If your organization holds a cost-reimbursable, time-and-materials, or labor-hour government contract, timekeeping is not an administrative task. It is a compliance requirement with real financial and legal consequences. The Defense Contract Audit Agency (DCAA) conducts audits specifically to verify that contractors are tracking time accurately, completely, and in a way that can be fully documented. When timekeeping fails a DCAA audit, the results can include disallowed labor costs, delayed payments, and in serious cases, contract termination or debarment from future federal work.

This guide covers every DCAA timekeeping requirement you need to understand, what auditors actually check during a floor check or accounting system audit, how to build a compliant system, and how ProjecTime’s DCAA-compliant timekeeping meets each requirement out of the box.

What Is the DCAA and Why Does It Govern Timekeeping?

The Defense Contract Audit Agency is the US federal agency responsible for auditing defense contracts. It operates under the Department of Defense and reviews government contractors’ accounting systems, internal controls, and financial records to ensure that labor costs charged to the government are accurate, allocable, and adequately supported.

The legal basis for DCAA timekeeping requirements comes from two primary sources. The Federal Acquisition Regulation (FAR), specifically FAR 31.201-2, requires contractors to maintain accurate and complete records of all costs claimed under a government contract, including labor. The DCAA Contract Audit Manual (DCAM) provides the detailed operational guidelines auditors use when evaluating timekeeping systems during audits.

Although the FAR sets the rules, the DCAA is the enforcement body. When a contractor fails a DCAA audit related to timekeeping, the consequences are applied to the specific contract under review and can affect the contractor’s ability to win future awards.

The Core DCAA Timekeeping Requirements

The following requirements are what DCAA auditors verify during accounting system reviews and floor checks. Each one must be met consistently, not just when an audit is anticipated.

1. Daily Time Entry

Employees must record their time each day as work is performed. This is the single most fundamental requirement and the one most commonly violated. Recording time at the end of the week from memory does not meet DCAA standards. Reconstructed timesheets, even when they accurately reflect hours worked, fail because the daily contemporaneous entry requirement exists specifically to prevent retroactive adjustment and memory-based inaccuracies.

The DCAA’s floor check process specifically tests this requirement. Auditors arrive unannounced and verify that employees are recording time for the current day in real time. A contractor can have well-written policies and still receive findings if employees cannot demonstrate that they entered time today. Automated daily reminders configured in ProjecTime reduce the rate of missed daily entries without requiring managers to chase employees individually.

2. Total Time Accounting

Employees must record all hours worked, not just time spent on government contracts. This includes direct labor (time billed to specific contracts), indirect labor (overhead, general and administrative time, internal projects), leave time, holidays, and any overtime. The concept is called Total Time Accounting (TTA) and it exists to ensure that the government is not being charged a disproportionate share of labor costs.

In practice this means that an employee who works 45 hours in a week must record all 45, with each hour allocated to the appropriate cost objective: government contract A, government contract B, overhead, or leave. An employee who records only the 40 hours billed to government work and ignores the 5 hours of internal meetings is not compliant, even if the government hours are accurate.

3. Employees Must Enter Their Own Time

Each employee must record their own time. Supervisors and administrators should not enter time on behalf of employees as a standard practice. The requirement exists because personal entry creates accountability: the employee is attesting that the hours recorded reflect their actual work. When a supervisor enters time for an employee, that attestation is removed.

There is a narrow exception for exceptional circumstances such as employee illness or travel that prevents direct system access. In these cases, retroactive entry must be documented as such, with a notation of why the entry was made after the fact, and the audit trail must reflect that the entry was made by someone other than the employee.

4. Time Must Be Charged to the Correct Cost Objective

Every time entry must be allocated to the correct contract, task order, or indirect cost category. Misallocating labor, even accidentally, is a compliance finding. Charging government contract A for time spent on government contract B, or charging direct costs that should be indirect, are common misallocation patterns that DCAA auditors specifically look for.


ProjecTime’s project and task structure allows contractors to configure charge codes that mirror their contract structure, including contract numbers, CLINs (Contract Line Item Numbers), task orders, and indirect cost categories. Employees select the correct charge code when logging time, reducing misallocation to a configuration and training issue rather than a systemic one.

5. Supervisor Review and Approval

All timesheets must be reviewed and approved by a supervisor before they are used for billing or payroll. The supervisor’s approval is their attestation that the hours appear accurate and consistent with the employee’s work assignments. This is not a formality: DCAA auditors verify that approvals are meaningful, that supervisors are actually reviewing entries rather than rubber-stamping submissions, and that the approval happened before the timesheet was finalized for billing. ProjecTime’s timesheet approval workflow supports configurable approval routing per project, per team, or per individual. Multi-level approval is available for organizations where a project manager reviews first and a compliance officer or finance team reviews second. Timesheets lock automatically on approval, preventing any further edits to the approved record.

