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HUBZone Program Updates and flexibilities during COVID-19

Dear HUBZone Entrepreneur,

The past weeks have been unprecedented as the country comes to grips with the COVID-19 global pandemic.  We recognize that small business owners like you may continue to be impacted by events that lie ahead.  SBA is here to support you as best we can. 

For the most recent information regarding SBA’s disaster support assistance related to COVID-19, please access SBA’s website:  SBA Disaster Assistance

Anticipating the federal government will continue to purchase goods and services, SBA has identified flexibilities to support HUBZone enterprises in obtaining and maintaining their certification during this period.

This email summarizes the following updates of interest to HUBZone enterprises:

     I.  HUBZone Program flexibilities during COVID-19

     II. HUBZone Program updates related to a regulation change

Please join us for a special webinar on Wednesday, March 25 at 2:00 pm, during which we will review the information contained in this email.  You may register for the conference here after which you will receive an email containing a personalized access link.

     I.  HUBZone Program flexibilities during COVID-19

How can firms maintain the 35% HUBZone residency requirement if some employees are college students whose residence hall has closed?  SBA recognizes that some HUBZone employees are students who have been called home to locations no longer in a HUBZone, even though they continue to work remotely, impacting firms’ ability to maintain the 35% HUBZone residency requirement.  SBA will determine affected firms’ compliance with the 35% HUBZone residency requirement by reviewing documentation showing where the impacted employee lived prior to the COVID-19 response measures being put in place. Accordingly, a firm that has a HUBZone  employee that was required to move from student housing to a non-HUBZone location AND continues to work for the HUBZone firm, the firm may continue to count that employee as a HUBZone resident by providing documentation showing:  1) the university/college closed the student’s residence and 2) the employee has been maintained on the payroll.  This applies only to students who, at the time of the firm’s application for certification or recertification, were already on payroll and had residency established prior to the university closing student housing. 

How can firms maintain compliance with the Principal Office requirement if their employees are required to telework?  SBA recognizes that if all of a firm’s employees are required to telework in response to the COVID-19 pandemic, this might impact a firm’s ability to comply with the HUBZone program’s principal office requirement.  In response to this concern, SBA will determine affected firms’ compliance with the principal office requirement by reviewing the firm’s compliance prior to the telework measures being put in place. Accordingly, at the time of application for certification or recertification, a firm that has placed its employees on mandatory telework will have to provide documentation showing where its employees performed their work prior to requiring telework.  Such an applicant will also be required to provide a signed statement that: the firm put all their employees on telework associated with social distancing in response to the COVID-19 pandemic;  the teleworking measure is temporary in nature; and the employees will return to their normal work location once the teleworking measures have been lifted.

How can firms maintain compliance with the requirement for uninterrupted and continued employment for “Legacy HUBZone employees,” as outlined in the HUBZone regulations at 13 C.F.R. 126.200(d)(ii)(3), if employees are laid off or on extended sick leave?  The revised HUBZone regulations, which became effective December 26, 2019, allow firms to count “Legacy” HUBZone resident employees as permanent HUBZone resident employees if they are able to demonstrate that the employee was a HUBZone resident for 180 days prior to and for 180 days following the firm’s HUBZone certification or recertification.  In addition, the requirement states, “The certified HUBZone small business concern must maintain records of the employee’s original HUBZone address, as well as records of the individual’s continued and uninterrupted employment by the HUBZone small business concern, for the duration of the concern’s participation in the HUBZone program.”  SBA recognizes that many firms have placed employees on extended (unpaid) sick leave status or are contemplating layoffs. SBA will allow HUBZone companies to place an employee in a temporary non-paid status such as FMLA to care for themselves or a sick family member during COVID-19 if the firm attests to their intent to put such individuals back on payroll after the period of extended sick leave. However, there is no such exception for employees that have been laid-off.  If a firm lays off an individual, that individual cannot be counted as a “legacy HUBZone employee” for any future HUBZone certification or recertification.

Can the HUBZone Program expedite my application for certification?  SBA may expedite the application of any firm that submits a complete package for certification and indicates that they intend to respond to a specified solicitation that relates to COVID-19. 

Can the HUBZone Program waive or reduce the 35% residency requirement?  This statutory requirement would necessitate Congressional action to change. 

     II.  HUBZone Program updates related to a change in regulations

When and why did SBA propose new rule changes to the HUBZone program? The SBA proposed new regulations to make it easier for small businesses to participate in the HUBZone program. These changes will make the program more attractive for small businesses to invest in HUBZones and hire HUBZone residents, providing greater impact to communities and making it easier for federal agencies to meet their goal to award 3 percent of contracts to certified HUBZone small businesses.  The rule change was published in November 2019 and took effect December 26, 2019.   

