RTP Meridian 2530 Meridian Parkway Suite 300, Durham, 27713

Things to Know About NAICs Codes

NAICS Code

Developed under the auspices of the Office of Management and Budget (OMB) and adopted in 1997 to replace Standard Industrial Classification (SIC) system. NAICS, or the North American Industry Classification System, is a way of classifying business establishments. The governments and businesses utilize it in Canada, the United States, and Mexico for classifying and measuring economic activities.

It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico’s Instituto Nacional de Estadistica y Geografia. (Source)

NAICS Code

NAICS is a six-digit code system that is the existing standard utilized by the Federal Statistical agencies to classify the establishments. NAICS arranges establishments into industries based on similarities in several processes used to produce goods or services.

NAICS is mainly business classification based on the kind of economic activity. The government and the businesses use it in Canada, Mexico, and the USA. It has replaced the old industrial classification system, leaving only a few government agencies like US Securities and Exchange Commission. The government and the businesses use it in Canada, Mexico, and the USA.

An establishment is always considered for a single location, although different administrative operations at a single site can be treated as other establishments. Based on the main business activity, every establishment is categorized as an industry. NAICS does not offer guidance on classifying enterprises composed of various establishments.

NAICS codes group the whole economy into 20 different sectors, segregated into 96 3-digit subsectors, divided into 308 4-digit industrial groups further subdivided into 689 5-digit industries, and ultimately disaggregated into 1012 6-digit US industries.

Primary NAICS code

Every business contains the main NAICS code, and this number specifies the primary direct interaction of the company. What determines the company’s primary NAICS code is the description that produces the maximum revenue for that particular company at a specified location in the past.

Here are a few relevant NAICS code tools.

NAICS Codes: Understanding and Interpretation

The first two digits of the code specify the most critical business sector, the third digit identifies the sub-sector, the fourth digit represents the industrial group, and the fifth digit represents the national initiatives.

If you are a government contractor, you might have come across the NAICS code a lot of time, and you most likely know which one is applicable for your products and services. But like several others, many questions might be lingering bout its true meaning and function. Such as

  • What is the purpose of the acronym in the first place?
  • How do they impact your business, and how do you function with the government?
  • What is a standard size?

Let us dive a little deeper into NAICS or North American Industry Classification System

The whole system is a standard utilized by the federal Statistical agencies for classifying businesses for collecting, analyzing, and publishing data about the US economy.

The accurate manual for the NAICS system produced and distributed by the Executive branch office of Management and Budget is found on the website of US Census Bureau www.census.gov. The latest manual was published in 2017 and consists of all existing NAICS codes and size standards.

There is an industrial classification for you if you are running any business. Every industry has a different title and description, and all contractors must pay attention to the grouping of its codes to make sure they are falling within the accurate sector. Some examples are forestry and logging, food manufacturing, social assistance, construction, related activities, IT consulting, and several others.

Choosing NAICS codes

 One of the main benefits of the NAICS code is that you can choose more than one. It is recommended that your company choose some NAICS codes that match the kind of services or products you offer to line up with appropriate contracting opportunities. Every opportunity given by the federal agency is provided at least one NAICS code. It allows various options and contracts to get tracked for research and some of the reportable data in the future. Often, solicitation description or the request for proposals can become vague, for which NAICS designation can assist in helping companies decide whether or not they are best for this opportunity.

Do you need assistance in determining the NAICS code, you can contact the Census Bureau at 1-888-756-2427 or NAICS@census.gov.

NAICS codes and the size standards

Besides designating an industrial classification to your business, NAICS codes are also devoted to NAICS code size standards. Depending on every NAICS code size standard, acquiring agencies can quickly determine whether or not companies are considered a ” small ” business or other than small business under every opportunity given. Therefore, it is vital to know whether or not your company will qualify for specified options depending on that size status. Several contracts are kept aside for small businesses to meet agency-wide small business goals for the fiscal year.

It is vital to know about the size standard associated with the NAICS code you selected for your specific business. You might be considered big under one code and small under another in some cases. The annual revenue or employees estimate every NAICS code size standard for every company.

The Small Business Administration disperses this code size standard of NAICS, and you can find it online at www.sba.gov.

Different earning opportunities

NAICS codes are required for government contractors and agencies that acquire through vehicles like GSA schedule contracts. Every GSA schedule item number has a minimum of one specified NAICS code assigned to it. Therefore, your business should designate the required NAICS codes to use the GSA multiple award schedule program.

Understanding and using correct NAICS codes can lead your business to required opportunities in the public sector based on GSA schedule opportunities and procurement vehicles outside the GSA schedule.

How Businesses Make Use of NAICS Codes?

  • Companies make use of NAICS codes for recognizing consumers through their industry codes. (See: NAICS Business lists)
  • Recognize government contracts by NAICS description.
  • Companies add NAICS codes to their consumer list to determine their consumer industries.
  • The NAICS code is mainly asked for several forms and applications.
  • State Government might provide tax incentives to various businesses depending on specific NAICS industries.
  • If you have plans to solicit the work from any government body, you are asked for the NAICS code.
  • NAICS codes must be upgraded about all its changes and modifications in the business revenue.
  • For identification of both public and private competitors.
  • Various state and federal registrations.
  • Tax-related purpose.

How does the government use the NAICS code? 

  • NAICS codes are utilized for auditing purposes by comparison of company’s ratios in the same industry.
  • For facilitating the collection, presentation as well as data analysis.
  • The revenue department makes use of the NAICS code for legislative problems.
  • To promote equality and comparison in producing statistical data gathered by various state, federal, and private agencies.
  • For facilitating the internal revenue code administration for internal revenue service business activity codes.
  • The revenue department uses the code to inform taxpayers within the specific industry of law changes that might have an impact on them.
  • NAICS codes are also required for government contracting, teaming, and sub-contracting.

According to the United States, Canada, and Mexico, the NAICS code is described as the most precise industrial classification coding system. NAICS codes are vital while seeking eligibility for government contracts. Recognize your existing consumers by their NAICS code and look for new clients within the same industry.