Determining Industry Classification of the Establishment Class Codes

YOUR LINK HERE:

http://youtube.com/watch?v=QKA6WaKTnc0

NAICS Code Tutorial Series - Determining the NAICS Industry Classification of the “Establishment.” This is the final video of a seven-part series designed to help viewers better understand the NAICS classification system. • USER LINKS: • (1/7) The Purpose of NAICS: • The Purpose of NAICS | Class Codes • (2/7) Historical Background: • Historical Background of NAICS | Clas... • (3/7) Development of NAICS: • The Development of NAICS | Class Codes • (4/7) Conceptual Framework of NAICS: • The Conceptual Framework of NAICS | C... • (5/7) Structure of NAICS: • The Structure of NAICS | Class Codes • (6/7) Defining the Establishment : • Defining the Establishment | Class Codes • (7/7) Determining Industry Classification of the Establishment: • Determining Industry Classification o... • SCRIPT FOR DETERMINING THE INDUSTRY CLASSIFICATION OF AN ESTABLISHMENT • Hello, and welcome to the NAICS Code Tutorial Series by Class Codes. • Today, we will be learning how to determine the industry classification of an establishment. • An establishment is classified to an industry when its principal activity meets the definition for that industry. • This is a straightforward determination for establishments engaged in a single activity, but where establishments are engaged in more than one activity, it is necessary to establish procedures for identifying its principal activity. • In cases where there is more than one activity, the industry code is assigned based on the relative share of value-added. • The activity with the largest value-added is identified as the establishment's principal activity, and the establishment is classified to the industry corresponding to that activity. • For example, if the value added within an establishment consists of 40% from manufacturing dishwashers, 30% from manufacturing airspeed instruments and 30% from assembling clocks, it will be classified to NAICS 335223, Major kitchen appliance manufacturing. • The assignment of the industry code is performed at the 6-digit level of the classification. • In most cases, when an establishment is engaged in more than one activity, the activities are treated independently. • However, in some cases, the activities are treated in combination. • There are two types of combined activities that are given special attention in NAICS. • They are vertical integration and joint production (horizontal integration). • These combined activities have an economic basis and occur in both goods-producing and services-producing sectors. • In some cases, there are efficiencies to be gained from combining certain activities in the same establishment. • Some of these combinations occur so commonly or frequently that their combination can be treated as a third activity in its own right and explicitly classified in a specific industry. • One approach to classifying these activities would be to use the primary activity rule, that is, whichever activity is the largest. • However, the fundamental principle of NAICS is that establishments that employ the same production process should be classified in the same industry. • If the premise that the combined activities correspond to a distinct third activity is accepted, then using the primary activity rule would place establishments performing the same combination of activities in different industries, thereby violating the production principle of NAICS. • The second reason for NAICS recognizing combined activities is to improve the stability of establishment classification, both over time and among the various parties that implement the classification. • An establishment should remain classified in the same industry unless its production process changes and different parties should code the same establishment or type of establishment in the same way. • A consistent treatment of establishments with combined activities is more likely if they are classified to a single industry. • Vertical integration involves consecutive stages of fabrication or production processes in which the output of one step is the input of the next. • In general, establishments will be classified based on the final process in a vertically-integrated production environment, unless specifically identified as classified in another industry. • For example, paper may be produced either by establishments that first produce pulp and then consume that pulp to produce paper or by those establishments producing paper from purchased pulp. • NAICS specifies that both of these types of paper-producing processes should be classified in NAICS 32212, Paper mills, rather than in NAICS 32211, Pulp mills. • In other cases, NAICS specifies that vertically-integrated establishments be classified in the industry representing the first stage of the manufacturing process.

#############################

New on site