6. Corrections Must Be Documented With Reason Codes

When a time entry needs to be corrected after the fact, the correction must be documented. The original entry must remain visible. The reason for the change must be recorded. The identity of the person who made the correction must be logged. And the correction must be authorized by the employee’s supervisor.

Silent edits to time records, where a number is changed without documentation, are a serious DCAA finding. The audit trail in ProjecTime logs every entry, edit, approval, rejection, and correction with a timestamp and the identity of who performed each action. When a timesheet is returned for correction, the employee makes the change and resubmits, and the full exchange is documented automatically.

7. Timesheets Must Lock After Approval

Once a timesheet has been reviewed and approved, it must be locked against further modification without a documented re-approval process. An approved timesheet that can be edited freely after the fact provides no audit integrity. ProjecTime locks timesheets automatically upon approval. Any post-approval change requires the timesheet to be reopened through a formal process, with the reopening, correction, and re-approval all logged in the audit trail.

8. Complete Audit Trail for Every Action

The DCAA requires a complete and tamper-resistant record of every action taken on a timesheet: who created each entry, when it was created, any edits made, who made them and when, who approved the timesheet and when, and any corrections including the reason given. This audit trail must be available for DCAA review at any time, including during unannounced floor checks. ProjecTime maintains this audit trail automatically for every timesheet action in the system. No manual documentation is required from administrators or employees. The trail is complete, timestamped, and tied to individual user accounts.

9. Separation of Direct and Indirect Costs

Labor costs must be clearly separated into direct (billable to a specific government contract) and indirect (overhead, general and administrative, fringe benefits). Mixing direct and indirect costs in time records is a common audit finding and can result in the government being overcharged or the contractor’s accounting system being found inadequate. In ProjecTime, every time entry is classified as billable or non-billable at the point of entry, with billable entries tied to the specific project or contract they belong to. This classification feeds directly into billing reports and can be configured to align with the contractor’s chart of accounts and indirect cost rate structure.

10. Written Timekeeping Policies

DCAA requires contractors to maintain written timekeeping policies that reflect actual practice. These policies must cover how employees record time, what charge codes are used, how corrections are handled, supervisor responsibilities, and the consequences of non-compliance. Policies that exist on paper but do not match what employees actually do in practice are a finding.
ProjecTime’s policies feature allows administrators to configure submission deadlines, automated reminders, and approval rules that enforce written policies automatically. When the system enforces the policy, the gap between written procedure and actual practice closes significantly.

What Happens During a DCAA Timekeeping Audit

Understanding what auditors actually do during a review makes compliance preparation more concrete.

Accounting System Audit

A formal accounting system audit evaluates whether the contractor’s accounting systems, including timekeeping, produce reliable and auditable cost data. DCAA uses the criteria from DFARS 252.242-7006 as a framework. The audit covers system design, internal controls, whether policies and actual practice align, and whether the records produced by the system can be relied upon for billing.

Timekeeping is explicitly included in the system criteria. A finding in timekeeping can result in a conditional or inadequate accounting system determination, which affects the contractor’s ability to receive progress payments or win cost-type contracts.

Labor Floor Check

Floor checks are unannounced site visits where DCAA auditors verify compliance in real time. Auditors arrive at the contractor’s facility and ask employees what they are working on and whether they have entered their time for today. They verify that what the employee says they are doing matches what the employee charged on their timesheet. They verify that supervisors are meaningfully reviewing timesheets rather than approving without review.

Floor checks are the practical test of whether daily entry is actually happening. A contractor that records time weekly and then reconstructs daily entries before an anticipated audit will be found non-compliant during an unannounced floor check. The only way to pass a floor check is to maintain daily entry as the actual practice, which is what automated daily reminders and the compliance dashboard in ProjecTime are designed to support.

Contract Audit

During a contract audit, DCAA reviews the specific labor charges billed under a contract and traces them back to the supporting timesheets. Auditors verify that each billed hour has a corresponding timesheet entry, that the entry was made on the correct date, that it was approved by a supervisor, and that any corrections were documented with reason codes. Hours that cannot be traced to compliant time records are disallowed.

Consequences of Non-Compliance

How to Build a DCAA-Compliant Timekeeping System

Compliance is not achieved by buying a tool. It is achieved by building a system that employees follow consistently. The right software makes consistent compliance easier, but the following practices must exist alongside any tool.

