Timekeeping Requirement, 70564-70569 [2020-23811]

Agencies

• LEGAL SERVICES CORPORATION

[Federal Register Volume 85, Number 215 (Thursday, November 5, 2020)]
[Proposed Rules]
[Pages 70564-70569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23811]


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LEGAL SERVICES CORPORATION

45 CFR Part 1635


Timekeeping Requirement

AGENCY: Legal Services Corporation.

ACTION: Proposed rule.

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SUMMARY: The Legal Services Corporation (LSC) is proposing to amend its 
rule establishing timekeeping requirements for LSC funding recipients.

DATES: Comments must be received by February 3, 2021.

ADDRESSES: You may submit comments by any of the following methods:
     Federal Rulemaking Portal: Follow the instructions for 
submitting comments.
     Email: [email protected]. Include ``Part 1635 
Rulemaking'' in the subject line of the message.
     Fax: (202) 337-6519.
     Mail: Stefanie K. Davis, Senior Assistant General Counsel, 
Legal Services Corporation, 3333 K Street NW,

[[Page 70565]]

Washington, DC 20007, ATTN: Part 1635 Rulemaking.
     Hand Delivery/Courier: Stefanie K. Davis, Senior Assistant 
General Counsel, Legal Services Corporation, 3333 K Street NW, 
Washington, DC 20007, ATTN: Part 1635 Rulemaking.
    Instructions: LSC prefers electronic submissions via email with 
attachments in Acrobat PDF format. LSC will not consider written 
comments sent to any other address or received after the end of the 
comment period.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Senior Assistant 
General Counsel, Legal Services Corporation, 3333 K Street NW, 
Washington, DC 20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    In 1995, LSC initiated rulemaking to require recipient employees to 
keep records of time spent working on LSC-funded activities. 60 FR 
48956, Sep. 21, 1995. LSC took this step to ``improve accountability of 
recipients for their Corporation funds, and in response to concerns 
expressed during Congressional hearings.'' Id. LSC wanted to assure 
that recipients maintained adequate documentation to support allocation 
of costs to the LSC grant. Id. at 48957. Consequently, LSC intended the 
rule ``to require all recipients to account for the time spent on all 
cases, matters and other activities by their attorneys and paralegals, 
whether funded by [LSC] or other sources.'' Id. (emphasis added). LSC 
did not define either attorney or paralegal, although LSC did define 
the terms cases and matters.\1\ Id. LSC did not prescribe either the 
format or the content of the required timekeeping reports. Id.
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    \1\ LSC's regulations at part 1600 define terms used throughout 
the regulations. 45 CFR part 1600. These terms govern unless LSC 
defined the term differently in a part. For purposes of this 
discussion, the Part 1600 definition of the term attorney (``a 
person who provides legal assistance to eligible clients and who is 
authorized to practice law in the jurisdiction where assistance is 
rendered'') applies. Id. Sec.  1600.1. There is no part 1600 
definition for the term paralegal.
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    After receiving public comment, LSC adopted the proposed rule as 
final, with limited changes. 61 FR 14261, Apr. 1, 1996. In the preamble 
to the final rule, LSC stated that the rule applied to recipient 
attorneys and paralegals regardless of whether their salaries were paid 
using LSC funds. Id. Applying the rule to all attorneys and paralegals, 
LSC explained, reflected language that Congress included in a version 
of the fiscal year 1996 appropriations act that it passed, but the 
President vetoed. Id. LSC retained the requirement because it 
anticipated that Congress and the President would agree on legislation 
containing a similar requirement for fiscal year 1996, which they did. 
Sec. 504(a)(10), Public Law 104-134, 110 Stat. 1321, 1321-54 (1996) 
(stating that LSC could not award appropriated funds to any person or 
entity unless ``such person or entity agrees to maintain records of 
time spent on each case or matter with respect to which the person or 
entity is engaged.'').
    In the preamble to the final rule, LSC explained how it expected 
recipients to implement the requirement to maintain ``contemporaneous'' 
time records. LSC stated that ``contemporaneous'' meant ``in most 
cases, by the end of the day.'' 61 FR at 14262.
    LSC initiated its first revision of part 1635 in 1998. That year, 
the Office of Inspector General (OIG) conducted an audit of recipients' 
compliance with specific regulations, including part 1635, and issued a 
report that formed the basis for Management's recommended changes. In 
