Billing and Timekeeping: Guidance and Principles
Timekeeping can become an afterthought for your employees as they focus on getting work done for projects. But as you know, the wrong timekeeping practices can negatively impact key operations of your business and even damage your bottom line. The following principles can help your staff handle billing and timekeeping more effectively.
Avoiding the Timekeeping Conundrum
Accurate and consistent timekeeping submission supports several crucial financial operations for your business, including:
- Payroll processing, which leads to your employees getting paid.
- Job costing, so you can prepare accurate financial statements and have crucial information for estimating.
- Billing, so your company can collect on all services performed.
All these essential functions and results start with proper timekeeping. Without these, you are stuck in a timekeeping conundrum.
Issues with Improper Timekeeping
Since so much depends on accurate timekeeping, it needs to be a priority for your organization. This is particularly true if your client billings are based on time spent. If your employees don’t track their hours properly and in a timely fashion, your system may not record everything accurately, and hours could be missed, resulting in lost revenue.
In addition, you rely on an accurate history of time spent on past projects to create estimates for future bids. Otherwise, you’re planning off incorrect information.
Accurate timekeeping is also part of meeting federal government contractor requirements, like the Federal Acquisition Regulation. As a January 2023 Federal Circuit Court ruling demonstrates, all labor that is part of an employee’s normal job responsibilities should be recorded. This includes all work hours for all employees, regardless of position, whether they take place after hours, or whether the hours worked are direct, indirect, allowable, or unallowable. Errors from improper practices could harm your ability to land future contracts and even lead to penalties.
Keep these points in mind as you explain to your employees why they need to pay attention to timekeeping.
Best Practices for Employees Recording Time
There are a few best practices employees can use to improve the quality and accuracy of recording time. First, they should get into the habit of recording their time daily. Whatever method they use to capture the time that is in line with the company’s expectations is fine, but keeping track of time on an ongoing basis supports accuracy. Make it a company practice that employees submit their timesheets at least weekly to their approver and that the approver reviews them promptly.
Your company should adequately train employees in what they should do for recording time, including the level of detail, desired increments, and the calculation for total time recorded. Be sure to explain how employees should change previous records, including providing a trail to explain what happened.
Above all, stress to employees that accuracy is their responsibility and that you trust them with this vital work.
Department Best Practices and Principles
After employees submit their timekeeping records, identify who will approve them in the appropriate departments. Put someone in charge of this role, and don’t have it loosely shared between multiple staff members. This reduces confusion and prevents missed timesheets. Ideally, this staff member should approve timekeeping records within a day of submission.
Segregating duties between payroll and timekeeping is an important internal control. Don’t blur the responsibilities, as they are two distinct functions. This can help prevent mistakes. As part of project tracking, remember that timekeeping is not part of project performance for charging clients – time spent filling out timesheets should be considered overhead.
Your goal with these steps is to minimize corrections in the timekeeping process and, even more importantly, avoid the costly penalties that arise from labor mischarging.
If you’d like more help getting your billing and timekeeping systems organized, let’s talk.
Meet the Author
Diana Strassmaier, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Diana joined the firm in 2018 with almost two decades of experience serving members of various industries including construction, engineering and architecture, manufacturing and distribution, and government contracting. An expert on conducting overhead audits, Diana works closely with government contracting industry clients to offer clarity on how overhead rates work and help them maximize compensation.... Read more Diana Strassmaier, CPA, CCIFP®
- Indirect cost rate (overhead) audits and consulting
- Financial audits, reviews and compilations
- Business and personal tax planning and preparation
- Certified QuickBooks ProAdvisor
- Management consulting
- Compensation analysis
- Sage Fixed Assets Certified Consultant