Nonprofits that charge employee salaries to federal grants are required under 2 CFR 200.430 (Uniform Guidance) to maintain after-the-fact records demonstrating that personnel costs charged to each award reflect the work actually performed. These records must account for 100% of an employee’s total compensated activity across all cost objectives — not just the grant-funded portion.
📌Download our free Financial Grant Compliance & Accountability Checklist and other free resources for more grant compliance assistance!
If your organization receives federal grant funds either directly from a federal agency or as a subrecipient through a state, county, or other entity, and you pay an employee’s salary in whole or in part from that funding, you are subject to time and effort reporting requirements.
Federal regulations do not require every nonprofit to use one particular timesheet or reporting format. They require an organization to maintain reliable records and internal controls demonstrating that personnel costs charged to each federal award reflect the work actually performed.
Personnel is one of the most frequently misunderstood and most frequently cited areas of federal grant compliance. Understanding exactly what’s required is the first step to building a system that will hold up to scrutiny by granting agencies and auditors.
Many organizations believe that processing payroll according to predetermined grant budget percentages is enough to support personnel expenses. This understanding is what gets organizations into trouble. The government requires an organization to demonstrate that an employee’s salary or wages charged to a federal award reflect the actual work performed for that grant rather than a predetermined percentage.
What Is Required Time & Effort Grant Reporting?
Time and effort reporting is a federal grant requirement governed by federal regulation. It lives in 2 CFR Part 200 Subpart E – Cost Principles, specifically Part 200.430(g), Compensation – Personnel Services, Standards for Documentation of Personnel Expenses. This is part of what is commonly known as “Uniform Guidance” which is issued by the Office of Management and Budget (OMB).
The Uniform Guidance combined older OMB Circulars into a single, unified set of cost principles that now apply across all non-federal entities. It intentionally loosened format requirements while keeping the underlying standard just as strict.
Uniform Guidance does not formally define time and effort reporting. It also does not prescribe one standard way of documenting time and effort. Instead, 2 CFR 200.430 Standards for Documentation of Personnel Expenses, establishes standards for the records used to support salaries and wages charged to federal awards.
In practical terms, the federal requirement for time and effort reporting as established under 2 CFR 200.430 is the documented process an organization uses to show how an employee’s compensated work (both direct and indirect time) is distributed among federal awards and all other organizational activities, so the salary and wage costs charged to each award accurately reflect the work the employee actually performed. This documentation must be incorporated into the organization’s official records and reasonably reflect the total activity for which the employee is compensated.
The organization must be able to clearly answer what portion of the employee’s total compensated work benefited each federal award, program, administrative function, or other organizational activity. To demonstrate this, personnel expenses charged directly to a federal award must meet all of the following standards:
- After-the-fact verification of actual work performed
- Reasonably reflect the Total Activity for which the employee is compensated, not more and not less. This is the 100% rule.
- The employee’s documented effort across all activities must account for 100% of the employee’s total compensated activity, not merely the portion charged to federal grants.
- Encompass both federally assisted and all other activities (grant-funded and all other time) compensated by the organization
- Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on:
- More than one federal award
- A combination of federal and non-federal awards
- A direct cost activity and an indirect cost activity
- Two or more indirect activities allocated using different allocation bases
- An unallowable activity and a direct or indirect cost activity
- Allocable to the award
- Allowable under federal requirements and the terms of the grant award
- Incorporated into the organization’s official records
- Consistent with the organization’s established accounting policies and practices
- Supported by a system of effective internal controls that provide reasonable assurance the charges are accurate, allowable, and properly allocated
Per 2 CFR 200.430 and 2 CFR 200.403, Uniform Guidance requires that any costs charged to federal awards be necessary, reasonable, allocable, consistently treated, and adequately documented.
The Budget Estimate Trap
Many organizations are found noncompliant because they use a fixed budgeted percentage as the actual time charged to the grant. Uniform Guidance is clear that budget estimates alone do not qualify as support for charges to federal awards. Budget estimates may be used for interim accounting purposes if the following conditions apply, but they must be promptly updated and reconciled.
- The system used produces reasonable approximations of the activity actually performed
- Significant variances in the corresponding work activity are identified and entered into the records in a timely manner
- The organization’s system of internal controls includes processes to review after-the-fact interim charges made based on budget estimates. The Uniform Guidance does not prescribe one required review frequency. Organizations should establish a review schedule frequent enough to identify significant changes promptly and ensure that final salary charges reflect actual work performed.
In other words, budgeted percentages can be your starting point for interim charging, but you must true them up against actual activity regularly or you will be out of compliance.
