SBA proposes changes to determining companies' size

Federal Register notice

A small business’ size may soon be calculated by a three-year average number of employees instead of an annual average, as the government tries to ease burdens on itself and the companies, the Small Business Administration announced today.

SBA proposed to change the period for computing the average number of employees from the current method, which uses a rolling average over the preceding 12 months. The agency wants to switch to an average in the past three completed calendar years, according to a Federal Register notice published today.

“SBA believes a change in the method...will simplify size standards and lessen the burden on small businesses in calculating their size status,” the notice stated. This proposal also would better define the size of a small business, making the number of employees the measure for the size standard.

SBA estimated that about 2,000 businesses of more than 300,000 in its Dynamic Small Business Search are near or above the current employee size standards. Some of them may benefit from the new proposal.

The agency also wants to rely more on government documents for verification. Currently, if a business’ size is protested, the business must give SBA extensive payroll records from the past year. SBA’s proposal would allow a company to provide its IRS W-3 Form to show the number of employees for each of the past three years.

“Using the IRS W-3 Form would also give SBA a government-validated document to use in verifying employment size,” the notice stated.

The most significant benefit to businesses is cutting down on burdens when applying for assistance programs while keeping the status for a longer period of time, SBA said. The agency estimates that a business spends, on average, about four hours preparing size information for a size determination. SBA expects the proposal would trim an hour off that preparation.

The proposal would also reduce the burden on officials determining size. SBA officials could use the IRS form and avoid reviewing lengthy payroll records.

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