New Year’s Resolution #11: I will make sure my employees charge all time worked

January 19, 2023

At a glance

Without a total time accounting policy, a federal contractor leaves the door open for the possibility of DCAA disallowing labor costs.
Not accounting for uncompensated overtime can result in noncompliance with FAR 31.201-4 and if applicable, CAS 418.
Establishing a consistent practice for accounting for all hours worked by salaried employees that exceed 40 hours a week is an important first step in maintaining compliance.

The full story:

Without a total time accounting policy, a federal contractor leaves the door open for the possibility of DCAA disallowing labor costs, in addition to distorting the base for proper direct and indirect cost allocations.

Uncompensated overtime may be considered noncompliance

The term “uncompensated overtime” refers to hours more than the standard 40-hour week worked by employees who are exempt from the Fair Labor Standards Act (FLSA). The method used to record and bill for the excess hours and their associated cost is often termed “accounting for uncompensated overtime” or “total time accounting.”

The DCAA audit manual (Chapter 6-410.3), cites that “if it is determined that Government contracts are being materially over-charged due to an inequitable allocation of labor costs because the contractor does not record all time worked, the contractor should be cited as being in noncompliance with FAR 31.201-4 and if applicable, CAS 418.

Avoiding noncompliance

What can a Federal Contractor do to avoid noncompliance? Follow these five steps.

Establish a consistent practice for accounting for all hours worked by salaried employees that exceed 40 hours a week.
Ensure that estimating and billing practices are consistent.
Record and bill all qualifying hours worked for competitively awarded T&M contracts, unless prohibited by specific contract terms.
Use a standard billing rate to bill the government

Establish a written time keeping policy and procedure