My company has been a government contractor for over 10 years offering services only (financial, PM). A few years ago we sold off a large division of our business and are now coming into our first year as a SDVOSB.  My question is pertaining to the below FAR clause. I'd like to know your opinion on 19.14-07(a)(1) - do "employees" mean just that or can that include temp staff, 1099s and subcontractors? Thank you!

FAR 19.1407 Limitations on subcontracting and nonmanufacturer rule.

(a) Limitations on subcontracting. To be awarded a contract or order under this subpart, the SDVOSB concern is required to—  (1)For services (except construction), spend at least 50 percent of the cost incurred for personnel on its own employees or the employees of other SDVOSBs;

From the IRS:

“A subcontractor is a worker who is not your employee. You give a Form 1099 to a subcontractor showing the amounts you paid him. The subcontractor is responsible for keeping his or her own records and paying his or her own income and self-employment taxes.

www.irs.gov › pub › irs-regs

Subcontractors - Internal Revenue Service”

They are also referred to as independent subcontractors.

Temps might or might not be employees. If you use a temporary staffing company to provide temps and pay the agency and the agency pays the employee , they are employees of the staffing agency . I don’t know how SBA would classify them but suspect they would be subcontracted employees. You can google the question.

What do you mean by “temp staff” and how would you hire them?

 13 CFR 125.6 holds the answer to your question.    And let me add bluntly read it ALL as paragraph (d)(3) holds the tidbit about 1099s!

I would add that remember the limitation applies when the procurement is specifically set aside for SB or one of what I will call subcategories of SB such as SDVOSB.  You will know if the limitation applies if the required limitation clause is in a specific solicitation that you might be interested in.

 

 

2 hours ago, Dot said:

I'd like to know your opinion on 19.14-07(a)(1) - do "employees" mean just that or can that include temp staff, 1099s and subcontractors?

 

1 hour ago, C Culham said:

13 CFR 125.6 holds the answer to your question.    And let me add bluntly read it ALL as paragraph (d)(3) holds the tidbit about 1099s!

Carl, Is there a definition of employee in 13 CFR 125.6? I didn't see any mention of 1099s in d)(3). Did I miss it? Are you referring to the mention of "independent contractors"?

Just questions. Not a challenge.

Just now, Vern Edwards said:

 

Carl, Is there a definition of employee in 13 CFR 125.6? I didn't see any mention of 1099s in d)(3). Did I miss it? Are you referring to the mention of "independent contractors"?

Vern, no definition but mentions.   No you did not miss it.   Yet the OP's question relates specifically to Limitations on Subcontracting by my read so I felt the clarifying language of 13 CFR 125.6 that relates to "What are the prime contractors limitations on subcontracting?" might help.   If not so be it.

Im assuming that the OP knows that any sub that is “similarly situated” doesn’t count against the limitation. 

Thanks, Carl. Your reference is very good.

I am surprised that I cannot find a definition of employee in 13 CFR 125, except for the HubZone program.

Just now, Vern Edwards said:

Thanks, Carl. Your reference is very good.

I am surprised that I cannot find a definition of employee in 13 CFR 125, except for the HubZone program.

Thanks back at you.   Yep as it goes sometimes it takes a deep dive to figure things out.   

Reference - https://www.sba.gov/contracting/government-contracting-programs/hubzone-program/frequently-asked-questions#:~:text=How does SBA define the,of 40 hours per month.

"Who is Considered an Employee?

How does SBA define the term "employee"?

Employee means all individuals employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours per month. This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement or co-employed pursuant to a professional employer organization agreement.

An owner is considered an employee if the owner work a minimum of 40 hours per month; regardless of whether or not the individual receives compensation.  Volunteers (i.e., individuals who receive deferred compensation or no compensation, including no in-kind compensation, for work performed) are not considered employees.

SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes and those set forth in SBA's Size Policy Statement No. 1, in determining whether individuals are employees of a concern.

How do I determine if I should include or exclude an independent contractor (i.e., a 1099 employee) from the employee pool?....."

You guys have been incredibly helpful-thank you!  To answer the question from Joel - the "temps" would be people from a staffing agency who are employees of the staffing agency but that work 40hours/week for us. However, based on Carl's definition from SBA I believe that they can count as our employees when it comes to SDVOSB requirements. 

4 hours ago, joel hoffman said:

Im assuming that the OP knows that any sub that is “similarly situated” doesn’t count against the limitation. 

Dot, you need to read the clause at FAR 52.219-27.  Then read 13 CFR 125.6.  You will note that there is a substantial difference in the limitation on subcontracting found in the two regulations.  Many agencies have granted deviations to 52.219-27 so that the language from the SBA regs is applied to contracts awarded by that agency.  You need to check to see if the agency with which you intend to contract has issued such a deviation.  If so, you do not need to be concerned with the definition of "employee."