• Write your timekeeping policy before configuring your system. Document how time is entered, what charge codes mean, how corrections work, and supervisor responsibilities. The system should enforce this policy, not define it.
• Train every employee before they begin charging time. DCAA requires contractors to train employees on timekeeping procedures and to retain evidence of that training. New employee onboarding must include timekeeping compliance as a formal component.
• Configure daily entry reminders and enforce them. The most common DCAA finding is time entered weekly rather than daily. Automated daily reminders that fire if an employee has not entered time by end of business are the most practical way to enforce this requirement.
• Set up charge codes that mirror your contract structure. Every contract, task order, and indirect cost category should have its own charge code. Employees should never have to guess where to charge time.
• Make supervisor approval meaningful, not a formality. Train supervisors to review entries against actual work assignments before approving. A supervisor who approves without reviewing is a DCAA finding regardless of how the system is configured.
• Never edit approved timesheets without documentation. Every post-approval change must follow the formal correction process: reopen, correct with reason code, re-approve. Establish this as a hard rule with no exceptions.
• Conduct internal compliance reviews quarterly. Do not wait for a DCAA audit to find problems. Review the audit trail regularly for patterns: are employees entering time daily, are supervisors approving promptly, are charge codes being used correctly?

How ProjecTime Meets Every DCAA Timekeeping Requirement

DCAA Compliance and On-Premise Deployment

Some government contractors have data residency or security requirements that prohibit storing employee time records on third-party cloud infrastructure. ProjecTime offers both cloud and on-premise installation, allowing contractors to run the full DCAA-compliant timekeeping system on their own servers. The on-premise version maintains all compliance features including daily entry enforcement, approval workflow, audit trail, and timesheet locking, without any time data leaving the contractor’s own infrastructure.

This is a meaningful differentiator for defense contractors and intelligence community contractors where cloud storage of sensitive project and labor data may not be permissible under contract terms. See: ProjecTime on-premises overview.

Frequently Asked Questions

Does DCAA compliance apply to small businesses?

Yes. All government contractors are subject to DCAA compliance requirements regardless of company size. Small businesses that hold cost-reimbursable or time-and-materials contracts must meet the same timekeeping standards as large prime contractors. The DCAA conducts Pre-Award surveys for small businesses before awarding cost-type contracts specifically to verify that the accounting and timekeeping systems can support compliance.

Can I use a spreadsheet for DCAA-compliant timekeeping?

Technically yes, but practically it is extremely difficult. A spreadsheet can capture daily time entries but it cannot enforce the daily entry requirement automatically, cannot produce a tamper-resistant audit trail, cannot manage approval workflows with documented sign-off, and cannot lock entries after approval. Most DCAA auditors will scrutinize spreadsheet-based systems heavily because the controls required are difficult to demonstrate without an electronic system designed for compliance.

What is a DCAA floor check and how do I prepare for one?

A floor check is an unannounced visit by DCAA auditors to verify that timekeeping practices match written policies. Auditors ask employees what they are working on, check whether they have entered time for today, and verify that supervisors are reviewing timesheets meaningfully. The only way to be prepared for an unannounced floor check is to be compliant every day. That means daily entry is the actual practice, not something that gets caught up at end of week, and supervisors are reviewing entries before approving.

How long must timekeeping records be retained?

The FAR generally requires contractors to retain timekeeping records for three years after the final payment on a contract. Some contracts and agencies require longer retention periods. On-premise deployment allows contractors to retain records indefinitely on their own infrastructure without dependency on a third-party vendor’s data retention policies.

What is the difference between direct and indirect labor for DCAA purposes?

Direct labor is time spent working on a specific government contract that can be billed directly to that contract. Indirect labor includes overhead (time spent on activities that support all contracts, such as facility management or equipment maintenance), general and administrative time (time spent on company-wide administration), and fringe benefit time. Total Time Accounting requires all categories to be tracked, not just direct hours. ProjecTime’s billing feature allows direct and indirect labor to be tracked and reported separately, supporting accurate indirect rate calculations.

Get Started With DCAA-Compliant Timekeeping in ProjecTime

ProjecTime’s DCAA-compliant timekeeping covers every requirement covered in this guide: daily entry enforcement through automated reminders, total time accounting across direct and indirect categories, employee self-entry with supervisor approval workflow, configurable multi-level approval, automatic locking on approval, complete audit trail for every action, direct and indirect cost separation, and written policy enforcement through the policies configuration. Cloud and on-premise deployment both available.

The free plan includes the full timesheet feature and approval workflow for 3 users and 3 projects. See ProjecTime pricing for full details. Also see: timesheet approval process best practices, timesheet automation, and what is a timesheet.