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What the Heck is a HUBZone?

We regularly take calls from people and companies that are interested in registering in the HUBZone program. Believe it or not, it’s the simplest of the Socio-Economic set asides in principle. Well, maybe the Woman Owned Small Business (WOSB) designation is simpler. Are you a woman? Do you own and operate the company? Prove it and you’re certified. Actually, so is Veteran Owned (Veteran? Own and operate the company?), and so is Service-Disabled Veteran Owned (Veteran? Service-disabled? Own and operate the company?).

Ok maybe HUBZone’s not the most straightforward, but in principle it’s fairly simple:

  • Your primary business location must be located in a HUBZone
  • More than 35% of your employees must live in a HUBZone

Of course, in application, it isn’t quite that easy, and that’s where we come in. Here are the requirements broken down into their component parts:

1. What’s a HUBZone?

“HUBZone” stands for Historically Underutilized Business Zone. These are tracts designated by the Census as historically under-utilized by business. You can find them on this HUBZone Map.

They are updated as often as several times a year. If you are in a HUBZone and the HUBZone is scheduled to be  de-designated, you will have a period of time to move your primary business location to another HUBZone.

2. What does it mean to be “located in” a HUBZone?

That’s the easiest one. Your physical address has to be there. But, whatever the address is, whether your “primary business location,” or an employee’s residence, it has to be legit. No virtual offices (you can rent space in a place that also houses virtual offices but your office space must be big enough to house the number of people you claim work there). No employees living at relatives’ houses.

3. What’s “Your primary business location”?

That is the place of business, other than a client site, where the largest number of employees work. For most service companies, it’s the headquarters which is where all your back-office people are located, and likely where some of your on-contract people are located, too. It could, however, be a regional office if your regional employees aren’t on a client site and there’s more of them than at your headquarters.

For products and some services companies, it could be a factory, manufacturing, distribution, or warehousing facility other than your headquarters if the two are separated and if you have more workers at that location than you have at your headquarters.

4. What’s an “employee”?

Start with your W-2s. Those are all employees if they work more than 40 hours per month, which is roughly 10 hours per week (but note the requirement is monthly, not weekly). Others such as 1099s or volunteers could be considered employees depending on the type of work they do.

5. What does “35%” mean?

Just that. 35%. The difficulty is not in the percentage itself, it’s in maintaining the percentage as your company grows. For example, if a company has one employee, that employee has to live in a HUBZone. If there are two employees, one of the two has to live in a HUBZone. So if there are two partners, one should live in a HUBZone. But when those two partners hire a 3rd employee, that employee must live in a HUBZone (one of three is only 33%). The 4th does not (two of four), and neither does the fifth in this scenario (two of five is 40%).

Another issue arises when a service company gets a large contract. If you have 10 employees and five live in a HUBZone, when you get your big win for 10 more employees, you have to make sure that at least two of those 10 lives in a HUBZone to keep you at 35% (seven of 20). Plus, you may want to maintain a cushion so that an unexpected resignation does not take you immediately out of compliance.

6. What does “live in a HUBZone” mean?

Your employees’ primary residence. The meaning of this is often pretty clear, but the proof required may not be. If you have interns, employees who have recently moved, or an otherwise fluid workforce, you may have employees who don’t live at the address on their drivers’ license. You can use voter registration cards, leases, mortgages, or utility bills to prove an employee’s address, but for anything “non standard” you have to have an affidavit signed by the employee explaining why they don’t live where their identification card says they live. That can become difficult to obtain particularly in the “look-back” period I talk about below if your HUBZone status is challenged.

7. And finally, what happens next?

You file for and receive your HUBZone certification. But that’s not it. HUBZone is a perpetual program, meaning that as long as you fit all the HUBZone requirements – and you are a small business – you remain in the program.

But, there’s a catch: record-keeping. You must not only comply with the requirements, you must keep records that demonstrate your compliance. If your HUBZone status is protested, the SBA will determine that status based on two points in time: (1) When you submitted your proposal; and (2) When the contract is awarded. Those two points can be months to over a year or two years apart. If your status is protested, you will have to produce at least 4 weeks of payroll records and other records demonstrating your HUBZone status on each of those two dates.

Keep your records, and you’ll avoid a lot of difficulty if your status is challenged.

Do you have questions about becoming HUBZone certified? Contact Randolph Law to learn more about the program and how HUBZone certification can open the door for government contract opportunities.