Timekeeping for nonprofits: Compliance, clarity and better management

Nonprofit organizations often juggle multiple programs, funding sources and staffing structures, making accurate time tracking essential. Furthermore, federal and state wage and hour laws require certain records be kept, and grantmakers may impose additional reporting standards. With the right processes and tools, nonprofits can meet these requirements while gaining valuable insight into staffing and program costs.

Legal requirements and funding considerations

You’re generally required to document the hours worked by hourly employees. And 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 their pay or 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, which include a certain minimum level of compensation.

Timekeeping is also necessary to comply with the Affordable Care Act. Under the act, employers with 50 or more full-time and full-time equivalent employees may be penalized if they don’t offer adequate health care coverage to at least 95% of full-time employees. And employees who work, on average, 30 or more hours per week or 130 or more hours in a calendar month are considered full-time.

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.

In addition, your nonprofit should document incurred costs for funders that reimburse expenses or fund specific programs or activities.

Although you’re not required to track volunteer time, you may want to consider doing so. 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.

Building an effective timekeeping system

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.

When it comes to tracking time by program or activity, it’s usually easy for staffers who work exclusively in a single program. But 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.

Turning time data into strategic insight

Strong timekeeping practices do more than satisfy compliance requirements. They give nonprofit leaders a clearer picture of how staff time and resources are distributed across programs. With accurate data, organizations can better evaluate program costs, improve budgeting and make informed decisions about future initiatives and funding opportunities. If you have questions about timekeeping best practices or software, we can help.

© 2026