We have a JIRA Service Desk project and we would like Collaborators to be able to track the time they spend working on this issues within the JIRA Service Desk project. Is this possible?
No, not within JIRA Service Desk, see the documentation: https://confluence.atlassian.com/display/SERVICEDESK/Collaborator.
We implemented Service Desk with a workflow that automatically clones an issue to a development project when it reaches a certain status. This way development can work on the issue (and log that work). When the issue is resolved, the original issue is updated so the agent can proceed with the issue.
Maybe you can have a look at the JIRA Command Line Interface plugin, which seems to provide similar functionality and is available for On Demand. I do not have any experience with that, so I cannot offer any help with that unfortunately.
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