The U.S. Small Business Administration published a rule on June 6, 2022 that doubles the employee-count lookback for its employee-based size standards, from 12 to 24 months. The rule takes effect July 6 and applies the longer lookback to certifications following that effective date. For suppliers near the limit for small-business status, older payroll records will become part of the eligibility calculation. The test is not simply how many people work for the company now. [S1]

The change reaches beyond factories. In its November 2, 2021 proposal, SBA sought comment on including nonmanufacturers and nonmanufacturing industries in the 24-month calculation. The final rule keeps that scope: it covers all industries with employee-based size standards, including certain transportation, publishing and telecommunications businesses, as well as nonmanufacturers supplying goods under federal procurement rules. SBA argues that using different averaging periods would burden firms operating in more than one industry. [S1][S2]

The count is an average across pay periods in the preceding completed 24 calendar months, including employees of domestic and foreign affiliates. Part-time and temporary employees count as full-time employees for this purpose. Those counting rules already appeared in the 2021 proposal’s description of the existing system; the new rule lengthens the period rather than turning headcount into an hours-worked calculation. A business younger than 24 months averages the pay periods during which it has existed, rather than filling out a two-year record with zeroes. [S1][S2]

The effect depends on which way employment has moved. SBA says growing firms can keep small-business status longer under the extended average. A supplier that hired heavily for a temporary order faces the reverse risk: SBA acknowledges that the longer period can delay regaining small-business status after such a surge. The longer lookback can soften the effect of recent hiring while keeping older, higher employee counts in the calculation after a contraction. That is a consequence of the averaging method, not a finding that every supplier benefits. [S1]

There is no multi-year transition allowing firms to pick whichever employee average is more favorable. SBA says the 24-month method alone will apply after the rule takes effect. The same rule does offer a three-year or five-year receipts election in specified financial-assistance programs, but that is a different size measure. A supplier preparing a size certification should not treat that receipts option as permission to choose between 12 and 24 months of employee records. [S1]

Source documents

  1. Small Business Size Standards: Calculation of Number of Employees for All Programs and of Average Annual Receipts in the Business Loan, Disaster Loan, and Small Business Investment Company Programs — final rulehttps://www.federalregister.gov/documents/2022/06/06/2022-12131/small-business-size-standards-calculation-of-number-of-employees-for-all-programs-and-of-average
  2. Small Business Size Standards: Calculation of Number of Employees for All Programs and of Average Annual Receipts in the Business Loan, Disaster Loan, and Small Business Investment Company Programs — proposed rulehttps://www.federalregister.gov/documents/2021/11/02/2021-23439/small-business-size-standards-calculation-of-number-of-employees-for-all-programs-and-of-average