SBA Issues Final Rule to Amend Employee-Based Size Standards

The final rule amends 13 C.F.R. § 121.106 to implement the 24-month period. This change applies to all employee-based size standards, including manufacturing, wholesalers, mining, utilities and environmental remediation. In the final rule, the SBA notes that some concerns may lose their small business size status based on the 24-month period. The SBA noted, however, that, “based on the 2012 Economic Census data, the number of firms with expansive impacts (1,484) exceeds the number of firms with “contractive impacts” (1,050), with a net impact of about 435 firms either extending or regaining their small business status.”

Unlike the SBA’s implementation of the Small Business Runway Extension Act of 2018 (SBREA), which provided a two-year transition period during which a business could choose to use a 5-year or 3-year average to calculate average annual receipts, the final rule does not allow a transition period where concerns may choose to calculate their size by either the 12-month or 24-month periods. The SBA explained in the final rule that it chose not to include a transition period because the “economy [is] continuing to recover from the COVID-19 pandemic with employment almost returning to the pre-pandemic level” and because the “SBA expects the 24-month employee average to be lower than the 12-month average for most businesses.”

Accordingly, beginning on July 6, 2022, a concern will average its employees over all pay periods in the preceding completed 24 calendar months. If a concern has not yet been in business for 24 months, the concern will average its number of employees for each pay period during which it has been in business.