the report, OIG stated its finding that, based on records maintained in 
compliance with part 1635, it could not tell whether part-time 
employees of an LSC funding recipient engaged in restricted work during 
LSC-funded time. 63 FR 56594, Oct. 22, 1998.
    In response to OIG's findings, LSC proposed two changes. The first 
was to require recipients to ensure that the time records for both 
full- and part-time employees were consistent with their payroll time 
and attendance records. In other words, ``the time spent by an employee 
must at least add up to the amount reflected in the attendance 
records.'' Id. at 56595. LSC also proposed to require full-time and 
part-time attorneys and paralegals to record, for each case, matter, or 
supporting activity that they handled, the date and exact time of day 
they worked on that activity. Id. Alternatively, LSC proposed that 
part-time attorneys and paralegals could certify that they did not 
engage in restricted activities during the time they were working for 
the recipient. Id.
    LSC did not finalize its revisions to part 1635 until 2000. At that 
time, LSC adopted the rule with two changes relevant here. 65 FR 41879, 
Jul. 7, 2000. First, LSC removed the proposed text requiring attorney 
and paralegal time records to be consistent with their payroll time and 
attendance records. Id. at 41880. Several commenters on the proposed 
rule expressed concern that a rule requiring employee time records to 
match the payroll records would put recipients at risk of violating the 
Fair Labor Standards Act. Id. Although LSC did not agree with the 
commenter raising the concern, LSC removed the language because it 
believed the language was not necessary. Id. Second, LSC adopted the 
certification requirement for part-time attorneys and paralegals. Id. 
Put differently, part-time attorneys and paralegals do not have to 
report the date and exact time of day that they worked on cases, 
matter, or supporting activities, but must certify that they did not 
work on restricted activities during the hours they worked for a 
recipient.
    Management believes that regulatory action is justified at this 
time for three reasons. First, the lack of a definition for the term 
paralegal creates a lack of uniformity across recipients regarding 
which employees must keep time. In other words, some recipients employ 
staff who are called paralegals, but who do only administrative work, 
while others employ staff who perform substantive legal work under an 
attorney's supervision or who have satisfied their state's requirements 
for holding oneself out as a paralegal, but who may not have the title 
of paralegal. Because the regulation does not define the term 
paralegal, it is unclear whether some or all recipient employees 
described in the preceding sentence must keep time consistent with part 
1635. Consequently, LSC cannot be certain that part 1635 covers all 
recipient employees who are doing substantive work on the LSC grant, 
which appears to be what LSC intended when it originally drafted the 
rule to cover attorneys and paralegals. LSC proposes to remedy this 
problem by revising the language to include all employee staff, 
regardless of qualification or title, who are doing substantive work on 
identifiable awards. Conversely, employee staff who are not doing 
substantive work on identifiable awards need not record their time 
under part 1635.
    Second, the federal government rules governing recipient 
timekeeping have changed significantly, as have best practices for 
nonprofit timekeeping. LSC believes it is reasonable to reconsider the 
requirements of part 1635 in light of these advances and determine 
whether to revise the rule to reflect the new standards. Finally, LSC 
proposes to remove any provisions of the rule that are obsolete.
    LSC added rulemaking on part 1635 to its annual rulemaking agenda 
in April 2016. On January 30, 2020, the Operations and Regulations 
Committee (``Committee'') of the Board voted to recommend that the 
Board authorize rulemaking on part 1635. The Board

[[Page 70566]]

voted to authorize rulemaking on January 31, 2020. On October 19, 2020, 
the Committee voted to recommend that the Board approve publication of 
an NPRM in the Federal Register with a 60-day public comment period. On 
October 20, 2020, the Board accepted the Committee's recommendation and 
voted to approve publication of the NPRM.
    Materials regarding this rulemaking are available in the open 
rulemaking section of LSC's website at https://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking.

II. Section-by-Section Discussion of Proposed Changes

Section 1635.1 What is the purpose of this section?

    LSC proposes to make technical edits to this section for clarity.

