North American Industry Classification System (NAICS)

Read the introduction, which explains how industries are categorized in the United States. This system allows governments to measure the overall business activity in each sector of the economy.

Introduction

Definition of an Establishment

NAICS is a classification system for establishments. The establishment as a statistical unit is defined as the smallest operating entity for which records provide information on the cost of resources – materials, labor, and capital – employed to produce the units of output. The output may be sold to other establishments and receipts or sales recorded, or the output may be provided without explicit charge, that is, the good or service may be "sold" within the company itself.

The establishment, in NAICS United States, is generally a single physical location where business is conducted or where services or industrial operations are performed (for example, a factory, mill, store, hotel, movie theater, mine, farm, airline terminal, sales office, warehouse, or central administrative office). There are cases where records identify distinct and separate economic activities performed at a single physical location (e.g., shops in a hotel). These retailing activities, operated out of the same physical location as the hotel, are identified as separate establishments and classified in the Retail Trade sector, while the hotel is classified in the Accommodation subsector. In such cases, each activity is treated as a separate establishment provided: (1) no one industry description in the classification includes such combined activities; (2) separate reports can be prepared on the number of employees, their wages and salaries, sales or receipts, and expenses; and (3) employment and output are significant for both activities.

Exceptions to the single location exist for physically dispersed operations, such as construction, transportation, and telecommunications. For these activities the individual sites, projects, fields, networks, lines, or systems of such dispersed activities are not normally considered to be establishments. The establishment is represented by those relatively permanent main or branch offices, terminals, stations, and so forth, that are either (1) directly responsible for supervising such activities, or (2) the base from which personnel operate to carry out these activities.

Although an establishment may be identical with the enterprise (company), the two terms should not be confused. An enterprise (company) may consist of more than one establishment. Such multiunit enterprises may have establishments in more than one industry in NAICS. If such enterprises have a separate establishment primarily engaged in providing headquarters services, these establishments are classified in Sector 55, Management of Companies and Enterprises.

Although all establishments have output, they may or may not have receipts. In large enterprises, it is not unusual for establishments to exist to solely serve other establishments of the same enterprise (auxiliary, or enterprise support, establishments). In such cases, these units often do not collect receipts from the establishments they serve. This type of support (captive) activity is found throughout the economy and involves goods-producing activities as well as services. Units that carry out support activities for the enterprise to which they belong are classified, to the extent feasible, according to the NAICS code related to their own activity. This means that warehouses providing storage facilities for their own enterprise are classified as warehouses. For certain analytical purposes, an alternative code may be assigned corresponding to the activity of the enterprise that they support.