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Calculate number of employees, and determine your small business status

The agency that sets size standards, or size caps, based on either a company’s number of employees (“employee- based” size standard) or a firm’s annual receipts (“receipts-based size standard) is the U.S. Small Business Administration (SBA). Generally, the size status for manufacturing industries is employee-based in that a company’s size is determined by calculating the average employment of the company, including the employees of its domestic and foreign affiliates, based on the number of persons employed on a full-time, part-time, temporary, or other basis, during each of the pay periods of the preceding 12 months.

For service and construction companies, the SBA, for the most part, uses a receipts-based standard whereby it determines size by averaging a firm’s annual receipts, including the receipts of its domestic and foreign affiliates (less returns and allowances, sales of fixed assets, and inter-affiliate transactions) for the previous three years.

With regard to the employee-based standard, the SBA recently proposed a change in how the number of employees in a firm would be calculated. The proposal was soundly criticized by the small business community, however, and the SBA abandoned the proposal and is now re-thinking its options. As this article suggests, the SBA’s basic idea in seeking a new way to calculate employees was a good one and should be pursued.

With just a few simple adjustments as outlined in this article, the SBA can have a new, workable approach to the problem, while muting criticism from the small business community, and having a system in place that will benefit both the government and industry.

A PEO can best help your company put in place an employee incentive program. To find the right PEO for your company, please visit our directory or fill out this form 

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