Section 1635.2 Definitions

    LSC proposes to revise the definition of the term case in paragraph 
(a) to be more consistent with the definition of the same term in the 
Case Service Report Handbook (CSR Handbook). In the CSR Handbook, LSC 
defined a case as ``the provision of LSC-permissible legal assistance 
to an eligible client with a legal problem, or a set of closely related 
legal problems, accepted for assistance in accordance with the 
requirements of the LSC Act, appropriations acts, regulations, and 
other applicable law.'' See Legal Services Corporation, Case Service 
Reporting Handbook, at 2 (2017). LSC is now proposing to revise the 
first sentence of the definition in part 1635 to read ``Case means a 
form of program service in which a recipient employee provides legal 
assistance to one or more specific clients[. . .]''
    LSC proposes to introduce a new definition for the term case 
oversight in paragraph (b) of this section. The new definition is 
necessary to ensure that supervisors accurately report the time they 
spend examining attorneys' and paralegals' case files for regulatory 
compliance, CSR compliance, and quality of legal assistance provided.
    LSC proposes to relocate the definitions in existing paragraphs (b) 
through (d) of this section to paragraphs (c) through (e) in the 
revised rule with only minor technical edits.

Section 1635.3 Who is covered by the timekeeping requirement?

    LSC proposes to create a new section dedicated to explaining which 
recipient employees must report time consistent with the requirements 
of this section. LSC proposes to replace the language limiting the 
application to part 1635 to recipient employees and paralegals with 
language extending part 1635 to any recipient employee whose salary is 
allocated, in whole or in part, to any of the recipient's funding 
sources as a direct cost.
    As noted earlier in this preamble, LSC has determined that the 
current rule's use of the term paralegal, without a definition, makes 
it difficult to ensure that all recipient employees who do substantive 
work on the recipient's awards accounts for the time they spend on 
cases, matters, and supporting activities. Additionally, since LSC last 
revised part 1635 in 2000, states have explored novel structures that 
would permit nonlawyers, as well as paralegals, to practice law in a 
limited fashion. For example, in 2013, the Washington State Bar 
Association initiated the Limited License Legal Technician (LLLT) 
program, through which individuals could become licensed to provide 
litigants with a limited range of legal services in family law. 
Similarly, the Arizona Supreme Court recently adopted changes to the 
state rules governing the practice of law that will allow legal 
paraprofessionals to provide legal services in family law, limited 
criminal cases where no jail time is involved, limited civil cases, and 
administrative cases where permitted by the agency. As more states 
expand access to justice by authorizing nonlawyers to provide services 
traditionally limited to licensed attorneys, LSC anticipates that legal 
services providers will hire these paraprofessionals to assist their 
clients.
    The purpose of part 1635 is to establish the standards for 
reporting time that any employee of an LSC funding recipient who 
provides legal assistance to clients must follow. LSC believes that 
removing the current language limiting the timekeeping requirement to 
attorneys and an undefined group of paralegals and instead tying the 
requirement to employees whose salaries are charged to awards as direct 
costs is necessary to ensure that the recipient's funds are spent in 
compliance with LSC's governing statutes and regulations. In other 
words, if a recipient employee handles cases and the recipient 
allocates the costs associated with those cases to the LSC grant as 
direct costs, then that employee must keep time consistent with part 
1635, regardless of their title.
    LSC cross-references the standards for allocating costs as direct 
costs contained in 45 CFR 1630.5(d) as the basis for determining which 
recipient employees must keep time under this section. In that section, 
LSC describes direct costs as including ``salaries and wages of 
recipient staff who are working on cases or matters that are identified 
with specific grants or contracts[.]'' 45 CFR 1630.5(d). This 
connection means that a recipient employee who enters time worked on a 
case into the case management system with a code that designates the 
case as an LSC-funded case must comply with the timekeeping 
requirements contained in part 1635. If adopted, this proposed change 
would mean that a recipient employee who does not handle cases as part 
of their regular duties but who accepts a case or steps into a case on 
an emergency basis would have to keep time consistent with part 1635 
for the periods in which that employee's salary is being allocated to 
an award as a direct cost.
    Example 1: A recipient's executive director does not handle cases 
at all and does not participate in the recipient's legal information 
activities. The executive director's duties are purely administrative, 
and the costs associated with their salary are allocated across all the 
recipient's funding sources as indirect costs. Because none of the 
costs associated with the executive director's salary are allocated to 
the LSC grant as direct costs, the executive director does not need to 
keep time consistent with this part.
    Example 2: A recipient's board has adopted a policy that management 
staff who are licensed attorneys will maintain a small caseload in 
addition to their administrative responsibilities. Costs associated 
with handling individual cases must be allocated to one of the 
recipient's grants as direct costs. Consequently, each manager must 
comply with this part when recording their time.
    Example 3: A recipient's executive director does not handle cases 
on a regular basis. The executive director's salary is allocated across 
all the recipient's funding sources as an indirect cost. On the day of 
a court hearing, however, a recipient attorney could not attend due to 
a family emergency. The executive director represented the attorney's 
client at the hearing. For that pay period, the executive director must 
keep their time consistent with part 1635.

