SBA proposes new standards for determining size of business

Number of employees to be based on two-year average

      The Small Business Administration is proposing to change the way small business size is determined in some industries, in order to implement a provision in last year’s National Defense Authorization Act.

      The SBA acknowledges that the changes are likely to harm some small businesses even as it helps others. However, the change was ordered by the Republican-led Congress last year.

      Comments are due by Dec. 2.

      Under the proposed rule, for industries in which business size is based on the number of employees, the number of employees would be the average of the number of employees for each pay period in the preceding 24 months. Currently, it is based on 12 months.

Manufacturers only?

      Congress specified that the 24-month average would apply to manufacturers. However, the SBA proposes to apply it to businesses in all NAICS codes with employee-based size standards. In addition to manufacturing industries it would apply to certain mining, utilities, transportation, publishing, telecommunications, insurance, research and development and environmental remediation industries.

      “SBA believes that it would be unworkable to use a 24-month average for manufacturing industries but retain a 12-month average for other industries with employee-based size standards,” the proposed rule states.

Impact on small businesses

      The SBA acknowledges that changing the time periods for calculating number of employees may help some small firms, while causing others to lose their small status sooner.

      Some mid-sized firms may regain small status, and some small firms may retain small status longer. On the other hand, if a firm recently shrunk, under the new standard it could lose small status or have it shortened because it had too many employees two years ago.

      Under the proposed rule, the SBA estimates that:

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