Time Tracking for Grant Compliance: A Practical Guide for Biotech and Deeptech Startups

Why Time Tracking Is Critical for Grant Compliance

For a deeptech or biotech startup, securing a major government grant from an agency like the NIH in the US or Innovate UK is a game-changing milestone. This non-dilutive funding can significantly extend your runway, but it also brings intense administrative scrutiny. Your largest expense, personnel costs, will be under the microscope. Understanding how to track employee hours for government grants is not just a bookkeeping task; it is essential for maintaining compliance, passing audits, and securing future funding. Mismanagement can lead to disallowed costs or even demands to repay funds, putting your startup at risk. For founders in the UK, the Innovate UK grant accounting guide offers specific insights.

The Three Pillars of Compliant Time Tracking

Before choosing a tool or writing a policy, you must understand what funding agencies actually want to see when they audit labor costs. They are not trying to catch you on minor mistakes. Their goal is to verify that your accounting for personnel costs is reasonable, allocable, and consistently applied. A 2022 survey by the National Council of University Research Administrators (NCURA) found that "Over 60% of audit findings relate to inadequate documentation for personnel costs." This highlights that the problem is usually not fraud, but a lack of a systematic process.

What auditors really want to see can be broken down into three pillars of compliance:

1. Contemporaneous Recording: Employees must record their time as work is performed or very close to it, typically daily. Filling out a timesheet two weeks after the fact from memory does not meet this standard. The goal is to ensure accuracy, as memory is unreliable. Auditors look for evidence of real-time tracking, such as digital timestamps in software, which prevent the retroactive justification of costs.
2. Total Time Accounting: Your system must track 100% of an employee’s compensated time, not just the hours spent on a specific grant. This is non-negotiable. If an employee works 40 hours a week, the timesheet must show all 40 hours distributed between direct costs (work on the grant) and indirect costs (internal meetings, administrative tasks, work on other projects). This ensures the labor rates charged to the grant are accurate and not artificially inflated.
3. Authorization and Attestation: Every timesheet needs a two-step approval process. First, the employee must sign or digitally attest that their time is recorded accurately. Second, a direct supervisor with firsthand knowledge of their work must review and approve it. This creates a clear, documented chain of responsibility and accountability for all recorded labor costs.

While you might hear about DCAA (Defense Contract Audit Agency) timesheet requirements, often considered the gold standard, they are not a universal requirement for all grants. Focusing on these three principles will satisfy the requirements for most federal grant reporting in both the US and UK.

Designing Your Grant Timekeeping System (Policy and Tools)

With a grasp of the core principles, you can design a system that works for your startup. This involves selecting the right tools and documenting your process in a formal timekeeping policy. The goal is to build a system that produces an audit-ready trail without overcomplicating things for a small, R&D-focused team.

The Problem with Ad-Hoc Spreadsheets

The reality for most pre-seed to Series B startups is more pragmatic: you do not need an enterprise-level system, but you do need to move beyond ad-hoc spreadsheets. While a spreadsheet seems simple, it often fails on the principles of contemporaneous recording and authorization. Spreadsheets typically lack immutable timestamps, clear audit trails for changes, and formal approval workflows, making them a significant compliance risk during an audit.

How to Choose Your Time Tracking Tools

Your tool choice should align with your company’s complexity and scale. A good tool provides the structure needed for grant-funded payroll compliance.

• For Early-Stage Startups (Pre-seed/Seed): At this stage, dedicated time-tracking tools that integrate with your accounting software are a great starting point. Tools like Clockify or Toggl allow employees to easily track time against pre-defined projects (e.g., Grant #123, Internal R&D, G&A). The data can then be exported to support payroll in systems like Gusto and manual journal entries in QuickBooks for US companies or Xero for UK startups.
• For Scaling Startups (Series A/B): As your team grows and you manage multiple grants, the need for seamless integration becomes critical. Systems like QuickBooks Time or specialized government contracting tools like Unanet offer a direct link between time entry, payroll, and project cost accounting. This automates the creation of critical documentation like Labor Distribution Reports, significantly reducing administrative burden and error risk.

