For most employers time tracking is a payroll input. For a nonprofit with restricted funding it is also the evidence that staff time charged to a grant was actually spent on it, and that changes what the system has to produce.
Effort reporting is a different output from hours worked
Payroll wants hours by person by period. A funder wants the share of a person's effort that went to their award, supported by records rather than an estimate made at year end. A system that cannot split one person's day across funding sources, and cannot show who certified that split, will leave you reconstructing it in a spreadsheet at exactly the wrong moment.
Design the code structure around awards, not departments
Set up funding codes that match the awards you actually report on, including a clear code for unrestricted and administrative time. Staff who work across three grants need to be able to record that without judgement calls. If the coding structure does not mirror the reports you owe, every reporting cycle becomes a translation exercise with room for error.
Certification is what makes the record evidence
A timesheet nobody reviewed is an assertion. Build in periodic review and sign-off by someone with first-hand knowledge of the work, keep that approval in the system, and keep it for as long as the award and your own retention rules require. Auditors look for the approval trail at least as hard as they look at the numbers.
Volunteers and in-kind time are recorded separately
Volunteer hours are often reported as match or in-kind contribution and follow different rules from paid time. Keep them in a distinct record with the basis of any valuation written down. Mixing them into staff timesheets is a reliable way to confuse both your payroll and your funder report.
Questions people ask about nonprofit time tracking
Do small nonprofits need a system or will a spreadsheet do?
A spreadsheet works until you have several restricted awards and staff split across them. The trigger is the split, not the headcount.
How long should timesheets be kept?
As long as the award terms and your general employment record rules require, whichever is longer. Agree it once and apply it consistently.
Can salaried staff skip time recording?
Not if their salary is charged to a grant. The funder is buying effort, and effort has to be evidenced whatever the pay basis.