Axiom CPA, P.A. - Axiom CPA Blog

One of my favorite clients asked this question today and I thought it was so good I would take time to post my answer on the web site.

There could actually be two questions here. First, "Am I required to keep timesheets for my salaried employees?" The answer is no if you are talking about taxes or some form of IRS regulation. Second, "Should I require my salaried employees to keep timesheets?" That's a good question, but like all good questions the answer is "it depends."

Is time the best thing to measure? In other words is time invested directly related to sales?

If there is a direct correlation between time spent and sales timesheets are necessary in the same way a bill of materials is necessary. Without a timesheet you won't know what went into the product or job and you won't know how much revenue should be invoiced. A law firm that bills by the hour is a good example. Without timesheets they don't know what to bill their clients.

If time isn't directly related to revenue does it have anything to do with your costs?"

Sometimes the amount of time going into a project doesn't have anything to do with revenue, but it has an awful lot to do with your costs. Take the example of a law firm that works on a contingency basis. Often the fee for legal services is 30% of any award or settlement. It doesn't matter whether the case takes two days or two weeks or two months. The amount of revenue is fixed at 30%. But costs for all the paralegals, attorneys and other staff (whether salaried or hourly) are based on actual time spent. So in this case the tracking of the firm's largest cost may necessitate the keeping of timesheets.

If time is not directly related to revenue and not directly related to costs timesheets may be a waste of time."

This is often the case in agriculture. When a farm hires labor for harvesting they pay on the basis of the amount harvested (so much per bushel, per pound, etc). The amount of time it takes to harvest the crop is not tied directly to the farm's revenues or costs. So it's doubtful you'll ever see the pickers lining up to punch a time clock.

The question of whether or not to keep timesheets is a good one. As my client said "We hate extra paperwork." Before you go through the routine make sure that the information you are collecting actually has some usefulness in your business.