Why It Is Important for Nonprofits To Implement Time Tracking

Nonprofit organizations are obliged by federal and state wage-and-hours laws to perform a certain amount of time tracking. Funders may also stipulate timekeeping practices. Fortunately, timekeeping software can make the job a lot easier for staffers and managers. Here’s how to ensure your nonprofit complies.

nonprofit auditWhat’s required and what’s not

You generally are required to document hours worked by hourly employees. Even though salaried workers aren’t paid by the hour, you’ll need proof of their time worked if there’s ever a dispute over wages or their exempt status. Exempt employees generally include executive, administrative, and professional workers who earn a salary, provided they meet the Fair Labor Standards Act criteria for these classifications.

In addition, your nonprofit should document incurred costs for funders that reimburse expenses or fund specific programs or activities. Timekeeping is also 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 be penalized if they don’t offer them adequate health care coverage.

If your organization follows Generally Accepted Accounting Principles (GAAP), you must allocate payroll expenses to specific programs and supporting services. Payroll allocation may be the basis for recording other expenses by program. The same holds true for costs deducted from unrelated business income.

Although you’re not required to track volunteer time, you may want to consider tracking it. Knowing the total number of hours volunteers contribute helps you show donors the true cost of programs and the full scope of volunteer support. It also enables you to recognize and reward committed volunteers.

Best practices for nonprofit time tracking

For your timekeeping procedures to be effective, your organization should collect information as early as possible, verify its validity and let 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 everyone adheres to it.

Although tracking time for staffers who work exclusively in a single program usually is easy, timekeeping for multiple programs and supporting service areas can be more complicated. To simplify the task, capture employees’ time and allocate it as soon as you can. If daily tracking isn’t possible, consider capturing time data for a few representative periods during the year and applying those percentages broadly.

Decision-making help

Even if timekeeping weren’t required, it would be a good idea. Careful allocation of payroll and other expenses helps you understand the true cost of running programs. This, in turn, enables you to make decisions such as whether to continue specific initiatives and find new funding for programs.


Contact us to discuss your nonprofit’s specific situation.

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