Section 1635.4 What are LSC's timekeeping standards?

    LSC proposes to replace existing section 1635.3 with a new section 
1635.4 that adopts documentation requirements for personal compensation 
from the Uniform Guidance. Section 200.430(i) of the Uniform Guidance 
requires that ``[c]harges to Federal awards for salaries and wages [ ] 
be

[[Page 70567]]

based on records that accurately reflect the work performed.'' 2 CFR 
200.430(i). LSC concurs with this policy and proposes to incorporate 
the requirements contained in Sec.  200.430(i) in significant part.
    LSC specifically seeks comment on the question of when employees 
covered by part 1635 must record their time in a recipient's 
timekeeping system. Current section 1635.3(b)(1) states that ``[t]ime 
records must be created contemporaneously[.]'' 45 CFR 1635.3(b)(1). LSC 
established this requirement in the 1996 final rule for part 1635. 61 
FR 14261, 14262, Apr. 1, 1996. LSC intended that ``in most cases, 
records should be created no later than the end of the day.'' Id. 
Recipients and LSC staff alike have identified two problems with this 
language. The first is that it is not always possible for attorneys and 
paralegals currently subject to part 1635 to enter their time by the 
end of the day for multiple reasons, including lack of remote access to 
the case management system. The second is that the rule is not clear on 
what type of time records must be created by the end of the day--
personal timekeeping records or the entry of official time into the 
recipient's timekeeping system.
    LSC proposes to address the second issue by introducing language in 
this section stating that the rule applies to the entry of time into 
the recipient's timekeeping system. LSC believes entry of time into the 
recipient's official system is the appropriate activity to cover in 
this rule rather than employees' individual timekeeping practices. 
However, LSC has not concluded what the appropriate time frame for 
entering time should be. LSC has considered several time periods in 
which employees covered by part 1635 should enter their time into the 
recipient's official system, including by the end of the business day; 
within 48 hours of the completion of a business day; within two 
business days of the completion of a business day; within one week of 
the completion of a business day; or by the end of the pay period. LSC 
requests public comment on this question.
    Paragraph (a) establishes the following requirements for 
recipients' timekeeping records:
     Records are supported by a system of internal controls 
that provide reasonable assurance that charges to the recipient's 
awards are accurate, allowable, and properly allocated;
     Records are incorporated into the recipient's official 
records;
     Records reflect the total activity for which the recipient 
compensates the employee;
     Records encompass both LSC-funded and all other activities 
compensated by the recipient on an integrated basis, but may include 
the use of subsidiary records if permitted by the recipient's written 
policies;
     Records comply with the recipient's established accounting 
policies and procedures;
     Records support the allocation of employees' salary or 
wages across specific activities or cost objectives if the employees 
work on more than one award or charge their salaries to one or more 
awards as direct costs; and
     Records must contain specific information for cases and 
matters that will allow recipients and LSC to connect cases and matters 
handled by recipient employees to the awards that they will be charged 
to.
    LSC believes it is appropriate to incorporate the documentation 
standards applicable to Federal awards for two reasons. First, many of 
LSC's also receive Federal funding and must comply with the same 
requirements under the Uniform Guidance. LSC does not see a reason to 
create different documentation standards except insofar as LSC needs to 
obtain specific information on cases, matters, and supporting 
activities handled to ensure compliance with LSC's governing statutes 
and regulations. Second, LSC believes that allowing recipients to 
develop their own internal policies for recording and maintaining time 
records, rather than continuing to dictate how recipients keep time, 
will improve the quality and accuracy of recipient timekeeping records 
and the level of compliance with part 1635.
    Paragraphs (b) and (c) are taken verbatim from the Uniform 
Guidance. Paragraph (b) requires recipients to maintain records for 
employees who are not exempt from Fair Labor Standards Act overtime 
requirements stating the total number of hours worked each day. 
Paragraph (c) requires recipients to use the same documentation and 
standards to justify counting salaries and wages of staff working on 
the LSC grant toward the cost matching requirements of any Federal 
awards that they use to charge the salaries to the LSC grant. This 
requirement ensures that recipients maintain consistency across funding 
sources when documenting time charged by employees to those sources.
    LSC proposes to move current section 1635.3(b)(1) to paragraph (d) 
of this section with revisions. Existing section 1635.3(b)(1) requires 
recipient attorneys and paralegals to document their time ``in 
increments not greater than one-quarter of an hour.'' LSC proposes to 
allow recipients to establish the increments for which employees 
subject to part 1635 report their time, recommending that the increment 
be no greater than one-quarter of an hour. The primary reason for 
proposing this change is that LSC recognizes that the same reporting 
increment may not work for all its recipients. In 2018, the last year 
for which numbers are available, LSC funding represented between less 
than 20% of some recipients' total funding and more than 80% of other 
recipients' total funding. See Lim, L., Layton, J., Abdelhadi, S., 
Bernstein, D., Ahmed, R. 2018. LSC by the Numbers: The Data Underlying 
Legal Aid Programs (2018). Legal Services Corporation, Washington, DC. 
Overall, LSC funding represented 34% of total funding for civil legal 
aid, with the remainder coming from sources such as state and local 
appropriations, court fees, Interest on Lawyers' Trust Accounts (IOLTA) 
income, and other awards from federal, state, and local governments and 
private foundations. Id. LSC is sensitive to its role as a minority 
funder for many of its recipients and, accordingly, is attempting to 
balance its need for effective oversight measures with the demands that 
recipients' other funders may place on them as a condition of receiving 
funds.
    Recipients also vary in the number of funding sources they have, 
which further decreases the practicality of requiring all recipients to 
use the same time increment for timekeeping. In other words, while it 
may be reasonable for a recipient who has only two or three funding 
sources to require its employees to report their time in 15-minute 
increments, it may be more practical for a recipient whose staff are 
funded by a larger number of sources to keep time in smaller 
increments. When a recipient has only a small number of funding 
sources, it may be appropriate for the recipient to use a larger 
increment of time for reporting, including up to as long as half an 
hour or an hour. LSC recommends that to maximize the accuracy of 
reporting, recipients use increments no larger than 15 minutes. 
Although LSC does not propose imposing a maximum increment, LSC may 
consider adopting such a requirement after receiving public comments on 
this proposed rule.
    LSC proposes to relocate existing section 1635.3(d), the 
certification requirement for part-time employees, to paragraph (e) of 
this section with revisions. LSC initially created this section to 
require paralegals and attorneys who work part-time for recipients and 
part-time for organizations that engage in restricted

