NAICS Code Tutorial Series - Defining the Establishment in NAICS. This is the sixth video of a seven-part series designed to help viewers better understand the NAICS classification system.
(1/7) The Purpose of NAICS: https://www.youtube.com/watch?v=j0c0efVVVLU
(2/7) Historical Background: https://www.youtube.com/watch?v=oJlMZM3LW7s
(3/7) Development of NAICS: https://www.youtube.com/watch?v=xWkix70UJsI
(4/7) Conceptual Framework of NAICS: https://www.youtube.com/watch?v=VQFA8CLX2Gw
(5/7) Structure of NAICS: https://www.youtube.com/watch?v=v1JuEvYm_rI
(6/7) Defining the "Establishment": https://www.youtube.com/watch?v=059pQaafAQk
(7/7) Determining Industry Classification of the Establishment: https://www.youtube.com/watch?v=QKA6WaKTnc0
SCRIPT FOR DEFINING THE “ESTABLISHMENT”
Hello, and welcome to the NAICS Code Tutorial Series by Class Codes.
This series is designed to help you become a NAICS code expert.
Showing here is a list of all the videos in this series.
We have provided links to all of these videos in the description below.
Today, we’ll be going over the definition of the “Establishment.”
NAICS is a classification system for establishments.
The establishment is defined as the smallest operating entity for which records provide information on the cost of inputs - capital, labor, energy, materials, and services - 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 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 theatre, 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 retail trade while the hotel is classified in accommodation.
In such cases, each activity is treated as a separate establishment provided that: no one industry description in the classification includes such combined activities; separate reports can be prepared on the number of employees, their wages and salaries, sales or receipts, and expenses; and 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 operates 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 multi-unit 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 NAICS 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 establishments).
In such cases, these units often do not collect receipts from the establishments they serve.
This type of support 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 activity.
This means that warehouses providing storage facilities for their own enterprise will be classified as warehouses.
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Thank you so much for watching! Now that you’ve learned about The definition of the “Establishment,” you can continue your journey to become a NAICS code expert by watching the next video in this series, “Determining the Industry Classification of an establishment.”