SBA SIZE PROTEST LAW: SBA Size Determination Protests & Appeals - Attorneys

Independent Contractors

A contractor may want to hire people from staffing companies.  These persons are not "employees" of the contractor, but may work as an independent contractor or as an employee of the staffing company.  The SBA recognizes that there are legitimate business reasons for hiring personnel support through a third party staffing company.  On the other hand, the SBA is concerned that this practice could be used to circumvent size standards based on employee count if persons provided by the staffing company are not counted.

To address this concern, the SBA issued SBA Size Policy Statement No. 1 dated February 20, 1986 The SBA states that it will count independent contractors or persons employed by a staffing company as employees if a the contractor is "deriving the usual benefits incident to employment of such individuals."  The SBA  policy statement identifies the following eleven factors that will be considered:

  1. Did the company engage and select the employees?
  2. Does the company pay the employees wages and/or withhold employment taxes and/or provide employment ben­efits?
  3. Does the company have the power to dismiss the employees?
  4.  4. Does the company have the power to control and supervise the employees' performance of their duties?
  5. Did the company procure the services of the employees from any employment contractor involved in close prox­imity to the date of self-certification as a small business?
  6. Did the company dismiss employees from its own payroll and replace them with the employees from any em­ployment contractor involved? Were they replaced soon after their dismissal?
  7. Are the individual employees supplied by any employment contractor involved the same individuals that were dismissed by the company?
  8. Do the employees possess a type of expertise or skill that other companies in the same or similar lines of business normally employ in-housc (as opposed to procuring by sub-contract or through an employment contractor)?
  9. Do the employees perform tasks normally performed by the regular employees of the business or which were pre­viously performed by the company's own employees?
  10. Were the employees procured through an employment contractor to do other than fill in for regular employees of the company who are temporarily absent?
  11. Does the contract with the independent contractor have a term based on the term of an existing Government con­tract?

The presence of one or more single factors on the list in a particular case may but will not necessarily support a finding that the employees should be attributed to the business whose size is in issue. This listing is not meant to be exhaustive, and other factors not listed that demonstrate an effort on the part of the firm to satisfy the SB A size standard in form, while deriving the benefits of a much larger number of employees in fact, must be considered.


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