[[Page 70568]]

activities to certify on a quarterly basis that they neither conduct 
restricted activities on recipient time nor use recipient resources to 
carry out such activities. LSC proposes to rewrite this paragraph for 
clarity and to eliminate the existing language regarding de minimis 
activities.
    In current section 1635.3(d), part-time attorneys and paralegals do 
not need to certify when they have engaged in ``de minimis action 
related to a restricted activity.'' 45 CFR 1635.3(d). The paragraph 
states that ``[a]ctions consistent with the de minimis standard are 
those that meet all or most of the following criteria: Actions that are 
of little substance; require little time; are not initiated by the 
part-time employee; and, for the most part, are unavoidable.'' Id. A 
review of the preamble to the 2000 final rule for part 1635 indicates 
that LSC intended to exclude from the certification requirement 
activities that appear to be part of regular intake or reception 
duties. LSC's examples of de minimis activity included answering the 
phone, establishing another non-LSC program time to discuss restricted 
activity, and opening and screening mail. Examples of activity that 
went beyond the de minimis standard included researching and preparing 
legal documents, meeting with or providing advice to the client, and 
conferring with third parties on behalf of the client.
    65 FR 41879, 41881, July 7, 2000. While LSC believes that the 
certification requirement continues to be a necessary element of 
ensuring recipient compliance with the restrictions imposed by LSC's 
governing statutes, it does not believe the language regarding de 
minimis activities is needed. The removal of this language does not 
reflect a relaxation of the rule; it is merely an administrative action 
intended to simplify the rule. Part-time employees remain prohibited 
from actively engaging in restricted activities during times they are 
compensated by the recipient and using recipient resources to engage in 
restricted activities and must continue to certify on a quarterly basis 
that they have done neither.

