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FDA Releases Draft Guidance For Determining Whether A Business Qualifies As Small Business With FSMA

Updated: Nov 11, 2020

By Nicole Cook

Image of a variety of types of squash in boxes. Image by Edwin Remsberg.

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On March 19, 2018, the Food and Drug Administration (FDA) released draft guidance to assist businesses in determining whether they qualify as a “small business” under the Preventive Controls for Human Food and Preventive Controls for Animal Food regulations. The FDA published final rules on September 17, 2015, to implement the Food Safety Modernization Act’s Hazard Analysis and Risk-Based Preventive Control (HARPC) provisions for human and animal food. Under those rules, “small businesses” may be eligible for certain exemptions from the Food Safety Modernization Act (FSMA). “Small businesses” also have later compliance dates than larger businesses covered by the rules. As such, it is important that businesses know whether they qualify as a “small business” under the rules.

As defined in the new draft guidance, a “small business” is a business (including any “subsidiaries” or “affiliates”) employing fewer than 500 full-time equivalent employees (FTEs). The limit of 500 FTEs includes all employees of the business and is not limited to the employees of a particular “facility.”

The draft guidance defines “subsidiary,” “affiliate” and “facility” as follows:

  1. A “subsidiary” is any company which is owned or controlled directly or indirectly by another company. Only companies can have or can be “subsidiaries.”

  2. An “affiliate” is any “facility” that controls, is controlled by, or is under common control with another “facility.” Only “facilities” required under FSMA to register can be “affiliates.”

  3. A “facility” is a domestic facility or a foreign facility that is required to register under section 415 of the Federal Food, Drug, and Cosmetic Act, in accordance with the requirements of 21 CFR, part 1, subpart H. Under 21 CFR, part 1, subpart H, a “facility” means any establishment, structure, or structures under one ownership at one general physical location, or, in the case of a mobile facility, traveling to multiple locations, that manufactures, processes, packs, or holds food for consumption in the United States.

The draft guidance provides that the FDA uses the following method to calculate the number of FTEs in a business:

  1. Start with a food “facility” required to register.

  2. Determine the legal entity that the food “facility” is a part of.

  3. Calculate the total number of FTEs in this legal entity (see below).

  4. Determine whether the legal entity has any “subsidiaries” and calculate the FTEs of all the “subsidiaries.”

  5. Determine whether the legal entity has any “affiliates” and calculate the FTEs of all the “affiliates.”

  6. Add the number of FTEs calculated for the legal entity, any “subsidiaries,” and any “affiliates” to get the total number of FTEs in a business.

According to the draft guidance, the number of FTEs is calculated by dividing the total number of hours of salary or wages paid directly to all employees (full-time, part-time and seasonal workers) of the business entity and of all of its “affiliates” and “subsidiaries” by 2,080 hours of work in one year (40 hours × 52 weeks = 2,080). If the result is not a whole number, round down to the next lowest whole number.

The draft guidance includes examples of various types of situations businesses might encounter when trying to determine their number of FTEs, including a farm mixed-type facility.

In issuing draft guidance, the FDA is seeking comments before it begins working on the final version of the guidance. Although the public may submit comments on any guidance at any time, in order to ensure that the FDA can consider your comments before it completes its final version, submit your electronic or written comments on the draft guidance before May 21, 2018 (60 days after the publication in the Federal Register of the notice announcing the availability of the draft guidance).

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