Author: Carissa Siebeneck Anderson
Date: June 26, 2024
SBA Proposes to Update and Standardize Limitations on Outside Employment for Owners of WOSBs, EDWOSBs, VOSBs, SDVOSBs, and 8(a) Firms
In a recent proposed rule, the U.S. Small Business Administration (SBA) announced its intention to update its regulations that limit the outside employment of owners of certain small businesses. While these updates were announced in a Women-Owned Small Business proposed rule, the proposed rule affects 8(a) firms, veteran-owned small businesses (VOSBs), service-disabled veteran-owned small businesses (SDVOSBs), as well as Women-Owned Small Businesses (WOSBs) and economically disadvantaged women-owned small businesses (EDWOSBs). This proposed rule does not affect the HUBZone program rules nor the general rules applicable to small businesses without specific program certifications.
SBA Trend to Standardize Requirements Across Procurement Programs. Currently, the limitations on outside employment and the relevant definitions regarding these rules varied a bit among these SBA programs. SBA seeks to correct any misconceptions that the programs have different rules, so it is standardizing the rules regarding outside employment across these programs.
Affects Participants & Applicants. While this proposed change would certainly affect applicants to these programs, participants should also understand the limitations on their outside employment and “full-time” devotion obligations to ensure they maintain their program eligibility.
What is the point of these rules? Control. SBA wants to make sure that the owner of the business has the required control of day-to-day and strategic management of its business. Control is a significant component for eligibility for these programs. This rule is also helpful in combatting fraud, as it requires the owner on paper (upon whom eligibility is based) to actually be putting in the time to run the business and be the person actually calling the shots. If the owner is not working “full-time” and/or if she is delegating that day-to-day management to someone else, then there is the perception (and perhaps reality) that she is not in control and thus not meeting the program requirements.
Current Rule vs. Proposed Rule. Under the current 13 CFR § 127.202, SBA generally requires:
that a woman devotes sufficient time to the business with a rebuttable presumption that the business is not a WOSB if a woman devotes fewer hours to the business than its normal hours of operation. Where the presumption applies, the woman must provide evidence to SBA that she has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management and administration of the business. This rule proposes to align this language to the current restriction in the Veteran Small Business Certification Program. The business still will be generally required to have the qualified woman that controls the concern devote the woman’s full time to the business during the business’s normal hours of operation. The business may, however, demonstrate to SBA that the woman has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management of the business.
Here is the actual language from the SBA proposed rule for WOSBs and EDWOSBs, and similar language is proposed for the other affected programs:
§ 127.202 What are the requirements for control of an EDWOSB or WOSB?
* * * * *
(c) Limitation on outside employment.
(1) A woman or economically-disadvantaged woman generally must devote full-time to the business concern during its normal hours of operations. The woman or economically-disadvantaged woman who holds the highest officer position of the business concern may not engage in outside employment that prevents her from devoting sufficient time and attention to the business concern to control its management and daily operations.
(2) Where a woman or economically disadvantaged woman claiming to control a business concern devotes fewer hours to the business than its normal hours of operation, SBA will assume that she does not control the business concern, unless the concern demonstrates that she has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management and administration of the business.
(3) Any qualifying woman or economically disadvantage woman who seeks to engage in outside employment after certification must notify SBA of the nature and anticipated duration of the outside employment and demonstrate to SBA that the outside employment will not prevent her from controlling the business concern.
Recommendations for Comments & Questions. If you have concerns about whether this rule makes sense for your business or questions about how SBA will implement this rule, then we recommend submitting comments and questions to the SBA. Also, we recommend asking SBA to provide examples of support that SBA believes would be sufficient to demonstrate control. Also, if the hours of operation are non-traditional in some way, does that provide more room for business owners to have outside employment without violating the rule?
To consider how this affects your business, consider first what your business’s operational hours are. Does the owner (upon whom eligibility is based) work all of those hours, or most of them? If not, why not? If not, how does the owner manage the business and supervise the operations? If the owner is working outside the firm in any capacity, be ready to disclose the outside employment as required and develop documentation to demonstrate how the owner meets the regulatory requirements for management and control.
How can I submit comments to SBA? You can submit comments electronically at regulations.gov or by other means. Here is the link to the rule and regulations.gov comments portal. Comments are due July 15, 2024.
This proposed rule contained more proposed changes to the SBA procurement program regulations, especially regarding WOSBs and EDWOSBs. We also expect SBA to issue more comprehensive and high-impact proposed rules in the next month or two. If you have questions regarding how this proposed rule or others will affect your business, please contact Carissa Siebeneck Anderson at BHBC.