Do You Need Timekeeping Software for DCAA Compliance?

No. What you need is a timekeeping system that meets DCAA's requirements, and software is only one part of it. DCAA evaluates how your business records and charges labor, not which product you bought, which is why there's no such thing as DCAA-approved software. A good tool helps you run the system consistently. It can't replace the written policy, the people who follow it, or the second step many contractors miss: turning hours into costs.

Most small contractors start asking about this when a prime, a contracting officer, or a CPA wants to know how they track time. This guide covers what a compliant system is made of, where software helps, and what has to happen after the timesheet is approved.

What a compliant timekeeping system is made of

Timekeeping gets a lot of audit attention, for two reasons: it directly drives what you bill the government, and the source records are created inside your own company. So DCAA looks at the whole system, not just a timesheet screen. The SF-1408, the form the government uses to check a new contractor's accounting system, asks whether you can show, for every employee, which contract or overhead account each hour was charged to. In practice, that rests on a few things:

A written policy. Procedures that are clear-cut, so nobody is guessing what is and isn't allowed when charging time.
Employees who know their part. Labor has no invoice or receipt behind it, so the individual employee is the key link. Everyone needs to understand that they are responsible for recording their own time accurately.
Controls on how time is recorded. Daily entry, not from memory at the end of the week. Every hour worked, direct or indirect, paid or not. The employee certifies their hours and a supervisor who knows the work approves them. And an audit trail: a correction keeps the original entry, who changed it, when, and why.
Checks that the system is actually followed. The controls are verified continually and violations are fixed promptly. Where the company is large enough, timekeeping and payroll are handled by different people.

For how auditors test these controls, see DCAA Timekeeping Requirements: What Auditors Actually Check.

Where software comes in

Software doesn't create any of the above. What it does is enforce the recording controls the same way every day, so the system doesn't depend on people remembering. A good tool can require daily entry, route timesheets for approval, and keep a history of every change.

What it can't do is write your policy, train your team, or answer for an employee in the moment. On cost-reimbursable, time-and-materials, and labor-hour contracts, DCAA can show up unannounced for a floor check and ask employees what they are working on and how they charge it. The answer has to come from the people and the process, with the software backing it up. How to prepare your team for a DCAA floor check covers how to practice for it.

Timekeeping is only half the job

Here is the part a timekeeping system alone doesn't answer. Approved hours still aren't costs. The SF-1408 has a separate item (2f) for turning hours into dollars: a labor distribution that charges direct and indirect labor to the right contracts and cost pools. And DCAA expects that distribution to reconcile to two things, your payroll and your general ledger. In plain terms, the dollars you assign to contracts have to add up to what you actually paid.

A quick example. A salaried employee is paid $4,000 for a two-week period of 80 standard hours and records 90 hours:

Where the time went	Hours	Share	Labor cost
Contract A (direct)	45	50%	$2,000
Contract B (direct)	36	40%	$1,600
G&A (indirect)	9	10%	$400
Total	90	100%	$4,000

The hourly rate is pay divided by all the hours recorded: $4,000 / 90 = $44.44. The 10 hours beyond the standard 80 went unpaid, but they were worked, and DCAA expects rates to reflect every hour worked. Use a flat 80 hours instead ($50 per hour) and you'd spread $4,500 against $4,000 of payroll, and the numbers would no longer reconcile. Once the split is right, it's recorded in the general ledger as a journal entry.

Done by hand, this step usually lives in a spreadsheet. Brian Wendroff describes how that worked for his firm's GovCon clients before WiseCost:

"The more employees a contractor had, the more time consuming, the more room for error that could be created."

Brian Wendroff, CPA, Co-founder of WiseCost and Managing Partner at Wendroff & Associates, CPA

Here is the whole step explained, from approved hours to the journal entry:

For the ways to run this step, from spreadsheets to add-ons to a full ERP, see Labor Distribution in QuickBooks: Spreadsheet vs. Add-On vs. ERP.

