Quick answer: DCAA timekeeping requirements mandate that government contractors record labor hours daily, by project, with accuracy and supporting documentation. Non-compliance can result in failed audits, disallowed costs, or lost contracts. Contractors must use a compliant timekeeping system and establish clear internal policies.If your business holds—or is pursuing—a government contract, DCAA compliance isn't optional. The Defense Contract Audit Agency (DCAA) audits contractors to ensure that taxpayer dollars are spent appropriately, and timekeeping is one of the first things auditors examine.
Failing a DCAA audit can mean disallowed costs, delayed payments, or losing your contract altogether. The good news? Meeting timekeeping requirements is straightforward once you understand what's expected.
What Is DCAA Timekeeping Compliance?
DCAA timekeeping compliance refers to the standards government contractors must follow when recording employee labor hours. The DCAA, a branch of the U.S. Department of Defense, enforces these standards to verify that labor costs charged to government contracts are accurate, allocable, and allowable under the Federal Acquisition Regulation (FAR).
These requirements apply to any business with a cost-reimbursable, time-and-materials, or labor-hour government contract—including many small and mid-sized businesses that may not have robust accounting infrastructure in place.
What Are the Core DCAA Timekeeping Requirements?
Do employees need to record time daily?
Yes. The DCAA requires that employees record their hours on the day the work is performed—not at the end of the week. Retroactive entries are a red flag during audits and can indicate inaccurate or falsified records.
How should hours be allocated across projects?
Each hour worked must be charged to the correct cost objective—meaning the specific contract, task order, or indirect cost category the work relates to. This includes:
- Direct labor: Time spent directly on a contract
- Indirect labor: Time spent on overhead activities, general & administrative tasks, or leave
Mixing these up—or charging time to the wrong contract—is one of the most common causes of audit findings.
What documentation is required?
Compliant timekeeping systems must maintain:
- A record of hours worked by each employee, per day
- The specific project or cost code charged
- Employee signatures (or electronic authorization) on timesheets
- Supervisor review and approval of all submitted time
- An audit trail showing any corrections made, including who made them and why
Corrections must never overwrite original entries. All changes should be documented transparently.
What Makes a Timekeeping System DCAA-Compliant?
The DCAA does not certify specific software, but it does assess whether your system meets its standards during an audit. A compliant timekeeping system should:
- Require daily time entry
- Prevent backdating without documented justification
- Track time by project or contract number
- Maintain a clear audit trail of all edits
- Support supervisor approval workflows
- Integrate with your accounting system for accurate cost reporting
Many government contractors use dedicated platforms—such as Deltek Costpoint, Unanet, or QuickBooks with a DCAA-compliant configuration—to meet these requirements.
What Happens If You Fail a DCAA Timekeeping Audit?
The consequences of non-compliance range from minor corrective actions to serious financial and contractual penalties, including:
- Disallowed costs: Labor costs that cannot be billed to the government
- Repayment demands: If overbilling is found, contractors may owe money back
- Contract termination: Repeated or severe violations can result in contract cancellation
- Debarment: In extreme cases, contractors can be barred from future government work
For small and mid-sized businesses, a failed audit can be devastating—especially when government contracts represent a significant portion of revenue.
Build a Compliance Culture, Not Just a Compliance Checklist
Meeting DCAA timekeeping requirements isn't just about having the right software. It requires consistent training, clear internal policies, and regular internal audits to catch problems before the DCAA does.
Employees at every level—from project managers to part-time staff—need to understand why accurate timekeeping matters and how to do it correctly. Supervisors must actively review and approve time, not just rubber-stamp submissions.
For businesses experiencing rapid growth or taking on their first government contract, building this infrastructure early prevents costly missteps down the road.
Frequently Asked Questions
What does DCAA stand for?
DCAA stands for Defense Contract Audit Agency. It is a U.S. Department of Defense agency responsible for auditing contracts to ensure that costs charged to the government are allowable, allocable, and reasonable.
How often does the DCAA audit timekeeping records?
The DCAA can conduct timekeeping audits at any time, often with little or no advance notice. Floor checks—where auditors verify that employees are recording accurate hours in real time—are a common tactic.
Does DCAA compliance apply to small businesses?
Yes. DCAA requirements apply to all businesses holding eligible government contracts, regardless of size.
Can I use spreadsheets for DCAA-compliant timekeeping?
Spreadsheets can technically be used, but they present significant audit risk due to the ease of editing without a traceable audit trail. Dedicated timekeeping software is strongly recommended.
