Labor Distribution Report (LDR)

A Labor Distribution Report (LDR) is a financial and compliance document that shows how employee labor hours and related costs are allocated to specific contracts, projects, or tasks. It connects time worked to contract charges for accurate billing and audit support.

What Is a Labor Distribution Report (LDR)?

A Labor Distribution Report (LDR) is a financial and compliance document that shows how employee labor hours and related costs are allocated to specific contracts, projects, or tasks.

It connects time worked to contract charges for accurate billing and audit support.

LDRs are used during contract performance to support cost accumulation, invoicing, and financial reporting after contract award. Accounting teams, project managers, compliance officers, and auditors rely on LDRs, and government oversight bodies such as the Defense Contract Audit Agency (DCAA) may review them during audits.

Key Characteristics of an LDR

Tracks employee labor hours by contract, project, or task code

Allocates direct and indirect labor costs

Links timekeeping records to accounting systems

Supports invoicing, cost reporting, and audit readiness

Provides traceable documentation for government oversight

For example, if an employee works 20 hours on Contract A and 20 hours on Contract B in one week, the LDR assigns those hours and corresponding labor costs to each contract. This ensures accurate billing and prevents cost misallocation.

Regulatory Framework

Labor Distribution Reports are closely tied to federal cost and audit requirements, including:

Federal Acquisition Regulation (FAR) Part 31, which governs cost principles for allowability of labor costs

Defense Contract Audit Agency (DCAA) guidance on timekeeping and labor charging systems

Cost Accounting Standards (CAS) for contractors subject to CAS coverage

These rules require contractors to maintain accurate, consistent, and auditable labor records.

Why LDRs Matter for Contractors

Accurate LDRs support correct invoicing and protect revenue integrity. Strong labor controls improve audit outcomes and enhance credibility with contracting officers. The risks of inaccurate LDRs include:

Improper labor charging can trigger audit findings, questioned costs, or repayment demands

Errors in labor allocation can lead to penalties, contract disputes, or suspension of billing privileges

Compliance failures may affect past performance ratings and future award eligibility

Common Misconceptions About LDRs

LDRs are only required for large contracts.

Any cost-reimbursable or labor-billed contract requires accurate labor tracking regardless of size.

LDRs and timesheets are the same thing.

Timesheets record hours worked, while LDRs allocate those hours to specific contracts and cost objectives.

Only the accounting team is responsible for LDR accuracy.

Employees, supervisors, and project managers all share responsibility for accurate labor charging.

Frequently Asked Questions

Why are Labor Distribution Reports important?

They ensure labor costs are properly allocated, billed, and supported during audits.

Who maintains the LDR?

Accounting typically generates the report, but it relies on employee time entries and supervisory approvals.

What happens if an LDR contains errors?

Errors can result in audit findings, questioned costs, financial penalties, or contract termination.

Are LDRs required for fixed-price contracts?

They may still be required internally for cost control and indirect rate calculations, even if not directly billed to the government.