Q.  We were, until recently, a small business and all of our employees were required to complete detailed time sheets, including those who charge indirect, admin, sales, etc.  At the end of the fiscal year we used the actual labor as recorded on the time sheets to complete our incurred cost proposals and determine our overhead and G&A rates.   We were recently acquired by a large defense contractor where their indirect employees are charged 100% to sales, admin, or other indirect function.  That leads me to believe that our employees should be categorized either 100% direct or 100% indirect and consequently our indirect employees need not complete time sheets.  Is this correct?  Have we been charging indirect labor incorrectly?

A.  No, you haven't been doing it incorrectly, only different than your new parent. As for categorizing labor as direct or indirect, that is quite common.  You, of course, want to be able to charge indirect people direct when they work directly on jobs so you need that flexibility but its OK to categorize them as direct or indirect.  As for requiring indirect people to use time sheets, DCAA does not have clear guidance on this so, in our experience, most auditors would have no problem while a few would.  Except for that occasional auditor who thinks all employees should record time, there should be no need to require 100% indirect employees to complete timecards.  If, however, some of those employees do charge direct, then they should complete them.

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