Federal Court: Temp Workers Count As Employees Under SBA Rules

Key Takeaways

• Temp agency staff count as SBA employees
• PPP eligibility requires including temporary workers
• SBA size standards treat temps like full‑time staff
• Court cites 13 C.F.R. §121.106 and 1986 policy
• Firms cannot shrink size by outsourcing labor

Summary

A federal district court in Bloomfield v. Engineered Structures ruled that temporary workers from staffing agencies must be counted as employees under SBA regulations. The decision relied on 13 C.F.R. §121.106 and the SBA Size Policy Statement, confirming that the PPP definition of employee applies to all SBA size standards. This interpretation means firms cannot reduce their headcount by using temps to qualify for PPP loans or small‑business set‑aside contracts. The ruling reinforces SBA’s intent to prevent manipulation of size thresholds across federal procurement programs.

Pulse Analysis

The Small Business Administration uses two primary metrics—annual receipts and employee headcount—to define a "small" business for federal procurement and loan programs. While many contracts rely on revenue thresholds, a significant subset of set‑aside opportunities hinges on employee counts, making the definition of an employee critical. Temporary workers have long occupied a gray area, but the SBA’s own regulations, specifically 13 C.F.R. §121.106, explicitly state that individuals supplied by staffing agencies are to be counted. This baseline ensures a uniform baseline for programs like the Paycheck Protection Program (PPP) and size‑standard contracts, preventing firms from artificially lowering their reported size.

In the recent Bloomfield v. Engineered Structures case, the Eastern District of Virginia applied that regulatory language to a PPP eligibility dispute. The court affirmed that the statutory definition of "individuals employed on a full‑time, part‑time, or other basis" encompasses temps, aligning the PPP’s employee definition with the SBA’s broader policy. By citing the 1986 SBA Size Policy Statement, the judge highlighted the agency’s longstanding intent to block abuse through contractor‑only workforces. The decision sets a clear precedent: any business seeking SBA benefits must include all agency‑supplied labor in its headcount, eliminating a common loophole used to qualify for small‑business programs.

For contractors and lenders, the practical impact is immediate. Companies must audit their workforce calculations, ensuring that temps, leased employees, and professional organization staff are reflected in SBA‑related reporting. Failure to do so can result in disqualification from PPP loans, loss of set‑aside contract eligibility, or potential penalties for misrepresentation. Moving forward, firms should integrate temporary labor data into their compliance systems and consider the cost implications of a higher headcount when planning bids for government work. As the SBA continues to enforce these definitions, transparent employee reporting will become a competitive differentiator in the federal marketplace.