How SBA counts employees

Who is an employee

Section 121.106(a) is deliberately broad: SBA counts all individuals employed on a full-time, part-time or other basis. It then says that includes employees obtained from a temporary employee agency, a professional employee organization or a leasing concern. To decide whether someone is an employee, SBA considers the totality of the circumstances, including the criteria the IRS uses for federal income tax purposes, so calling a worker a contractor will not necessarily keep them out of the count. The one clear exclusion is volunteers, defined as individuals who receive no compensation, including no in-kind compensation, for the work they perform. A person who gets any pay or a benefit in exchange for their work is not a volunteer in this sense.

The averaging method

Paragraph (b) applies when the size standard is a number of employees. The average is taken across each of the pay periods in the preceding completed 24 calendar months, so a firm paid biweekly would look at about 52 pay periods, a firm paid weekly about 104, and a firm paid semi-monthly 48. Each pay period yields a headcount, and the average of those headcounts is the figure. Part-time and temporary employees count the same as full-time ones: a worker on one short shift in the period counts as one, not as a fraction. A firm that has been in business fewer than 24 months uses the average for the pay periods it has been in business. The tool above averages whatever pay-period headcounts you enter and adds the average employees of any affiliates.

Affiliates are added

The average for a concern with affiliates is calculated by adding the concern's average to the average of each affiliate (paragraph (b)(4)(i)). The affiliate may be domestic or foreign. If the firm acquired an affiliate, or was acquired as one, during the measurement period or before it self-certified as small, the employees of the acquired or acquiring concern count for the entire 24 months, not just the time after the affiliation arose. Employees of a former affiliate are excluded for the entire period if affiliation ended before the date used for determining size. Segregable divisions follow the same pattern as with receipts: if the firm sold a segregable division during the period or before self-certifying, the employees of the sold division continue to be counted. Who is an affiliate is the subject of 121.103; see SBA affiliation rules. Joint venture partners also include their proportionate share of the joint venture's employees under 121.103(h)(4).

Staffing arrangements

Because leased workers count as employees of the concern, you might expect a staffing arrangement to create affiliation with the staffing firm. It does not by itself. Section 121.103(b)(4) says concerns which lease employees from firms primarily engaged in leasing employees to other businesses, or which enter into a co-employer arrangement with a professional employer organization, are not affiliated with the leasing company or PEO solely on the basis of the leasing agreement. So the leased workers raise your headcount, but the leasing firm's own staff do not get added to yours on that ground alone.

Worked example

A firm runs 24 monthly payrolls with headcounts that average 118, including 30 part-time staff and 6 agency temporaries, who each count as one. It has an affiliate averaging 40 employees. Combined, the firm is at 158 employees. If the standard in its NAICS code is 150 employees, it is over the line; the part-time staff do not make it smaller by being counted as half. In the tool, enter 118 for one pay period and 40 for the affiliate to see the sum.

When the date and standard are set

Which standard applies and as of what date are separate questions. The employee average runs back from the date you self-certify, and the standard is the one tied to the NAICS code assigned to the contract (see when SBA size status is determined). Look up your standard with the size standards lookup.

What the rule does not say

Section 121.106 does not say how to count partial pay periods at the start, how to treat seasonal workers beyond the general rule that every worker counts the same, or how to treat owners and unpaid family members, which fall under the totality-of-circumstances test and the IRS criteria. It does not apply to receipts-based standards. See how SBA calculates annual receipts for those.

Sources

• 13 CFR 121.106 (eCFR, issue date 2026-10-29): How does SBA calculate number of employees? Read November 2, 2026.
• 13 CFR 121.103 (eCFR, issue date 2026-10-29): How does SBA determine affiliation? (paragraph (b)(4) leasing exception and (h)(4) joint ventures) Read November 2, 2026.

Edition read: 13 CFR part 121 as published in the eCFR, current to the issue date October 29, 2026 (read November 2, 2026). Regulations change; check the current eCFR text and the solicitation or loan program rules that govern your situation. This page explains the regulation in plain language and does not replace it. Review needed: business-law YMYL page, not yet reviewed by a qualified professional.