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Understanding the Hubzone 35% residency and principal office requirements

The most common misunderstanding that many of our clients come to us with is not knowing which employees count towards the 35% Hubzone residency requirement and how the principal office is determined.  Many think that as long as 35% of the employees in their principal office reside in a Hubzone, they will qualify.  This is not true.

The SBA requires that 35% of the applicant company’s TOTAL employees must reside in a Hubzone.

It does not matter if they work in the principal Hubzone office, another office or at a client site.

In fact, you wouldn’t need to have any employees that both live and work in the Hubzone as long as you meet the 35% requirement with employees that work at your other locations or client sites.  For Hubzone purposes, an employee is defined as anyone who works 40 or more hours per month for the company.

The second part to this is the principal office requirement.  Your principal office is not necessarily defined the same as your headquarters.  The SBA’s definition of principal office is the location where the greatest number of the business concern’s employees at any one location perform their work. However, for those business concerns whose primary industry is service or construction, the determination of principal office excludes the business concern’s employees who perform the majority of their work at job-site locations to fulfill specific contract obligations.

There are a multitude of different workplace scenarios that a business could. Below are just a few scenarios to help you understand this requirement.

Example 1: Your company has 5 employees and 2 work at Hubzone Office A and 3 work at a client job site. In this case, Hubzone office A would be considered the principal office and you would meet the principal office requirement

Example 2: Your company has 5 employees and 2 work at Hubzone Office A and 3 work at Non-Hubzone office B.  In this case the Non-Hubzone office B would be considered the Principal office and you would not meet the principal office requirement.

Example 3: Your company has 4 employees and 2 work at Hubzone Office A and 2 work at Non-Hubzone office B.  In this case a Principal office determination cannot be made since both locations have the same number of employees and you would therefore not meet the principal office requirement.

If you would like to know if you qualify for the Hubzone Program, please take our online hubzone eligibility questionnaire.

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