SBA Rule Extends Lookback for Employee-Based Size Standards to 24 Months
Today, the U.S. Small Business Administration ("SBA") published a final rule that changes the lookback period for employee-based size standards from 12 months to 24 months. The final rule takes effect on July 6, 2022 and is welcome news for contractors that operate under North American Industry Classification Systems ("NAICS") codes with employee-based size standards.
Specifically, the final rule implements section 863 of the National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 ("2021 NDAA”), which amended portions of the Small Business Act to change the averaging period for SBA's employee-based size standards from 12 months to 24 months. [1] As noted in the rule, to determine the number of employees, SBA counts all individuals employed on a full-time, part-time, or other basis, including employees of the concern's domestic and foreign affiliates. Where a small business has not been in business for 24 months, SBA instead averages the concern's employees for each pay period the company has been in business.
The final rule amends 13 C.F.R. §§ 121.106(b)(1) and (b)(3), and as noted by SBA, applies to all industries that are subject to employee-based size standards, including nonmanufacturers and nonmanufacturing industries.
Takeaway
This change is welcome news for contractors that operate under NAICS codes with employee-based size standards. Once effective, SBA's rule not only will enable small business concerns to retain their small size status for a longer period of time but also will enable some mid-sized companies to regain their status as a small business.
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[1] SBA's final rule also implements other changes not discussed here. Notably, under the final rule, "SBA is also permitting business concerns in its Business Loan, Disaster Loan, Surety Bond, and Small Business Investment Company (SBIC) Programs to use a five-year averaging period, in addition to the existing three-year averaging period, for the purposes of calculating average annual receipts."
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