What Is An Establishment In NAICS?

An establishment is generally recognized as a single physical location where business is conducted or where services or industrial operations are performed. This includes a wide variety of business types such as factories, mills, retail stores, hotels, movie theaters, mines, sales offices, warehouses, and central administrative offices. In essence, it is the smallest unit for which information is available regarding the cost of resources—materials, labor, and capital—used to produce output.

The Role of NAICS in Classifying Establishments

The North American Industry Classification System (NAICS) is a comprehensive framework used to classify establishments based on their primary business activities. Each establishment is a statistical unit that provides detailed data on economic activities, making it possible to analyze market trends and economic contributions. The output from establishments may be sold to other entities, or it may be used internally within the company without explicit charges.

Handling Multiple Activities at a Single Location

There are instances where multiple economic activities are performed at a single location. For example, a hotel might operate retail shops on its premises. In such cases, these retail activities are treated as separate establishments and classified under the Retail Trade sector, while the hotel itself is classified under the Accommodation subsector. This separation is maintained provided:

  1. No single industry description includes the combined activities.
  2. Separate reports can be generated on employee numbers, wages, sales, and expenses.
  3. Both activities have significant employment and output.

Exceptions for Physically Dispersed Operations

Exceptions to the single-location rule exist for industries with dispersed operations, such as construction, transportation, and telecommunications. In these cases, individual sites or projects are not considered separate establishments. Instead, the establishment is represented by permanent offices or bases responsible for supervising and coordinating these activities. These establishments serve as the central point from which personnel operate, ensuring efficient management of dispersed operations.

Distinguishing Between Establishments and Enterprises

While an establishment may be identical to an enterprise (company) in some instances, the two terms should not be confused. An enterprise can encompass multiple establishments, each classified under its own NAICS code based on its specific economic activity. For a deeper understanding of enterprises, refer to: What is an Enterprise in NAICS?