There are several good reasons for nonprofits to make timekeeping a priority — including the requirements of government and private funders. But even if you weren’t obligated to track and allocate employee time, careful timekeeping can make your organization stronger.
If your staffers aren’t always enthusiastic about the task, take heart. Newer software helps make timekeeping faster and easier than ever.
At minimum, nonprofits are 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.
Federal and state governmental and corporate funders also may stipulate certain timekeeping practices. In general, your nonprofit should document incurred costs for funders that reimburse expenses or fund specific programs or activities. Because payroll is probably your biggest expense, 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.
Timekeeping is further necessary to comply with the Affordable Care Act. Under the act, employees who work, on average, 30 or more hours per week are considered full-time. 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.
Optional but recommended
Generally Accepted Accounting Principles (GAAP) may come into play, too. If your organization follows GAAP, you must allocate expenses to specific programs and supporting services. You also must provide support for allocation of payroll expenses and related taxes and benefits. Often, the payroll allocation is the basis for recording other expenses by program. The same holds true for costs deducted from unrelated business income. The IRS requires that these expenses be based on contemporaneous information.
Although you’re not required to track volunteer time, you may want to consider it. Knowing the total number of hours they contribute helps you show donors and other stakeholders the true cost of running your programs and the full scope of support provided by volunteers. It also enables you to recognize and reward committed volunteers.
But whether you’re required to keep time or not, it’s simply a best 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 specific initiatives, maximize your cost recovery and increase the likelihood of continuing to obtain funding for programs.
Simple and efficient
There are plenty of ways to track and allocate payroll and related expenses, but you want to find the simplest and most efficient. 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). 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.
The efficacy of these procedures will depend on the quality of your timekeeping software. If you’re using old software, it’s probably worthwhile to upgrade to a program that meets your nonprofit’s changing needs. Ask your financial advisor for suggestions.
Failing to properly record worker — and sometimes even volunteer — hours could result in financial penalties, legal trouble and bad publicity. If your current timekeeping method is onerous and ineffective, it’s time to look for new solutions that will encourage everyone in your organization to comply.
Information provided on this web site “Site” by Thompson Greenspon is intended for reference only. The information contained herein is designed solely to provide guidance to the user, and is not intended to be a substitute for the user seeking personalized professional advice based on specific factual situations. This Site may contain references to certain laws and regulations which may change over time and should be interpreted only in light of particular circumstances. As such, information on this Site does NOT constitute professional accounting, tax or legal advice and should not be interpreted as such.
Although Thompson Greenspon has made every reasonable effort to ensure that the information provided is accurate, Thompson Greenspon, and its shareholders, managers and staff, make no warranties, expressed or implied, on the information provided on this Site, or about any other website which you may access through this Site. The user accepts the information as is and assumes all responsibility for the use of such information. Thompson Greenspon also does not warrant that this Site, various services provided through this Site, and any information, software or other material downloaded from this Site, will be uninterrupted, error-free, omission-free or free of viruses or other harmful components.
Information contained on this Site is protected by copyright and may not be reproduced in any form without the expressed, written consent of Thompson Greenspon. All rights are reserved.
Ready to talk to one of our specialists?
Our specialists are all seasoned professionals who have years of experience working within your industry. Reach out to us today to schedule a consultation.