Federal Court: Temp Workers Count As Employees Under SBA Rules

Small business size for federal procurement can be measured based on receipts or employee counts. Some small business procurements are set aside for small businesses as determined by the employee counts of those businesses, as opposed to the more common receipts based size-standard. SBA size rules, in turn, define what is an employee for those size standards that use employee counts, including whether temporary workers must be included in the employee count.

Employee counts were also utilized for PPP loan purposes, to determine what companies were eligible for PPP loans, with PPP loans only available to companies under certain headcounts. A recent federal district court decision turned on the definition of employee for PPP loan purposes. However, this case should be instructive for determining employee counts for all SBA purposes, including federal procurement, since the employee definitions for PPP loans and small business contracting are the same.

In Bloomfield v. Engineered Structures, Inc., No. 1:22CV789 (DJN), 2025 WL 2978534, at *4 (E.D. Va. Oct. 20, 2025), the court considered whether a company called Engineered Structures Inc. (ESI) had properly represented itself as having under 500 employees for purposes of a Paycheck Protection Program (PPP) loan. The PPP program was only open to companies with less than 500 employees. The case arose because a whistleblower claimed that ESI had improperly represented its employee count.

The PPP program included a definition of employee as “individuals employed on a full-time, part-time, or other basis.” 15 U.S.C. § 636(a)(36)(D)(v), which overlapped with the definition in SBA regulations, stating “SBA counts all individuals employed on a full-time, part-time, or other basis. This includes employees obtained from a temporary employee agency, professional employee organization or leasing concern.” 13 C.F.R. § 121.106.

The court held that “temporary workers from staffing agencies fall within the definition of ’employees’ for PPP-eligibility purposes, including for businesses applying under the PPP’s 500-employee path. Such workers must be included in PPP-related headcount calculations within the parameters set forth under 13 C.F.R. § 121.106.” In addition, the PPP “framework, as evidenced by § 121.106, and as reiterated by the SBA, expressly requires employers to include temporary workers in their employee headcount numbers for purposes of PPP loan eligibility.”

The court cited SBA’s SBA Size Policy Statement No. 1, 51 Fed. Reg. 6099 (Feb. 20, 1986), which recognizes that “merely appl[ying] the common law indicia of an employee/employer relationship, i.e., who hires, fires, pays and withholds taxes … creates a potential for firms to avoid the consequences of their true size by imaginative use of employment contractors” and flagging “the potential for subjecting SBA size determinations to abuse” under a contrary regime. The size policy statement, even though it is from 1986, is still cited by SBA and courts to this day. It’s a good refresher on how SBA will interpret its rules regarding employee counts.

This case is a reminder that the SBA definition of employees (even as applied under the PPP) definitively includes temporary workers. The rules are set up in a way to avoid manipulation of employee counts by use of temporary workers from staffing agencies. Those workers count just the same as full time workers.

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