What are the new rules around recertification? All firms will be required to undergo an annual recertification rather than a triennial recertification, with a full documentation review taking place every three years.  Once certified, a firm is eligible for all HUBZone contracts for which the business qualifies as small, for a period of one year from the date of its initial certification or most recent recertification (unless the concern acquires, is acquired by, or merges with another firm during that period).   Prior to this change, in order to be eligible for a HUBZone contract, firms had to prove their HUBZone eligibility at both the time of offer and the time of award, lengthening the procurement process for HUBZone firms uniquely among all small businesses—and serving as a disincentive for federal agencies to contract with HUBZone companies. 

When and how will annual recertification begin? SBA has experienced a delay in the implementation of our new annual recertification process.   Firms which, based on the prior triennial recertification schedule, were due for recertification in 2020 will be contacted automatically by the HUBZone Certification and Tracking System (HCTS) and will be required to recertify on the anniversary date of their initial certification.  (For example, if a firm was initially certified on December 1, 2017, the firm will receive a notice from HCTS that it is due to recertify its HUBZone status within 30 days of December 1, 2020.)   All other firms (which were not scheduled to recertify in 2020 under the triennial recertification rules) will continue to be considered eligible as of the date of their initial certification or most recent recertification, and must be prepared to prove their eligibility at that time if their HUBZone status is protested in connection with a HUBZone solicitation issued after December 26, 2019.    Until such time as we have introduced a fully automated recertification process for all firms, we will also allow firms to voluntarily recertify on the anniversary date of their initial certification, if they choose to do so. We will advise firms within the next two weeks regarding the process for voluntary recertification on their anniversary date.

Are Governors now permitted to ask SBA to designate HUBZones?  A new Governor-designated covered areas initiative that became effective on January 1, 2020, represents an opportunity to expand the HUBZone program to reach more distressed rural communities.  The new authority allows state governors to petition SBA to designate as HUBZones rural areas with populations under 50,000 and unemployment levels of 120 percent of the U.S. or state average.  SBA will provide updates and update the HUBZone maps to reflect newly covered areas.

Are there other changes to the HUBZone maps? SBA has frozen the HUBZone maps through 2021, until the results of the 2020 Census are available. This will provide the program and participating small businesses with an opportunity to transition to a new requirement to update the maps and designations on five-year intervals, starting after the 2020 Census. Five-year HUBZone updates will enable small businesses to plan and invest in their HUBZone communities without fear that their designation may change from one year to the next, thus providing stability for both the community and HUBZone businesses. While the maps are frozen, no new Qualified Non-Metropolitan Counties, Qualified Census Tracts, or Redesignated Areas will be removed from or added to the maps. However, SBA will continue to add locations approved through the new Governor-designated covered areas initiative, qualified base closure areas, qualified disaster areas, and Indian lands, as any new data is received.

How has the definition of the Principal Office changed?   A new provision in the HUBZone regulations allows small businesses that invest in HUBZones by purchasing a building or entering a long-term lease (of 10 years or more) to maintain HUBZone eligibility for up to 10 years, even if at some point the office location no longer qualifies as a HUBZone. This provision does not apply to offices located in areas categorized on the HUBZone map as Redesignated areas.

Are there changes to the 35% HUBZone employee residency requirement?  The new rule allows HUBZone companies to retain long-term “Legacy” HUBZone resident employees as permanent HUBZone resident employees, under certain circumstances.  An employee who resides in a HUBZone for at least six months (180 days) at the time of certification or recertification, and continues to reside in a HUBZone for at least six months (180 days) after such time, may continue to be considered a HUBZone resident so long as they are continuously employed by the firm, even if he/she moves to a non-HUBZone area, or if the area of his/her residence loses HUBZone geographical eligibility. If the firm wants to count such a “Legacy” employee as a HUBZone resident for the duration of the individual’s employment, then at the time of any subsequent recertification, the firm will be required to identify any such employee and provide supporting documentation demonstrating that the individual resided in a HUBZone for 180 days before and after certification and that the individual has been an employee of the firm for the entire period of time since the firm’s certification.

How may I obtain help or learn more about the HUBZone Program?  The following resources may be accessed for additional support:

Please let us know if you have additional questions.

Sincerely,

Lori Gillen

Director

Office of the HUBZone Program