Proposed Changes to HUBZone Requirements

June 14, 2019

By: John Carpenter

Since the establishment of the Historically Underutilized Business Zones (“HUBZone”) program, numerous contractors and agencies have struggled with the complicated requirements of the program. The HUBZone program has always been designed to assist with economic growth and job creation in areas of the country suffering from below average economic activity. The difficulties of meeting HUBZone requirements and handling administrative tasks have sometimes hindered participation in the program.

In October 2018, the Small Business Administration (“SBA”) issued proposed rules designed to make compliance easier and encourage companies to utilize the program. To date, these proposed rule changes have not been implemented. This article will touch on the biggest changes that would occur if the proposed rules are implemented.

Most companies have found that the biggest challenge to maintaining HUBZone certification is meeting the requirement that 35 percent of company employees must reside in a HUBZone. As a reminder, the 35 percent requirement is measured based on all employees who work 40 hours per month or more; this means most part-time employees are counted equally with full-time employees. The proposed rule would lower the threshold such that companies who “attempt to maintain” 20 percent of employees living in HUBZones and are making good faith efforts to achieve 35 percent participation would maintain HUBZone certification. Obviously there are potential challenges to defining what constitutes an “attempt to maintain” or “making a good faith effort”, but reducing the basic threshold from 35 percent to 20 percent will make it easier for more companies to qualify for HUBZone status.

Another major proposed change concerns the frequency and timing of reporting HUBZone compliance. Current regulations require HUBZone firms to certify compliance at the time of offer and award of HUBZone contracts and certification every three years. The proposed rules would eliminate the requirement to certify with each offer and award and instead require an annual certification.

There are other proposed changes that will make HUBZone certification somewhat easier. An employee can continue to be counted as a HUBZone resident if their place of residence initially qualifies as a HUBZone but later fails to qualify. The proposed rules also would allow companies to count an employee as a HUBZone resident if they lived in a HUBZone at the time of hire and later moved into a non-HUBZone area or their neighborhood loses its HUBZone status. SBA acknowledges that the current rules actually incentivize companies to fire employees simply because they move out of a HUBZone area.

As with all proposed rule changes, there is still plenty of room for further changes before the rules are finalized. If your company is a current HUBZone firm or on the edge of qualifying, it is worthwhile to follow the final rules as they are released.