Within the last month numerous businesses have been quickly overwhelmed by the financial effects of the COVID-19 pandemic. Many companies are examining as to whether or not they qualify for financial assistance under the Payroll Protection Program implemented under the CARES Act (“PPP Program”) and administered by the U.S. Small Business Association (“SBA”). The principal concern for many of the companies applying for assistance, under the PPP Program, is the small business size requirement.
According to the CARES Act a business qualifies as a small business if it does not employ more than the greater of:
A company must meet the size limitations permissible under Title 13 Part 121 of the SBA’s Small Business Size Regulations (“SBA Regulations”) in order to qualify for assistance under the PPP Program. According to Section 121.106(4)(i)-(ii) of the SBA Regulations a company calculates its workforce size by:
Adding the average number of employees of the business concern with the average number of employees of each affiliate. If a concern has acquired an affiliate or been acquired as an affiliate during the applicable period of measurement or before the date on which it self-certified as small, the employees counted in determining size status include the employees of the acquired or acquiring concern. Furthermore, this aggregation applies for the entire period of measurement, not just the period after the affiliation arose…The employees of a former affiliate are not counted if affiliation ceased before the date used for determining size. This exclusion of employees of a former affiliate applies during the entire period of measurement, rather than only for the period after which affiliation ceased. However, if a concern has sold a segregable division to another business concern during the applicable period of measurement or before the date on which it self-certified as small, the employees used in determining size status will continue to include the employees of the division that was sold.
In calculating the average number of employees employed by a company, a company must count the average number of employees that it employs and it must also include employees of its applicable affiliates in the calculation. Section 121.103 of the SBA Regulations has an exhaustive list of factors when determining affiliates. Some of the main factors of affiliation are listed below:
However, a company may exclude employees of affiliates towards the overall workforce calculation in accordance with Section 121.103 of the SBA Regulations. Some of the main exclusions are listed below:
After reviewing the general parameters for the calculation set forth above, if a company and its affiliates employ under 500 employees, then the company will likely qualify for the PPP Program in connection with the workforce size limitation.
If additional assistance is required in calculating the workforce size limitation, please contact Edward Grattan or any other Tucker Arensberg attorney. In the event that the company does not qualify, you may want to consider qualifying under the Title IV program of the CARES Act for financial assistance. A summary of the CARES Act’s Title IV program is set forth on our COVID-19 blog.
April 14, 2020
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