05/08/2020 by Daniel Salmon, Esq.

On December 26, 2019, new rules promulgated by the U.S. Small Business Association (“SBA”) went into effect to expand access to the Historically Underutilized Business Zone (HUBZone) program and assist the U.S. Government in meeting its goal of awarding 3% of its contracts to certified HUBZone small businesses.

HUBZones are economically distressed rural areas which have been specially designated by the SBA with populations lower than 50k and in which the average unemployment rate is greater than 120% of the national or state average unemployment rate, whichever is less.

The SBA’s new rules provide several avenues to effectuate their purpose, but the scope of this article focuses on HUBZone’s employee residency requirement.  In addition to other requirements, to be certified as a HUBZone concern, 35% of a concern’s employees must reside, and have resided for 180 days prior to certification, in a HUBZone. 

Since employers cannot control where their employees live at all times, the certification requirements permit some flexibility with reporting and fluctuations below the 35% threshold for businesses that have already received certification.  For example, individuals who have lived in the HUBZone for 180 days after certification, who subsequently move out of the HUBZone, will continue to be counted toward the 35% threshold until the business submits its annual recertification.  Additionally, the new rules eliminate an earlier rule that HUBZone concerns must report to the SBA if their residency levels fall below 35%.  However, businesses who fall below 20% HUBZone residency while performing a HUBZone contract must still report such an event to the SBA.

Moreover, HUBZone employees may move between HUBZones and still count toward the 35% requirements.  HUBZone employees may be in an unpaid status for up to 12 weeks in a 12-month period and still qualify as a HUBZone employee, so long as the employee worked for the concern for at least 12 months prior to moving into the unpaid status, and so long as the employer is able to show that the employee was considered an employee at the time unpaid leave began and when such an employee is expected to return to work.

While the SBA HUBZone webpage has not yet been updated to provide guidance on these changes, more information can be found in a SBA-published set of Frequently Asked Questions (FAQ).  This FAQ has more comprehensive information on not only the HUBZone residency requirements, but also on the broader changes that the SBA has implemented across the HUBZone program to improve its effectiveness for both business and the government.  Finally, if you have specific questions related to HUBZone or any of the SBA’s small business preference programs, you should contact your attorney to understand how the SBA’s rules apply to your situation.