Total Time Accounting and Uncompensated Overtime for Salaried Staff

In a small government contractor, the people who work the longest weeks are often salaried: the program manager, the senior engineer, the owner. Their paycheck does not change when they work 50 hours, so it is tempting to record 40 and move on. For DCAA, that puts part of the salary on the wrong contracts. This guide is for owners and bookkeepers with salaried staff on contracts. It is part of our series from payroll to job cost.

Paul Calabrese, a former DCAA auditor, described what auditors ask in a floor check in our DCAA Ready webinar:

"They have a lot of questions on something called uncompensated overtime. Basically, beyond the 40-hour work week, are you working? What do you put down in your timesheet? You say it's 40 hours, but in reality, you work 50 hours. And then, if you really are working 50 hours, how is that prorated? If it's just one cost reimbursement contract, that's fine. But if you start to split, then there are other issues... so they want to look for something called total time reporting. That's a big thing with them."

Paul Calabrese, former DCAA auditor

The short answer

Total time accounting means every employee, salaried ones included, records all hours worked, not only the first 40 and not only the hours on contracts. Uncompensated overtime is the hours a salaried, FLSA-exempt employee works beyond an average of 40 a week without extra pay.

To charge a salary correctly, divide the salary for the period by all hours recorded in the period. That gives the cost per hour. Then multiply the cost per hour by the hours recorded on each contract and activity, and charge each one that amount. When someone works more than 40 hours a week, their cost per hour goes down, and every contract and activity they worked on carries its fair share of the salary.

A salary is spread over all the hours worked, not over the 40 that were paid for.

Here is that moment in the webinar:

What DCAA and FAR say

DCAA's guide for contractors, Information for Contractors (DCAA Manual 7641.90), lists among the employee's timekeeping responsibilities:

"Recording all hours worked whether they are paid or not. This is necessary because labor costs and associated overheads are affected by total hours worked, not just paid hours worked. Therefore, labor rate computations and labor overhead costs should reflect all hours worked. Unpaid hours worked are termed 'uncompensated overtime.'"

DCAA Manual 7641.90, Information for Contractors

FAR 52.237-10 defines uncompensated overtime as "the hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act." It adds that paid absences such as holidays, vacations and sick leave count toward the normal work week when you compute uncompensated overtime. So a week with an 8-hour holiday and 32 hours of work has no uncompensated overtime.

Nonexempt employees are paid for their overtime, so their extra hours are paid hours. Uncompensated overtime is a question about exempt, salaried staff.

A worked example: 80 hours or 84

The employee from our pillar example is paid $6,000 for a biweekly period. This period they actually worked 84 hours: 48 on Contract A, 28 on Contract B and 8 on overhead. Compare two timesheets for the same two weeks:

Timesheet 1 shows 80 hours. The 4 extra hours worked on Contract B were left off.
Timesheet 2 shows all 84 hours.

The salary is $6,000 either way. What changes is the cost per hour, and with it how much each contract is charged.

	Timesheet 1: 80 hours	Timesheet 2: all 84 hours
Cost per hour	$6,000 ÷ 80 = $75.00	$6,000 ÷ 84 = $71.43
Contract A	48 hours: $3,600.00	48 hours: $3,428.57
Contract B	24 hours: $1,800.00	28 hours: $2,000.00
Overhead	8 hours: $600.00	8 hours: $571.43
Total	80 hours: $6,000.00	84 hours: $6,000.00

Amounts use the unrounded cost per hour, $71.428..., so each line rounds to the cent and the total stays exactly $6,000.00.

Timesheet 2 is the one that matches the work. Against it, Timesheet 1 charges Contract A $171.43 too much and overhead $28.57 too much, and charges Contract B $200.00 too little.

In other words, with 80 hours recorded, Contract A and overhead carry part of the cost of work that was done on Contract B. If Contract A is cost-type and Contract B is fixed-price, the government is paying for hours that went to the fixed-price job. That is the split Paul describes, and the reason an auditor asks what you put down when you work 50 hours.

The cost per hour, $6,000 ÷ 84 = $71.43, is sometimes called the effective rate. It changes every period with the hours worked, which is why it is calculated from each period's timesheet and not set once a year.