How to Write Your Timekeeping Policy

Your policy is the official rulebook that auditors will request. It should be clear, concise, and accessible to your entire team. A straightforward two-page document is often sufficient and should define the following:

1. Purpose: State clearly that the policy exists to ensure compliance with federal and state grant requirements for tracking employee hours for grants.
2. Applicability: Specify that it applies to all employees, including salaried staff, whose compensation is charged to a government grant, either as a direct or indirect cost.
3. Procedure: Detail the mechanics, including the frequency of time recording (daily), the deadline for submission (e.g., end of day Friday), and the requirement to account for 100% of time.
4. Responsibilities: Outline the employee’s role in recording time accurately and the supervisor’s role in reviewing and approving timesheets in a timely manner.
5. Cost Allocation: Briefly explain how to code time to different projects (direct grants, internal projects, overhead, etc.).
6. Corrections: Define the formal process for correcting a submitted and approved timesheet. This is a critical element for demonstrating strong internal controls.

You can use the grant accounting policy template for startups as a reliable starting point.

Implementation: Rolling Out Your New System

Once your policy is written and a tool is selected, successful implementation hinges on communication and creating consistent habits. This is not just a finance task; it is a management challenge that requires buy-in from the entire team. Hold a brief all-hands meeting to explain not just the *how* but the *why*. When a research scientist understands that accurate time tracking is directly linked to protecting the company's grant funding and enabling future research, they are far more likely to comply. Establish a firm operational rhythm from day one and make this process part of your standard onboarding for all new hires.

Ongoing Management: Preventing Errors Before They Become Audit Problems

A system is only half the battle. Ongoing management ensures your records remain audit-ready. The key is to catch and correct late or inaccurate timesheets before they snowball into disallowed costs. Use your tool's features to send automated reminders to employees and managers for submission and approval. This should be a low-friction weekly habit, not a monthly fire drill.

The most powerful practice is the regular review of Labor Distribution Reports. This report, generated from your time-tracking and accounting system, shows total hours and costs broken down by employee and by project. The founder or operations lead should review this weekly to spot anomalies. Is someone charging 100% of their time to a grant despite attending company-wide meetings? Does a scientist's time allocation match the project plan? Catching these discrepancies early allows for immediate correction and retraining.

The Compliant Timesheet Correction Process

Auditors know mistakes happen. What they care about is seeing a documented, controlled process for fixing them. Here’s a simple, compliant workflow:

1. Identify and Report the Error: The employee realizes they miscoded hours on a previous, approved timesheet. They cannot simply change the old record, as this would break the audit trail.
2. Submit a Correction Request: The employee must submit a signed correction form or a detailed email explaining the error, the date it occurred, the incorrect entry, and the correct entry. This serves as the initial documentation.
3. Secure Supervisor Approval: The supervisor reviews the request to confirm its validity and approves it in writing. A simple email reply is sufficient documentation for this step.
4. Process the Adjustment: The finance lead makes the adjustment in the accounting system via a journal entry, attaching the employee's request and supervisor's approval as backup. This creates a perfect audit trail.

This process turns a potential audit finding into a demonstration of strong internal controls. Practical tracking guidance is also available from sources like Management Concepts.

Practical Takeaways for Founders

For a founder juggling R&D and fundraising, grant timekeeping requirements can feel like a distraction. However, building a simple, compliant system is an investment that protects your most valuable non-dilutive assets. The key is to focus on pragmatism over perfection.

First, start with a system that is good enough and consistently followed. A simple policy paired with a tool like Toggl is far better than a complex system your team ignores. You can always upgrade tools as you scale. Second, focus on the underlying principles. An auditor is primarily concerned with whether your system is rational and adheres to the pillars of contemporaneous recording, total time accounting, and proper authorization. They are looking for a consistently applied system, not an infallible one.

Finally, treat timekeeping as a shared operational responsibility. When your team understands that audit-ready time tracking is fundamental to the company's financial health, it shifts from a chore to a collective priority. Proactive management is the foundation of successful grant compliance. For broader guidance, explore the Government Grants & Contract Accounting hub.

Frequently Asked Questions

Q: Do salaried employees really need to track 100% of their time for grant compliance?
A: Yes. Tracking 100% of a salaried employee's time is mandatory. This is the only way to establish an accurate effective hourly rate for their labor. Without accounting for total hours worked, including time on non-grant activities, the labor cost charged to the grant cannot be verified as fair and accurate.

Q: What is the most common time tracking mistake that leads to audit problems?
A: The most common mistake is a lack of contemporaneous recording. Teams that fill out timesheets weekly or monthly from memory often create inaccurate records that cannot withstand audit scrutiny. Implementing a policy of daily time entry is the single best way to avoid this common pitfall.

Q: Can we use pre-filled timesheets or percentages based on our grant budget?
A: No, this is not compliant. Federal grant reporting requires that time charged to a grant reflects the actual effort expended. Allocating time based on a budget or using static percentages is considered a poor practice by auditors and can lead to disallowed costs because it does not represent a true accounting of work performed.