i'm the office mgr of a small it / tech / web firm. we use a time tracking tool (internet based), and everyone in the company is expected to record all time worked in it, under the appropriate projects, etc.

we use the time tracking tool for invoicing clients, but so far we've been paying our contractors based on invoices which they prepare on their own. The problem is, these contractors can sometimes be terrible about recording their time in the time tracking tool. Sooo, we end up billing a client for, say, 20 hours of work on a project, but then the contractor bills us for 38 hours of work on the project - they simply didn't get around to recording that other 18 hours in the time tracking tool. great way for a company to lose money, right?

so the question is: can we pay contractors based solely on what is in the time tracking tool (having, of course, let them know exactly when their hours will be downloaded and processed), or do we "have" to pay them from their invoices?

That's going to depend on your agreement with the companies/individuals. The contract/agreement should have set out the proper invoicing procedures and payment terms. This is a contract issue, not a wage and hour issue.