Maintaining detailed time records for staff may not be your favorite task. Unfortunately, it is nonnegotiable. Timekeeping, which includes whether individuals were paid for their work, is necessary for most not-for-profits. However, there are ways to make the job less onerous.
Why timekeeping is critical
Understanding why timekeeping matters can help you put the task in perspective. At minimum, you’ll be compelled by federal and state wage-and-hours laws to do a certain amount of time tracking. These laws require you to document hours worked by hourly employees. And even though you don’t pay salaried workers by the hour, if you get into a dispute over wages or an employee’s exempt status, you’ll need proof of time worked. Exempt employees generally include executive, administrative, professional and outside salespeople who earn a salary.
Governmental and corporate funders also may stipulate certain timekeeping practices. You must document incurred costs for funders that reimburse expenses or fund specific programs or activities. Because payroll is generally your largest cost, you need to document amounts paid and allocate them to various programs and supporting services. Federal cost principles clearly require expense allocation documentation, including allowable and unallowable as well as reimbursable and nonreimbursable items.
Generally Accepted Accounting Principles (GAAP) may come into play, too. GAAP requires you to allocate expenses to programs and supporting services. Again, because payroll is a major category for most not-for-profits, you must provide support for allocation of expenses and related taxes and benefits. The same holds true for costs deducted from unrelated business income.
Timekeeping is further necessary to comply with the Patient Protection and Affordable Care Act. Under this act, employees who work, on average, 30 or more hours per week are considered full-time. Beginning in 2015, employers with 50 or more full-time and full-time equivalent employees may face a penalty if they don’t offer full-time employees sufficient health care coverage.
Required or not, timekeeping is also just a good business practice. Careful allocation of payroll and other expenses is necessary for you to know the true cost of running programs. This can help you decide whether to continue running programs, maximize your cost recovery and increase the likelihood of continuing to obtain funding for these programs.
How to track expenses
There are many ways to track and allocate payroll and related expenses. Generally, the most effective procedures involve collecting information as early as possible, verifying its validity and letting your software program do the rest. For example, you can require employees to record their own time daily (or use a time clock system that does it automatically) and then require managers to verify it on a weekly basis. Consistency is important: Once you’ve established a policy, make sure staff and managers adhere to it.
Tracking time for employees who work exclusively in a single program is easy, but others may supervise or work in multiple programs or a combination of program and supporting service areas. Particularly important is that you capture these employees’ time and allocate it as soon as possible. If daily tracking isn’t possible, consider capturing time data for a few representative periods during the year and applying those percentages broadly.
Timekeeping isn’t simply a best practice. Failure to properly record worker and volunteer hours could bring legal and financial consequences. If you’re unsure about what you need to track and how to do it, talk with your timekeeping software provider and your financial advisor.
For more information or with any questions, please contact Matt Brackman at [email protected]