Proposal: How to Count Small Firms’ Employees Former NASA Associate Administrator Ralph C. Thomas III is proposing a new way for SBA to count a company’s employees in determining eligibility for small business status. Last year SBA proposed counting employees by using the average employment over the past three complete calendar years. Currently companies are required to calculate their employment using a rolling average of the previous 12 months. SBA’s proposal, released for public comment on July 27, 2007, would require companies to count the number of IRS W-2 forms they issued each year. The agency said that would simplify the calculation. But one commenter objected, “If we employ four different individuals for a particular position during a year, we would be deemed to have four employees, even though there was just one position and one fulltime equivalent employee.” As a result, a company could prematurely outgrow a size standard based on employment. “Both the SBA’s premise and rationale for changing the present method were good ones,” said Thomas, now a partner in the law firm of Barton, Baker, McMahon & Tolle LLP in McLean, VA. “The agency is correct in stating that the present process is both burdensome and cumbersome for many small businesses. But the SBA simply proposed the wrong solution, that’s all. It’s something that can be easily corrected.” He suggested SBA should continue its present method of counting, by using a rolling average of a company’s payroll headcount. “However, the rolling average would be over 36 months of the three previous calendar years, rather than the previous 12 months.” Thomas points out that this approach would satisfy SBA’s aim to put employee-based size standards on the same basis as receipts-based standards, which are calculated using a three-year average. “I know that this being a political season there is a temptation by the SBA to let the next administration take care of it,” Thomas said. “However, for many small businesses this is an urgent matter. The SBA’s action or inaction will decide whether or not such firms will continue to be small in just weeks or months from now. The SBA should immediately put the proposal out for public comment and by the time next administration comes in, the agency would at least have the benefit of seeing whether the proposal has the requisite support in the small business community.”