The Small Business Administration’s HUBZone office will soon end the principal office flexibility it introduced during the COVID-19 pandemic. Starting April 1, 2022, firms will no longer be able to count employees who spend most of their time working at home as a principal office employee. HUBZone firms need to be mindful of this as they prepare for their 2022 recertification and manage their HUBZone eligibility going forward. Below, we review the changes announced by SBA and offer our recommendations for dealing with them.
Early in the COVID-19 pandemic, the HUBZone office implemented very helpful measures to assist firms in satisfying the principal office requirement at a time when teleworking was mandatory. PilieroMazza wrote about them here. These flexibilities permitted HUBZone firms to consider teleworkers as principal office employees as long as they met specific requirements. The flexibilities also allowed HUBZone firms to count new hires as principal office employees as long as those employees would have worked from the principal office if teleworking hadn’t been imposed due to COVID-19. We saw firsthand how these measures assisted numerous HUBZone firms in maintaining their HUBZone eligibility during the pandemic.
With life steadily returning to normal (knock on wood), SBA decided to end the COVID-19 flexibilities for the principal office requirement as of the end of this month. This means that, whether it’s a new hire or an existing employee, the employee will need to spend most of their time physically working from the principal office location to count as a principal office employee.
While the pandemic may be receding, the pandemic’s impacts on how we work—and where we work—seem likely to stay with us much longer. In this regard, SBA’s decision to end the flexibilities for the principal office requirement is disappointing. The reduced overhead expenditures and increased productivity often associated with teleworking have greatly benefited many small businesses. Given the HUBZone program’s goal of focusing on businesses located in underutilized areas, we would argue that maintaining a business location in a HUBZone area serves the spirit and intent of the program even if the people working from that location spend most of their time working at home. Ideally, the principal office requirement would be sufficiently flexible to allow HUBZone firms to count an employee as a principal office employee if the employee considers the principal office as their main office location, and the company has a workspace dedicated to that employee, regardless of how much time the employee decides to spend working from home versus in the office.
We hope that over time the principal office requirement will evolve to better account for the new realities of teleworking in a post-COVID world. Until then, HUBZone firms will need to make sure they have enough people coming physically into the principal office location to satisfy the principal office requirement.
If you have questions about this client alert or would like assistance preparing for your HUBZone recertification, please contact Jon Williams in PilieroMazza’s Government Contracts Group.