Your largest expense line is broken. While finance teams obsess over every dollar in vendor contracts and office supplies, 40% admit they can’t trust their labor cost data, the expense that typically represents 60-70% of total spending. Our survey of 210 finance leaders exposed a hidden crisis: organizations are making million-dollar forecasts, satisfying investor demands, and signing SOX compliance certificates based on numbers they fundamentally doubt.
The consequences are already hitting balance sheets. Nearly 25% have lost R&D tax credits. Another 23% have faced audit failures. All because labor tracking systems that look sophisticated on paper create chaos in practice.
This isn’t a future problem, it’s happening now. Labor costs climb 3-4% annually while regulatory scrutiny intensifies, making this trust gap a ticking time bomb for finance leaders who thought their tracking was adequate.
The Fragmentation Problem: When Everyone Measures Differently
Picture a restaurant kitchen during dinner rush, each station tracking timing differently, using separate systems, with no shared standards. That’s labor cost management today.
The tracking methods are all over the map. Some organizations use detailed time tracking software, others rely on leadership estimates for labor allocation (51% according to our survey), while 29% depend on employee surveys to reconstruct how time was spent. Many still use basic role-based allocations, PMO estimates, or ERP system approximations. Each method produces data, but none speak the same language when finance tries to reconcile everything.
The complexity paradox is striking: organizations with the most sophisticated tracking needs, those capitalizing software costs, documenting R&D for tax credits, report the lowest confidence in their data accuracy. More tracking methods should equal better precision, but instead create more inconsistency.
When Finance Teams Resort to Guesswork
Despite recognizing labor cost tracking as strategically important, 32% of finance leaders still rely on spreadsheets for complex allocations. Another 51% depend on leadership estimates, essentially asking managers to reconstruct from memory how their teams spent time weeks or months ago. Nearly 30% use employee surveys, trusting workers to accurately recall and categorize their activities.
These methods create an illusion of precision. Finance teams can massage numbers until they appear consistent, hiding discrepancies behind formulas and assumptions. Under audit scrutiny, this carefully constructed data reveals its foundation of guesswork and approximations.
The consequences hit hard: 25% of organizations have lost R&D tax credits due to inadequate documentation, while 23% have faced audit failures from poor labor cost records. The contrast is stark when you look at organizations that fixed their tracking systems. One top-ten biotechnology firm implemented systematic labor cost tracking and recovered 15% more in R&D tax credits, translating to millions in additional recovered costs across their $50B+ operation. The difference wasn’t better accountants or more favorable auditors. It was verifiable data that could withstand scrutiny.
The Integration Challenge
The path forward requires solving two problems simultaneously: collecting verifiable data and connecting it meaningfully across systems. Integration with financial and accounting systems ranks as finance leaders’ biggest challenge, but integration alone won’t fix unreliable inputs.
When 51% of organizations rely on leadership estimates and 29% use employee surveys to reconstruct how time was spent, the foundation is guesswork, no matter how well-integrated the systems become. You can’t integrate your way out of bad data collection. A seamless connection between spreadsheets full of estimates and your ERP system just moves unreliable information faster.
Labor cost data becomes valuable only when two conditions are met: accurate collection at the source and seamless flow through financial reporting. When a software engineer logs hours to “Project Alpha”, whether through real-time tracking, manager estimates, or employee surveys, that information must be both verifiable and consistently understood across financial systems for capitalization, cost allocation, and compliance reporting.
Organizations using sophisticated time tracking software still struggle with integration gaps, but at least they start with defensible data. Those relying primarily on estimates and surveys face compounding problems: unreliable inputs flowing through disconnected systems. Success requires fixing both the collection method and the system architecture.
The Strategic Opportunity Hidden in Plain Sight
Only 56% of organizations use labor cost data strategically for planning and decision-making. This means nearly half collect information about their largest expense but never leverage it for competitive advantage, whether because the data isn’t reliable enough to trust or because systems can’t deliver actionable insights.
The missed opportunities compound over time. Teams using different tracking approaches develop different operational assumptions. Finance makes budgeting decisions based on incomplete pictures. Strategic planning proceeds without reliable labor cost inputs. Eventually, the organization operates with multiple versions of truth, none of them fully trusted.
Consider what’s at stake: labor typically represents 60-70% of total organizational spending, yet leaders can’t confidently forecast project costs, optimize team productivity, or validate strategic investments in human capital. The data exists, it’s just fragmented across incompatible systems and collection methods.
Building Systems That Actually Work
The solution requires treating labor cost management as an enterprise system with two non-negotiable requirements: accurate data collection and seamless integration. You can’t fix one without the other.
Start with the data collection method. Organizations relying primarily on leadership estimates or employee surveys need to transition to verifiable tracking, whether that’s time tracking software, automated project allocation, or other methods that create audit trails. The specific tool matters less than the principle: labor cost data must be defensible under scrutiny, not reconstructed from memory weeks or months later.
Then address integration. Whether your organization uses time tracking software, role-based allocations, or hybrid approaches, three fundamentals apply:
- Establish unified definitions. Every project, cost center, and activity category must mean the same thing across all systems.
- Implement automated validation that catches inconsistencies before they propagate through financial reporting.
- Design integration points that preserve data integrity during system handoffs.
Most importantly, assign clear ownership for both data quality and system consistency. Organizations that fix their collection methods and systematic integration challenges simultaneously gain competitive advantages in forecasting accuracy, operational efficiency, and regulatory compliance.
The Bottom Line
Finance leaders aren’t losing trust because they lack data, they’re losing trust because unreliable collection methods and fragmented systems create inconsistencies that no amount of manual reconciliation can solve. Whether teams reconstruct hours from memory, managers provide estimates weeks or months after the fact, or employees fill out surveys, the fundamental challenge compounds when these unverifiable inputs flow through disconnected systems. Finance inherits a puzzle with pieces that don’t fit together.
Organizations that recognize both problems, inadequate data collection and poor integration, and invest in fixing them simultaneously will gain decisive advantages. Like that restaurant kitchen where every station finally coordinates through shared standards and central systems, the result is consistency, confidence, and the ability to make strategic decisions based on data you actually trust.
The data collection problem is solvable. The integration problem is solvable. Organizations that solve both first will own the competitive advantage.
About the Author
Alex Mann is CEO of ClickTime, a 25-year-old software-as-a-service company helping finance teams connect fragmented labor cost data with their financial systems. He co-founded the company with his brother Harold in 1999 after a consulting client needed time tracking software that didn’t exist in the market.
Download the complete 2025 State of Labor Cost Management report to see how your organization’s challenges compare to 210 finance leaders across Financial Services, Retail & eCommerce, and SaaS industries, or schedule a demo to see how ClickTime addresses the integration gaps discussed in this article.
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