Small Entity Status

Assuming you are entitled to it, you must make an assertion of your Small Entity status when you file the application. You do this either by checking the "Applicant claims small entity status" box on the transmittal form, or by paying the small entity fee exactly. 

This is the last time you get to claim small entity status just by paying the right fee, though - if your status changes before you have to pay the issue fee (or one of the maintenance fees after issue) you must file a written assertion that you are now a Large Entity when you pay the fee. Merely paying the Large Entity fee will not correct your status. Similarly, if you filed your application as a Large Entity, and at the time of paying an issue or maintenance fee you are entitled to Small Entity status, you must file a written assertion of your new status. 

Once you've established your Small Entity status when you file the application, you can continue to pay small entity fees until you (a) file a continuing application (continuation, division, CIP), or (b) file a reissue application, or (c) pay the issue fee, or (d) pay any maintenance fee which is due after the patent issues. Before you take any of these actions, you need to make a new determination of your eligibility for small entity treatment. This is set forth in the Patent Rules at 37 CFR 1.27(f) and (g):

(f) Assertion requires a determination of entitlement to pay small entity fees. Prior to submitting an assertion of entitlement to small entity status in an application, including a related, continuing, or reissue application, a determination of such entitlement should be made pursuant to the requirements of paragraph (a) of this section. It should be determined that all parties holding rights in the invention qualify for small entity status. ...

(g)

(1) New determination of entitlement to small entity status is needed when issue and maintenance fees are due. Once status as a small entity has been established in an application or patent, fees as a small entity may thereafter be paid in that application or patent without regard to a change in status until the issue fee is due or any maintenance fee is due.

(2) Notification of loss of entitlement to small entity status is required when issue and maintenance fees are due. Notification of a loss of entitlement to small entity status must be filed in the application or patent prior to paying, or at the time of paying, the earliest of the issue fee or any maintenance fee due after the date on which status as a small entity as defined in paragraph (a) of this section is no longer appropriate. The notification that small entity status is no longer appropriate must be signed by a party identified in 1.33(b). Payment of a fee in other than the small entity amount is not sufficient notification that small entity status is no longer appropriate.

Note that the "Small Entity" or "Large Entity" status applies to the owner of the patent rights - not the inventor or inventors, who would always be individuals under US law. If the owner has granted patent rights to an entity which is not a Small Entity, then the owner cannot claim Small Entity status. 

As stated in 35 U.S.C. 41(h)(1) and 37 CFR 1.27(a), an owner of a patent or patent application is entitled to Small Entity Status if and only if:

The owner is a "person" (i.e. individual or individuals) who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention. An inventor or other individual who has transferred some rights in the invention to one or more parties, or is under an obligation to transfer some rights in the invention to one or more parties, can also qualify for small entity status if all the parties who have had rights in the invention transferred to them also qualify for small entity status either as a person, small business concern, or nonprofit organization under this section.; or
The owner is a "small business concern", meaning a business which meets the size standards set forth in 13 CFR 121.801 through 121.805 to be eligible for reduced patent fees.  

Those standards (13 CFR 121.802) say that a concern eligible for reduced patent fees is one:

(a) Whose number of employees, including affiliates, does not exceed 500 persons; and

(b) Which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this section.

The regulations of the SBA define how you count an "employee", what is an "affiliate", and over what period that counting is done. If you really want to find out exactly, you will need to review all of the regulations and your employment records very carefully, and account for all of the "employees" who worked for your business or its "affiliates" at any time during the previous 12 months. If your business concern (counting its parent company, subsidiary companies and any affiliated companies)  was anywhere near 500 employees at any point, you should probably pay Large Entity fees, just to be safe. 

Questions related to standards for a small business concern may be directed to: Small Business Administration, Size Standards Staff, 409 Third Street, SW., Washington, DC 20416;  
or

The owner is a nonprofit organization, meaning (37 CFR 1.27(a)(3)) any nonprofit organization that:

(i) Has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention to any person, concern, or organization which would not qualify as a person, small business concern, or a nonprofit organization; and

(ii) Is either:

(A) A university or other institution of higher education located in any country;

(B) An organization of the type described in section 501(c)(3) of the Internal Revenue Code of 19 86 (26 U.S.C. 501(c)(3)) and exempt from taxation under section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a));

(C) Any nonprofit scientific or educational organization qualified under a nonprofit organization statute of a state of this country (35 U.S.C. 201 (i)); or

(D) Any nonprofit organization located in a foreign country which would qualify as a nonprofit organization under paragraphs (a)(3)(ii)(B) of this section or (a)(3)(ii)(C) of this section if it were located in this country.

What about rights held by Government Agencies? 

Normally, transfer of any rights to an entity which does not qualify for Small Entity status means that Large Entity fees must be paid. Government agencies are not, themselves, Small Entities. The MPEP says so explicitly in section 509.02 - "Federal government agencies do not qualify as nonprofit organizations for paying reduced fees under the rules ... 37 CFR 1.27(a)(3) is not intended to include within the definition of a nonprofit organization government organizations of any kind located in any country". 

There are certain exceptions to the general rule where some licenses to government agencies by those who themselves qualify as Small Entities will not preclude Small Entity treatment. Those exceptions deal with compulsory licenses granted the government underExecutive Order 10096 (inventions by government employees) and 35 USC 202(c) (inventions by private contractors who make inventions while receiving Federal funding, where a license is required as a condition of financing). 

If a Federal agency (or any other government body)  is an owner of a patent or application (even a co-owner), rather than a licensee, the application/patent would NOT qualify for Small Entity fees.

For details on this, see MPEP 509.02, particularly section VI - RIGHTS HELD BY GOVERNMENT ORGANIZATIONS - http://www.uspto.gov/web/offices/pac/mpep/documents/0500_509_02.htm