When you imagine a small business, you might picture a mom-and-pop shop with a couple of employees. Maybe it has a strong local following, but its popularity doesn’t reach a national crowd.
Describing a small business is easy when you think about hometown entrepreneurs. But, the government makes defining a small business a little more complex. You need to know your business’s size status to comply with the law and take advantage of the perks of small business classification.
Small business size standards
There is no one way to define a small business. Your business’s size depends on factors like your industry, sales, and workforce. Usually, a business’s size status is based on annual sales and/or number of employees.
The government uses size standards to make rules for businesses. Each government agency sets its own standards.
Industries have their own size standards. Some industries have low sales and employee small business requirements. Others have small business size requirements that go up to millions of dollars in revenue and hundreds of employees.
You need to be able to define your business’s size. Take a look at the following small business size guidelines.
ACA size standards
The Affordable Care Act (ACA) is a health care reform law that aims to provide more Americans with quality health insurance. The law requires businesses of a certain size to provide employee health coverage.
What the standards are:
Under the ACA, you are defined as a small business if you have 50 employees or fewer. The employees must be full-time workers or full-time equivalent. A full-time equivalent employee is someone who works an average of 30 hours per week, according to the ACA.
If you have part-time workers, you must calculate full-time equivalent employees. To do this, add up the number of hours the part-time employees worked. Then, divide the sum by the number of part-time workers for the total full-time equivalents.
Add your part-time equivalent employees to the number of full-time workers. If the total is 50 or fewer, you are a small business. If the number is more than 50, you are a large business.
Where to find info:
You can find small business standards on the ACA website, Healthcare.gov. The website also offers employer resources on health coverage rules and Small Business Health Options Program (SHOP) plans.
Why these standards matter:
If you have 50 or fewer employees, you are not required to provide health insurance. You can still choose to implement a health care plan for your employees.
If you have 25 or fewer employees, you could be eligible for a tax credit when you buy a plan through the SHOP Marketplace.
SBA size standards
The Small Business Administration (SBA) provides loans, contracts, counseling, and resources to American small businesses. By meeting the size standards of the SBA, you are eligible for perks that help you grow your business.
What the standards are:
The SBA uses your industry, annual sales, and number of employees to decide size standards. But first, you must:
- Be headquartered in the United States
- Operate primarily in the United States
- Be a for-profit firm
- Be independently owned and operated
- Be a minority player in your industry
So far, so good? Now, look at how much you make in sales per year and the number of people you employ. Here is the general rule of thumb for a small business:
- Between or below $750,000 and $35.5 million in annual sales
- Between or below 100 and 1,500 employees
The SBA guidelines range widely because industries have different standards. Depending on the kind of business you operate, you will have higher/lower sales and employee standards.
Where to find info:
Search the SBA’s Table of Small Business Size Standards to know your size requirements. Use your industry’s NAICS code to make sure you’re looking at the right industry.
Why these standards matter:
If you’re considered a small business, you are eligible for government aid through financial assistance and business counseling. And, the SBA ensures that at least 23% of government contract work goes to small businesses.