Exempt, Salaried, Direct Labor -

Can more than 40 hours per week be billed to customer?

INQUIRY: Some Large Firms say it's okay that they only record and charge 8 hours per day/40 hours per week for their exempt direct people, regardless of how many hours they work.  What do you think?  Is it okay to charge/bill more than 40 hours per week for exempt employees?


RESPONSE: I want to give you a reference that may clear some things up for you, especially the question on what some Large Primes told you.

If you have your "Trusty DCAA Contract Audit Manual" I want you to go to Volume 1 of 2 and go to 6-410.3 and read the short paragraphs a-d, especially b.  Then review 6-410.4 and 6-410.5.

(For those who don't have a copy of this manual, it is available online at www.dcaa.mil.)

Remember, many of the large firms are also subject to Cost Accounting Standards (CAS) and they may have had their legions of auditors and lawyers get into technicalities that may have worked (I say, for awhile).

Anyway, if a firm is only recording 8 hours a day, 40 hours a week for exempt employees, it is a red flag.  At that point, additional inquiries and questions will be asked and more in-depth audit may be required.


FYI for convenience below is one of the references I mentioned above.  Notice the underlined key wording:

  • DCAAM 6-410.3 b. Determine whether the contractor is recording all hours worked by exempt employees. If a review of the employee time records discloses that exempt employees consistently record only 8 hours per day/40 hours per week, conduct floor checks and/or employee interviews to see whether exempt employees work in excess of 8 hours per day or 40 hours per week. If they do, discuss with contractor representatives the need to record all hours worked by exempt employees in order to ensure that salary and applicable indirect costs are being equitably allocated to all effort performed by the employees during the period. If the contractor refuses to record all hours worked by exempt employees, expand the floor checks and employee interviews to determine whether the failure of the contractor to record all time worked results in a material difference in the allocation of costs to final cost objectives. Obtain the assistance of the contracting officer in requiring the contractor to record all hours worked when a material difference in allocation of costs is determined. 

So, regardless of what the large firms do or say, you can see the guidance for yourself. 

And, yes, generally you should be recording all hours worked and you can charge for all hours worked.  You just have to remember to adjust any hourly rates billed to the government, up or down, based on the actual hours worked compared to the set salary for the period.  This is one of the acceptable methods for accounting on this type of costs.