Section 1635.5 What are LSC's standards for ensuring the proper 
allocation of employee compensation costs across awards?

    Through conducting onsite and remote oversight activities, LSC has 
experienced challenges in verifying that salary costs allocated to the 
LSC grant actually supported activities that were properly chargeable 
to the LSC grant. For that reason, LSC proposes to create a new section 
requiring recipients to have a method for ensuring the accuracy of 
timekeeping records and proper allocation of salaries and wages charged 
to awards as direct costs. In paragraph (a), LSC proposes to require 
recipients to choose one method of cross-checking payroll records 
against timekeeping records: Linking their payroll system to their case 
management or manually reconciling the records on a regular basis. In 
paragraph (b), LSC proposes to require recipients, regardless of which 
method of comparing records they choose under paragraph (a), to 
reconcile their payroll and timekeeping records at least once a year 
and prior to making final entries into their accounting records. By 
taking this approach in the rule, LSC intends to allow recipients 
flexibility in how they reconcile the records supporting employee 
compensation costs while still requiring them to affirmatively compare 
the records before finalizing the accounting records for the relevant 
award year.

Section 1635.6 Who outside the recipient has access to these records?

    LSC proposes to make only stylistic changes to changes to this 
section.
    Finally, LSC seeks specific comment on the burdens the proposed 
changes to this rule may place on recipients' resources. LSC approached 
this rulemaking with the intention of simplifying the timekeeping 
requirement and decreasing recipients' burden of compliance. LSC would 
appreciate comments about the measurable impact on employee time and 
any financial expenditures that complying with the rule as proposed 
would require.

List of Subjects in 45 CFR Part 1635

    Grant program--law, Legal services, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, the Legal Services 
Corporation proposes to revise 45 CFR part 1635 as follows:

PART 1635--TIMEKEEPING REQUIREMENT

Sec.
1635.1 What is the purpose of this part?
1635.2 Definitions.
1635.3 Who is covered by the timekeeping requirement?
1635.4 What are LSC's timekeeping standards?
1635.5 What do recipients need to do to link timekeeping records 
with case management systems?
1635.6 Who outside the recipient has access to these records?

    Authority:  42 U.S.C. 2996g(e).


Sec.  1635.1   What is the purpose of this part?

    This part is intended to improve recipient accountability for the 
use of all funds by:
    (a) Assuring that allocations of direct costs to a recipient's LSC 
grant pursuant to 45 CFR part 1630 are supported by accurate records of 
the cases, matters, and supporting activities for which the funds have 
been expended;
    (b) Enhancing the recipient's ability to determine the cost of 
specific functions; and
    (c) Increasing the information available to LSC for assuring 
recipient compliance with Federal law and LSC rules and regulations.


Sec.  1635.2   Definitions.

    As used in this part--
    (a) Case means a form of program service in which a recipient 
employee provides legal assistance to one or more specific clients, 
including but not limited to providing representation in litigation, 
administrative proceedings, and negotiations, and such actions as 
advice, providing brief services, and transactional assistance.
    (b) Case oversight means a supervisor's review of a case for 
regulatory compliance, consistency with Case Service Report reporting 
rules, and quality control purposes. Case oversight activities include, 
but are not limited to, review of file for retainer, citizenship 
attestation or documentation of eligible non-citizen status, and 
documentation of financial eligibility determination; review of closing 
codes; and review of advice provided or pleadings filed.
    (c) Matter means an action that contributes to the overall delivery 
of program services but does not involve direct legal advice to or 
legal representation of one or more specific clients. Examples of 
matters include both direct services, such as community education 
presentations, operating pro se clinics, providing information about 
the availability of legal assistance, and developing written materials 
explaining legal rights and responsibilities; and indirect services, 
such as training, continuing legal education, supervision of program 
services, preparing and disseminating desk manuals, PAI recruitment, 
referral, intake when no case is undertaken, and tracking substantive 
law developments.
    (d) Restricted activities means those activities that recipients 
may not engage in pursuant to 45 CFR part 1610.
    (e) Supporting activity means any action that is not a case or 
matter.


