New from Small Business Administration (SBA): Important change to HUBZone regulations with regard to employee definition going into effect May 3, 2010
On May 3, 2010 a new change in the HUBZone regulation about the definition of an employee is going into effect. The change in the definition makes it easier and simpler for small business concern (SBC) businesses to determine if a particular employee is considered a SBC employee for HUBZone eligibility purposes.
The new definition revises the term employee as follows:
- The requirement for the full-time equivalency is removed.
- For eligibility purposes, HUBZone SBCs can count leased, temporary employees, or employees obtained through a temporary agency or union agreement as employees.
- Specifically state that SBA relies on the totality of circumstances as further defined by Size Policy Statement No. 1 when determining whether individuals are employees of a SBC.
- Clarifies that volunteers are not employees
- Defines volunteers as people who receive no compensation
- Addresses the status of individuals who own all or part of the SBC but receive no compensation for work performed.
After May 3, 2010, all HUBZone certified companies must be in compliance with the new definition that impacts the evaluation of the Principal Office and the 35% residency requirements. Otherwise businesses could face possible decertification action. The new definition affects all aspects of the program certification process, from new applications, to recertification, protests, and program examinations.
So how will the new definition affect your HUBZone SBC business?
When you are in the process of applying for the HUBZone SBC certification:
- If prior to May 3, 2010 SBA reviews your HUBZone eligibility, the old definition (pre May 3, 2010), not the new one, will be used in the assessment process.
- If you submitted an application prior to May 3, 2010, your company will be evaluated based on the employee definition that was in effect at time of application, i.e. the pre May 3rd definition. However, if for any reasons or SBA concerns, your application has to be evaluated on May 3, 2010 or later, your application will be evaluated based upon the new definition.
- If you submitted an application on May 3rd or later, your application will be evaluated based on the new definition.
If you are already a HUBZone SBC certified business:
- If your business is evaluated prior to May 3, 2010, the old definition will be used to evaluate your eligibility as a HUBZone SBC certified company.
- If the evaluation takes place on May 3, 2010 or later, the new definition will be used in the evaluation process.
Below are the old and new definitions as outlined on www.sba.org.
Pre May 3, 2010 definition:
Employee means a person (or persons) employed by a HUBZone SBC on a full-time (or full-time equivalent), permanent basis. Full-time equivalent includes employees who work 30 hours per week or more. Full-time equivalent also includes the aggregate of employees who work less than 30 hours a week, where the work hours of such employees add up to at least a 40 hour work week. The totality of the circumstances, including factors relevant for tax purposes, will determine whether persons are employees of a concern. Temporary employees, independent contractors or leased employees are not employees for these purposes.
New definition (starting May 3, 2010):
Employee means all individuals employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours per month. This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement or co-employed pursuant to a professional employer organization agreement. SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes and those set forth in SBA’s Size Policy Statement No. 1, in determining whether individuals are employees of a concern. Volunteers (i.e., individuals who receive deferred compensation or no compensation, including no in-kind compensation, for work performed) are not considered employees. However, if an individual has an ownership interest in and works for the HUBZone SBC a minimum of 40 hours per month, that owner is considered an employee regardless of whether or not the individual receives compensation.