Compliance
SBIR Timekeeping Requirements: How to Document Founder and Employee Labor
Learn how to track founder and employee time, allocate payroll, and support SBIR labor charges with records that stand up to federal review.
Start with the labor documentation rules in your award
SBIR timekeeping requirements matter as soon as your startup begins charging employee compensation to a federal award. A payroll transaction shows what someone received; time and effort records explain which activities supported that payment. Together, they help establish that labor charges are reasonable, allocable to the project, and consistent with the applicable award terms. For a founder dividing the week among experiments, fundraising, sales, and management, that distinction has practical consequences. A defensible system connects the work performed to the payroll expense charged, with enough detail for someone outside the company to understand the allocation.
Begin by identifying whether your award is a grant, cooperative agreement, or procurement contract. NIH and NSF SBIR awards commonly use assistance mechanisms, while DoD SBIR awards frequently use contracts. Read the Notice of Award or contract, incorporated terms, and applicable agency guidance. NIH recipients should consult the NIH Grants Policy Statement; NSF recipients should review the award conditions applicable to their small business award. For contracts, the contract type and incorporated Federal Acquisition Regulation provisions shape accounting obligations. A cost-reimbursement contract generally requires more extensive cost support than a firm-fixed-price contract, whose payment structure centers on agreed performance and deliverables.
Track actual work across the founder’s full workload
Build your records around actual activity over a defined reporting period. An employee working on an SBIR project, a commercial customer engagement, and internal administration needs a consistent way to allocate time among those activities. Tracking the broader workload provides the denominator for calculating the federal project’s share of compensation. For example, if a salaried scientist records 80 working hours during a pay period, including 48 on the SBIR project, the starting allocation is 60% of the compensation covered by that period. The final charge also depends on compensation policies, applicable salary limits, and the award’s requirements.
Founder time deserves particular attention because technical and corporate responsibilities often overlap. Developing an assay or analyzing prototype results may directly support the funded research. Investor presentations, general fundraising, and unrelated sales calls belong in separate activity categories, with their accounting treatment determined under the applicable rules. Establish explicit codes for those activities so the distinction remains visible. Choose a regular recording cadence, such as daily entry with weekly review, that employees can maintain reliably. Daily time entry is a useful control; the precise federal documentation standard depends on the award and applicable cost principles.
Set up project codes and approvals before charging payroll
A workable system can use commercial time-tracking software, an accounting platform’s timesheet module, or a controlled spreadsheet. Its usefulness depends on the records and controls it produces. Capture the employee’s name, reporting period, project or activity code, hours or effort allocation, and a clear description of the work when needed to support the charge. Create a unique code for each federal award, alongside codes for commercial projects, internal research, and administrative activities. If a single award contains separately tracked tasks or contract line items, build that structure into the coding system before the first payroll allocation.
Write a short timekeeping policy explaining when staff enter time, who approves it, how corrections occur, and how records reach accounting. Employees should confirm the accuracy of their entries, and supervisors should review whether the recorded work matches project activity. In a very small company, a founder may also be the principal investigator and only technical employee. Document that arrangement and use an appropriate review control, such as a periodic reconciliation by the person responsible for accounting. Preserve the original entry, correction date, reason, and approval whenever a record changes. A traceable correction history makes later questions much easier to resolve.
Reconcile recorded effort with payroll and project charges
Close the loop each payroll cycle or through a documented monthly reconciliation. Accounting should connect approved time records to gross compensation, applicable fringe benefits, and the amounts posted to each project. Keep the calculation method consistent with your written policies and applicable award terms. For salaried staff, establish how the system handles total activity, paid leave, holidays, and periods with unusually long working hours. Those choices affect allocation percentages and should receive accounting review. Fringe benefits and indirect costs also need consistent treatment so the same expense flows through the accounting system once, using the appropriate cost category.
Budgeted effort provides a planning benchmark, while actual work records support the final labor allocation. Suppose your application budget anticipated 50% of a research engineer’s effort, and the engineer actually spent 35% of the period on the award. Reconcile the charge to the documented activity and evaluate the effect on the remaining project budget. Changes involving principal investigator effort, key personnel, scope, or budget categories may also require agency notification or prior approval under the award terms. Maintain a separate check for those requirements. Unpaid founder effort should be documented appropriately; charging compensation requires a supportable payroll or accounting basis under the applicable rules.
Keep an evidence package ready for agency or audit questions
Maintain a labor support file that brings together the award terms, timekeeping policy, approved records, payroll registers, allocation calculations, and relevant general ledger entries. Include supporting records for compensation decisions and any agency approvals affecting personnel effort. Technical records, such as experiment logs and progress reports, can help explain how recorded activity advanced the funded work. Apply the retention period specified by your award and governing rules. Federal assistance records commonly carry a three-year baseline tied to financial reporting, with extensions for circumstances such as unresolved audits or litigation; contracts can follow different schedules. Confirm the trigger date before setting deletion policies.
Review the system before your first federal payroll charge and again when the company adds employees, wins another award, or changes accounting software. A startup with several funding sources benefits from a monthly check for duplicate charges, missing approvals, and unexplained differences between reported effort and payroll allocations. An accountant experienced with federal awards can help align the records with your specific grant or contract. During application planning, GrantUp helps founders connect proposed personnel effort, research milestones, and budget assumptions so the project starts from a coherent plan. To discuss your company’s funding eligibility and readiness to apply, book a free eligibility call with GrantUp.
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