Sec.  1635.3   Who is covered by the timekeeping requirement?

    Any recipient employee whose compensation is charged to one or more

[[Page 70569]]

awards as a direct cost (as defined in 45 CFR 1630.5(d)) must keep time 
according to the standards set forth in Sec.  1635.4.


Sec.  1635.4   What are LSC's timekeeping standards?

    (a) Standards for Documentation of Personnel Expenses. Recipients 
must base allocations of salaries and wages on records that accurately 
reflect the work performed. These records must:
    (1) Be supported by a system of internal control which provides 
reasonable assurance that the charges are accurate, allowable, and 
properly allocated;
    (2) Be incorporated into the recipient's official records;
    (3) Reflect the total activity for which the recipient compensates 
the employee;
    (4) Encompass both LSC-funded and all other activities compensated 
by the recipient on an integrated basis, but may include the use of 
subsidiary records as defined in the recipient's written policies;
    (5) Comply with the recipient's established accounting policies and 
practices;
    (6) Support the distribution of the employee's salary or wages 
among specific activities or cost objectives if the employee works on 
more than one award or an indirect cost activity and a direct cost 
activity; and
    (7) Contain. (i) For cases, a unique client name or case number, 
the amount of time spent on the case, a description of the activities 
performed, and the dates on which a recipient employee worked on the 
case;
    (ii) For matters or supporting activities, the amount of time and 
type of activity on which a recipient employee spent time and 
sufficient information to link the activity to a specific award. For 
example, if a recipient employee conducts a legal information session 
on filing a pro se divorce petition, the employee could record ``pro se 
divorce group information session, 1.5 hours, LSC grant.''
    (b) In accordance with Department of Labor regulations implementing 
the Fair Labor Standards Act (FLSA) (29 CFR part 516), charges for the 
salaries and wages of nonexempt employees, in addition to the 
supporting documentation described in this section, must also be 
supported by records indicating the total number of hours worked each 
day.
    (c) Salaries and wages of employees used in meeting cost sharing or 
matching requirements of Federal awards must be supported in the same 
manner as salaries and wages claimed for reimbursement from Federal 
awards.
    (d) Recipients may establish the increments of time for which 
employees must record their activities (e.g., .25 hours, one-sixth of 
an hour). LSC recommends that recipients require employees to record 
their time in increments no greater than one quarter of an hour.
    (e) Certification requirement for part-time employees. (1) Any 
recipient employee subject to this part who works part-time for the 
recipient and part-time for an organization that engages in restricted 
activities shall certify in writing that the employee has not engaged 
in restricted activity during any time for which the employee was 
compensated by the recipient or has not used recipient resources to 
carry out restricted activities.
    (2) Employees shall make the required certification on a quarterly 
basis using a form determined by LSC.


Sec.  1635.5   What are LSC's standards for ensuring the accuracy of 
timekeeping records and proper allocation of employee compensation 
costs across awards?

    (a) A recipient must do one of the following:
    (1) Link its payroll records to its case management system; or
    (2) For each employee described in 1635.3, reconcile the time 
reported in payroll records with the time recorded in the timekeeping 
records. Recipients must conduct this manual reconciliation on a 
regular basis required by their established accounting policies and 
practices.
    (b) Recipients must reconcile their payroll and timekeeping records 
at least once a year before final entries are entered into the 
accounting system.


Sec.  1635.6   Who outside the recipient has access to these records?

    Recipients must make time records required by this section 
available for examination by auditors and representatives of LSC, and 
by any other person or entity statutorily entitled to access to such 
records. LSC shall not disclose any time record except to a Federal, 
State, or local law enforcement official or to an official of an 
appropriate bar association for the purpose of enabling such bar 
association official to conduct an investigation of an alleged 
violation of the rules of professional conduct.

    Dated: October 22, 2020.
Stefanie Davis,
Senior Assistant General Counsel.
[FR Doc. 2020-23811 Filed 11-4-20; 8:45 am]
BILLING CODE 7050-01-P