Uncompensated overtime in proposals

When the government buys professional or technical services by the number of hours, FAR 37.115-2 requires the solicitation to ask offerors to identify uncompensated overtime hours and the uncompensated overtime rate for direct-charge, FLSA-exempt staff. FAR also says plainly that "use of uncompensated overtime is not encouraged." The provision is FAR 52.237-10, and it asks four things of the offeror:

Use an adjusted hourly rate. FAR's own example: 45 hours a week proposed at $20 per hour on a 40-hour basis becomes $20.00 × 40 ÷ 45 = $17.78 per hour, applied to all proposed hours.
Identify the hours as regular or overtime, by labor category.
Estimate the way you account. The practices you use to estimate uncompensated overtime must be consistent with how you accumulate and report it in your books.
Include your policy. A copy of your uncompensated overtime policy goes with the proposal.

DCAA's Contract Audit Manual (Chapter 9, September 2026) adds that when salaried employees consistently work beyond 40 hours a week, estimated hourly labor rates should reflect the total expected annual hours, and that an auditor notifies the contracting officer if the hours, the adjusted rates or the policy are missing.

Item 3 is where proposals and timesheets meet. If you propose uncompensated overtime but your timesheets never show more than 40 hours, the estimate has no accounting history behind it.

What to put in place

A written total time accounting rule. All hours worked, by everyone, including salaried and exempt staff. Our free Timekeeping Policy Generator includes a Total Time Accounting section.
An uncompensated overtime policy if you bid hours-based services, because FAR 52.237-10 asks for it with the proposal.
Indirect time on the timesheet. Overhead, G&A, bid and proposal, PTO and holiday need their own codes, so a 50-hour week has somewhere honest to go.
Labor distribution from actual hours. Each period's salary over each period's recorded hours. A fixed percentage split, or a rate frozen at 2,080 hours a year, does not follow the work.
Training. Employees should know why recording 50 hours does not change their pay but does change where it is charged. See how to prepare your team for a DCAA floor check.

How WiseCost handles salaried staff

WiseCost is a QuickBooks Online add-on for DCAA timekeeping and labor distribution. QuickBooks Online stays your accounting system.

Expected hours per employee. Enter each person's expected hours per week and turn on "Require expected hours to submit." A timesheet below the expected total cannot be submitted, so the employee logs the rest of their time, including PTO or holiday.
Hours above the expectation are never blocked. The approver sees an "Over expected" badge, so long weeks are visible instead of trimmed.
Labor distribution over all hours. Each employee's pay for the period is spread across what they worked on in proportion to their hours, so a salaried employee who recorded 84 hours is charged at $71.43 an hour, not $75.00.
Time entries, not percentages, under the DCAA preset. The DCAA preset turns off distributed tracking, so salaried employees record their own time instead of a split set by an admin.

FAQ

Yes. DCAA expects every employee whose labor is charged to contracts or indirect pools to record their time daily by cost objective, salaried or hourly. Their timesheets are what labor distribution uses to split the salary across contracts.

Recording all hours worked, paid or not, across contracts and indirect activities. DCAA's guide for contractors explains that labor costs and overheads are affected by total hours worked, not just paid hours, so labor rate computations should reflect all hours worked.

Under FAR 52.237-10, the hours worked without additional compensation in excess of an average of 40 hours per week by direct-charge employees who are exempt from the Fair Labor Standards Act. Paid holidays, vacation and sick leave count toward the normal work week when you compute it.

Divide the salary for the payroll period by all hours the employee recorded in that period. A $6,000 biweekly salary over 80 hours is $75.00 an hour; over 84 hours it is $71.43. Each contract and activity is charged that rate multiplied by its hours.

No. The salary stays the same. Recording all hours changes how that salary is split across contracts and indirect activities, so each one carries the cost of the work actually done on it.

The Bottom Line

A salaried employee's pay is fixed, but the hours behind it are not. Record every hour, divide the salary by all of them each period, and each contract carries the cost of the work actually done on it. If you bid hours-based services, the same records support the uncompensated overtime FAR 52.237-10 asks you to disclose, and the policy you send with the proposal.

Is your timekeeping ready for salaried staff? Generate a written policy with the free DCAA Timekeeping Policy Generator, or start a 14-day free trial of WiseCost on your QuickBooks Online.

Salaried Employees, Total Time Accounting and Uncompensated Overtime: How to Spread a Salary Over All Hours Worked