What Does “Effort” Mean?
A cost objective is the activity for which the organization wants to separately measure costs. Cost objectives can include a specific federal award, nonfederal grant, program, project, fundraising, indirect cost activity, leave, or another organizational function.
Effort is usually expressed as a percentage of an employee’s total compensated activity during a defined period that totals 100%. For example, an employee’s time may be distributed over the time period as follows:
If the employee’s salary for the reporting period is $5,000, the supported allocation would be $2,500 to Federal Grant A, $1,250 to Foundation Grant B, $750 to general administration, and $500 to fundraising. Those amounts should agree with, or be reconciled to, the personnel expenses recorded in the organization’s accounting records.
The federal government requires that this total activity be reported to demonstrate the same time has not been charged to multiple funding sources. This is what is commonly known as “double dipping.”
Who Must Complete Time and Effort Documentation?
Time and effort documentation is generally necessary for employees whose salaries or wages are:
- Directly charged to a federal award
- Allocated to more than one grant, program, department, or activity
- Included in an indirect cost pool that supports federal awards
- Used to satisfy a federal matching or cost sharing requirement
Even if an employee works exclusively on one federal award, they still need documentation supporting how their time was actually spent. In this case, the time reporting format may be simpler than the records required for an employee working across several activities.
A special requirement applies to nonexempt employees. In addition to the personnel documentation required by the Uniform Guidance, charges for the salaries and wages of nonexempt employees must be supported by records showing the total number of hours worked each day, consistent with Fair Labor Standards Act requirements.
Does the Employee Have to Sign or Certify the Timekeeping Report?
The Uniform Guidance does not impose a universal rule requiring every time and effort report to contain a specific certification or employee signature. The current focus is on whether the complete system of records and internal controls provides reasonable assurance that the charges are correct.
Even though a signature is not explicitly required, employee and supervisor approvals remain a strong internal control. An electronic approval may help demonstrate that someone with direct knowledge of the employee’s work reviewed the allocation. Keep in mind that a signature does not make an inaccurate allocation compliant.
The Uniform Guidance establishes the federal baseline. A federal agency, pass through entity, or individual award may impose additional documentation, approval, or reporting requirements. Organizations should review the terms and conditions of each award before designing their process.
What This Looks Like in Practice
A workable process does not need to be unnecessarily complicated, but it must be consistent, timely, and connected to payroll and accounting. Whenever possible, employees should document their work while it is occurring.
In practice, most nonprofits use one of two general approaches:
After-the-fact activity reporting. The employee records actual time worked, broken out by grant or cost objective, after the work is performed, which typically matches the organization’s pay period. This is the most common and most defensible approach, especially for employees who work across multiple grants or split direct and indirect duties.
Budget estimate with periodic review and adjustment. The employee is charged based on a pre-set allocation percentage each pay period, but the organization performs a formal quarterly true-up that compares budgeted percentages to actual activity. This true-up is signed off on by the employee and their supervisor, with retroactive correcting entries made when the variance is significant.
Whichever method you use, an auditor reviewing a Single Audit under 2 CFR Part 200, Subpart F will typically test for:
- Does documentation exist for every employee charged, in whole or part, to a federal award?
- Does the documentation reflect actual work performed, not just a budgeted assumption with no follow-up?
- Does the total documented effort for each employee sum to 100% of their compensated activity, not just the grant-funded portion?
- Is there evidence of internal control including supervisory review, sign-off, or a defined verification process?
- For interim budget-based charging, is there evidence of timely review, reconciliation, and correction?
Missing documentation, effort percentages that don’t reconcile to payroll charges, or no evidence of periodic true-up are among the most common single audit findings related to personnel costs. These findings can result in questioned costs, which the organization may be required to repay to the funder.
For many organizations, the problem is not understanding what needs to happen. The problem is trying to manage employee distributions, grant budgets, payroll allocations, approvals, and correcting entries across multiple spreadsheets and disconnected systems. This process can be automated, reducing the administrative burden while creating more consistent and auditable documentation.
📌Still managing personnel distributions in spreadsheets? See how MissionGranted can simplify and automate the process.
