA, managers shouldn't edit employees’ timesheets without their explicit knowledge and consent. So, you’re responsible for using your timekeeping software in a DCAA compliant way.
In this particular case, you should lock time so that no one can edit it, at least not without a written trace (for audit purposes).
We advise you to consult with your legal department to learn more about the DCAA requirements and understand the best way to operate within the agency’s regulations.