It’s been a long time coming, but the Small Business Administration (SBA) has finally published its “comprehensive regulatory amendment” to the regulations governing the HUBZone program. The new regulations, which were initially proposed on October 31, 2018, go into effect on December 26, 2019. Here are the key changes that may impact your HUBZone business:
- Recertification is now required annually, but will not require submission of supporting information or documentation. This is in addition to the “full document review recertification,” that is required once every three years. However, once a HUBZone business submits its annual recertification, it is authorized to bid on HUBZone contracts for the next year, without further recertification.
- A principal office located in a HUBZone at the time of a HUBZone business’ initial certification will be considered to be located in a HUBZone for the next ten years, even if it is located in an area that is redesignated as non-HUBZone. This is meant to encourage HUBZone businesses to invest in the purchase or long-term lease of facilities within current HUBZones without having to worry about whether the area will retain its HUBZone status long enough for the company to recoup its investment.
- HUBZones now must maintain at least 20% of their employees as residents of a HUBZone during contract performance or face decertification.
- Employees are now considered to “reside” in a HUBZone if they lived there for at least 180 days prior to certification or recertification. Employees who live abroad temporarily to work on a HUBZone contract will be considered residents of their U.S. address.
- An employee shall be considered a HUBZone resident even if he or she moves out of the HUBZone or the HUBZone loses its designation provided: 1) the employee was a resident of a HUBZone at the time of certification; 2) the employee remained a resident of the HUBZone for 180 days after certification; 3) the employee remains an employee of the HUBZone business.
- The definition of employee has been clarified to include: anyone working 40 hours total in the four weeks prior to the HUBZone business’s application for certification (or the date of recertification); temporary employees; owners of HUBZone businesses, whether compensated or not; workers who receive in-kind compensation, such as housing, instead of payment; and employees provided by third-party businesses that specialize in providing HUBZone residents as employees to HUBZone businesses. However, the definition of employee will continue to exclude workers who receive no payment or deferred compensation, such as interns, and independent contractors who are not considered employees under SBA size standard regulations.
These new regulations represent the first significant overhaul of the HUBZone program since its inception. While the changes are welcome and should generally benefit the HUBZone community, they are likely to cause some confusion at the outset.