Common Time and Effort Reporting Mistakes
Compliance risk is most often created by the following mistakes:
- Charging salaries solely according to grant budgets
- Using fixed percentages that are never compared with actual activity
- Recording only federally funded time instead of total compensated activity
- Allowing finance staff to estimate the work of program employees without appropriate support
- Completing reports months after the work has occurred
- Failing to update allocations when responsibilities change
- Treating an employee or supervisor signature as proof that an unsupported allocation is correct
- Failing to reconcile time and effort records with payroll and the general ledger
- Using salary charges as cost sharing without maintaining the same supporting documentation required for reimbursed costs
- Assuming the payroll system automatically satisfies the federal requirements
Building a Compliant AND Strategic System
Time and effort reporting is often treated as an administrative burden, but when well designed, it can also become a valuable financial management tool. Accurate personnel time and effort records and personnel allocations help organizations understand:
- The true cost of delivering each funded program
- Whether grant budgets contain the appropriate amount of personnel support
- Employee time commitments across multiple awards
- Gaps in grant-funded activities and whether unrestricted funds are subsidizing the award
- Cost recovery of allowable personnel and indirect costs
- Whether staffing plans remain realistic as funding changes
- Whether actual program delivery aligns with grant budgets and expectations
This is also an area where MissionGranted fills an important gap. Payroll systems record what employees were paid, and accounting systems record where the expense was posted, but neither necessarily provides the grant-level structure needed to connect the employee activity, grant budgets, funding restrictions, personnel allocations, and compliance requirements.
MissionGranted helps organizations manage those relationships across multiple grants so that personnel allocation becomes part of an integrated grant financial management process rather than another disconnected spreadsheet.
A Final Compliance Check
If you’re setting up time and effort reporting from scratch, or fixing gaps found in an audit, a workable system generally asks the following questions:
- Can we demonstrate what work each employee actually performed?
- Does the documentation account for the employee’s total compensated activity?
- Does the salary or wages charged to each award agree with the supported allocation?
- Are differences between budgeted time and actual activity corrected?
- Is the process supported by written procedures and effective review?
- Could we explain the complete process clearly to an auditor or funder?
The objective is to create reliable evidence that personnel expenses charged to each grant are accurate, allowable, and connected to the work that advanced the funded purpose.
Frequently Asked Questions
Does Uniform Guidance require nonprofits to use a specific timesheet format for federal grants?
No. 2 CFR 200.430 does not prescribe a specific timesheet format or template. What the regulation requires is that your documentation system produces records that reasonably reflect actual activity, account for 100% of each employee’s compensated time, are incorporated into the organization’s official records, and are supported by effective internal controls. The format — whether a paper timesheet, spreadsheet, or software-generated report — is secondary to whether the records are accurate, timely, and auditable.
Can we use our grant budget percentages to charge employee salaries to a federal award?
Budget percentages alone are not sufficient to support personnel charges to a federal award. Uniform Guidance explicitly states that budget estimates do not qualify as documentation of actual costs. You may use budget-based percentages as an interim charging mechanism only if your system reasonably approximates actual activity, you identify and record significant variances promptly, and you have a formal process for reviewing and reconciling interim charges to actual effort. If your final charges still reflect the budgeted percentage with no after-the-fact verification, you are out of compliance.
What happens if our organization fails a time and effort audit?
If an auditor or federal agency determines that personnel costs charged to a federal award are not adequately supported, those costs may be classified as questioned costs. Questioned costs can result in a requirement to repay the disallowed amounts to the funder, a finding in your Single Audit report, and increased scrutiny on future awards. Repeat or unresolved findings can affect your organization’s ability to receive federal funding. The risk is not limited to the specific pay periods reviewed — auditors may extrapolate findings across an entire award period.
Do employees who work on only one federal grant still need time and effort documentation?
Yes. Even when an employee’s salary is charged 100% to a single federal award, documentation is still required to demonstrate that their actual work supported that award. The format may be simpler than what is required for an employee splitting time across multiple activities, but the underlying standard — that charges reflect actual work performed — still applies. An undocumented single-award allocation is just as vulnerable in an audit as a poorly documented multi-grant split.
Does every time and effort report need to be signed by the employee or a supervisor?
The Uniform Guidance does not require a specific signature or certification on every time and effort report. The standard is whether the overall system of records and internal controls provides reasonable assurance that charges are accurate, allowable, and properly allocated. That said, employee and supervisor sign-offs remain a best practice and a strong internal control, and many federal agencies and pass-through entities add their own approval requirements in award terms and conditions. One important caution: a signature on an inaccurate or unsupported allocation does not make it compliant.
Uniform Guidance does not specify a required reconciliation frequency. It requires that significant variances be identified and entered into the records in a timely manner and that the process include after-the-fact review of interim charges. In practice, most auditors and federal agencies expect at least quarterly reconciliation as a reasonable standard. Organizations with higher personnel turnover, frequent grant modifications, or employees working across many awards may need more frequent reviews to catch material variances before they compound across a full grant year.