When does software start to matter?

It depends on what your contracts can require you to prove, and on how clearly you need to see labor cost by contract:

Firm-fixed-price work only. An SF-1408 survey generally isn't triggered, so you may not need a system built for an auditor. The reason to track time well is your own: knowing your real labor cost by contract so you can price and manage the work. With fixed-price now the government's default contract type, that visibility is what protects your margin.
Time-and-materials or labor-hour contracts. Timekeeping has to hold up, since DCAA can floor-check it. You'll usually want labor distribution too, once you price work or report costs using indirect rates.
A cost-type contract, held or pursued. You need both parts, timekeeping and labor distribution, reconciled to payroll and the general ledger. This is where the system gets tested hardest, and where software that enforces the controls consistently pays off. If you're still bidding, see Do You Need to Be DCAA-Compliant Before You Win a Contract?

A few exceptions are worth flagging, because they catch people off guard: a prime can request an assist audit of a subcontractor, and SBIR or STTR work often starts fixed-price and later shifts into cost-reimbursable territory (see SBIR Phase I to Phase II: How to Get Your Accounting Ready). The time to have a working system is before that happens, not after.

Signs a spreadsheet-and-timesheet setup has run its course:

Someone rebuilds a distribution spreadsheet every pay period.
Distributed labor doesn't match what payroll paid for the period.
You can't say what a specific contract cost in labor last month.
You couldn't show an auditor the trail from an approved timesheet to the journal entry.

Where WiseCost fits

If you already run QuickBooks Online, this is the gap: QuickBooks has no DCAA-style timekeeping and no auditable labor distribution of its own. WiseCost is built to cover both. Employees record time daily from any device, managers approve, and every action stays in an audit trail that is never silently edited. An admin then runs labor distribution: rates come from actual pay and the hours recorded, costs are charged to contracts and indirect pools, and the result posts to QuickBooks Online as a journal entry. Reopen a period and WiseCost books a reversal instead of deleting anything. QuickBooks stays your system of record, so there's no migration. For the full setup, see how to make QuickBooks Online DCAA-compliant.

In addition to the software, a compliant system needs a written timekeeping policy and employees who follow it every day. That part is yours to build, and WiseCost is designed to make it easier to run, not to replace it.

FAQ

No. DCAA evaluates your system, and nothing in the SF-1408 names a product. What it asks for is a timekeeping system with the controls above and a labor distribution that reconciles to payroll and the general ledger. Software is the practical way to enforce those controls every day without relying on memory, but software alone doesn't make you compliant.

No. DCAA audits a contractor's system as it operates, during a pre-award survey or an audit. Software can support the controls it tests, but the determination is about your system and your process, not the product.

Often not. Timekeeping covers who worked on what (SF-1408 item 2e). DCAA also checks labor distribution: turning those hours into costs charged to the right contracts and reconciled to payroll and the general ledger (item 2f). If you hold or are pursuing cost-type work, you need both.

Usually not, with exceptions. Firm-fixed-price contracts generally don't trigger an SF-1408 survey. That changes if a prime requests an assist audit of you as a subcontractor, or if SBIR or STTR work moves from fixed price into cost-reimbursable. Even without an auditor, accurate hours by contract are worth keeping for your own pricing and management.

The Bottom Line

You don't need timekeeping software to be DCAA compliant. You need a timekeeping system that meets DCAA's requirements: a written policy, employees who follow it daily, recording controls you can prove, and labor costs that reconcile to payroll and the ledger. Software is how you run that system consistently, not the system itself. Work out which parts your contracts actually require, then choose tools that make them easier to run on the accounting system you already use.

WiseCost offers a 14-day free trial, no credit card required. You can also run our free DCAA Readiness Self-Assessment to see which parts of your timekeeping system would hold up today, or book a demo to see time entry, approval, and labor distribution end to end.