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How Do You Calculate Employee Calculations for Federal Contracting and SBA Programs

Understanding Employee Calculation for SBA and Federal Contracting

When it comes to determining business size standards for Federal contracting and eligibility for various Small Business Administration (SBA) programs, the number of employees is a crucial metric. Here’s a detailed look at how employee calculation works and why it matters.

What is Employee Calculation?

Employee calculation refers to the method used to determine the average number of people employed by a business over a specific period. This calculation is essential for establishing whether a business meets the size standards set by the SBA, which can affect eligibility for certain contracts and programs.

How is Employee Calculation Done?

  1. Standard Calculation for Businesses Operating for 24 Months or More:
    • The average number of employees is calculated for each pay period over the business’s latest 24 calendar months.
    • This includes every person on the payroll, irrespective of their hours worked or whether they are temporary staff.
  2. Calculation for Newer Businesses:
    • For businesses that have been in operation for less than 24 months, the average number of employees is calculated for each pay period that the business has been operational.

Practical Example

Business Operating for 24 Months or More

Assume a business has the following number of employees for each pay period over the last 24 months:

  • Pay Period 1: 50 employees
  • Pay Period 2: 52 employees
  • Pay Period 3: 49 employees
  • (This pattern continues for each pay period over the 24 months)

To calculate the average number of employees:

  1. Sum the Number of Employees for Each Pay Period:

For simplicity, let’s assume there are 24 pay periods in the 24 months (one per month).

Total Employees=50+52+49+…=1200

  1. Calculate the Average Number of Employees:

Average Employees=Total Employees / Number of Pay Periods​

Average Employees=1200 / 24=50

In this example, the average number of employees over the last 24 months is 50.

Business Operating for Less than 24 Months

Assume a business has been in operation for 12 months and has the following number of employees for each pay period:

  • Pay Period 1: 10 employees
  • Pay Period 2: 12 employees
  • Pay Period 3: 11 employees
  • (This pattern continues for each pay period over the 12 months)

To calculate the average number of employees:

  1. Sum the Number of Employees for Each Pay Period:

Assuming 12 pay periods (one per month):

Total Employees=10+12+11+…=130

  1. Calculate the Average Number of Employees:

Average Employees=Total Employees / Number of Pay Periods​

Average Employees=130 / 12≈10.83

In this case, the average number of employees over the 12 months is approximately 10.83.

Regulatory Reference

The calculation of the number of employees follows the guidelines set forth in 13 CFR 121.106. This regulation ensures a consistent and fair approach to determining business size.

Why is Employee Calculation Important?

Accurate employee calculation is essential for several reasons:

  • Eligibility: Determines if a business qualifies as a small business under SBA standards, impacting eligibility for certain contracts and programs.
  • Compliance: Ensures businesses meet regulatory requirements and avoid penalties.
  • Strategic Planning: Helps businesses plan for growth and understand their workforce dynamics.

Understanding how to calculate the number of employees is vital for businesses looking to engage in Federal contracting or benefit from SBA programs. By following the outlined methods, businesses can accurately determine their employee count and ensure they meet the necessary requirements for various opportunities.

Accurate employee calculation not only helps in maintaining compliance but also positions a business better for growth and success in the competitive landscape of Federal contracting and SBA programs.

SDB Growth has significant experience developing Small Disadvantaged Businesses and supporting business development. We can support your application to enter the SBA’s SDB program, help you win sole-source contracts, or even help you market to the Federal Government. We have supported the award of over 30 sole-source awards. Contact SDB Growth at https://sdbgrowth.com/ for more information.

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