NAICS vs SIC Codes: The Right Classification for Your Business
Learn the differences between NAICS and SIC codes to determine the right classification system for your business.
Overview
- Understand the difference between NAICS Codes and SIC Codes.
- Explore how these classification systems impact federal contracting and compliance.
- Learn the benefits of using the correct industry code for your business.
- Discover tips on how to determine and update your business classification.
Introduction
Industry classification systems play a vital crucial role in governments and even private companies. They classify businesses on the types of economic activities it carries on in order to enable the relevant data collection. The classification systems in the United States are the North American Industry Classification System (NAICS) Codes and the Standard Industrial Classification (SIC) Codes. Understanding the differences and knowing which one to use does affect the extent to which one is successful. This takes into account federal contracting, market research, or even the compliance aspects.
What are NAICS Codes?
NAICS Codes were developed as a joint effort by the US, Canada, and Mexico to replace the SIC Codes. The codes utilize a six-digit format and reflect industry classifications that are more detailed and modern for today’s industries.
Benefits of NAICS
NAICS codes are varied and offer diverse classifications; they are also related to those prescribed for federal procurement and contracting. They perform as pointers to qualify for certain programs such as the WOSB certification program. NAICS codes serve to allow cross-border economic analysis along regions of the North American countries.
They are crucial for businesses that seek contracts with federal agencies. Since NAICS codes have now become the primary standard for the U.S. government for rewarding federal contracts.
What are SIC Codes?
Originally introduced in the 1930s, SIC codes were intended to provide standardization among different sectors for business classification purposes. Each SIC Code is a four-digit number that describes the primary line of business a company is engaged in.
The SIC Code system classifies industries as manufacturing, retail, or services. For decades, it has been used by government agencies and companies to analyze economic activity and identify trends in business. The SIC system thus became unsuitable and less effective for classifying the newer sectors. As tech and e-commerce industries changed and developed, the SIC system became a draining influence for federal contracting.
Key Differences Between NAICS and SIC Codes
SIC codes are limited to four digits and are almost exclusively used by older systems. Whereas, NAICS codes are six-digit codes that permit more comprehensive and modern classification schemes. NAICS is constantly being updated, gaining broad acceptance across North America, and is required for use by federal programs. In contrast, SIC codes remain limited in their applicability, and adoption in favor of NAICS is taking place over time.
Which Classification Should Your Business Use?
NAICS codes are best suited for federal contractors and small businesses that seek eligibility for certified programs like the WOSB program. Most federal applications require the use of these codes, as they better reflect contemporary industries and concerns. However, the SICs are still used by private-sector databases and older systems. Thus, the knowledge of one’s SIC code can at times prove useful.
Steps to Find and Update Your NAICS and SIC Codes
- Search for Your Code Online
Use the official NAICS Lookup Tool from the U.S. Census Bureau to identify the classification that best matches your business activities.
- Review Your Business Documents
Check your previous business tax returns, formation documents, or state/federal registrations—your NAICS or SIC code is often listed there. - Access Your SAM Profile (For Federal Contractors)
If you’re registered as a federal contractor, log into your System for Award Management (SAM) profile to locate or confirm your assigned code. - Request a Code Change If Needed
If your business model has changed, you can update your code by contacting the relevant registration authority (state or federal) or updating your SAM profile accordingly.
Use the SAM.gov portal or state business registration papers to change your code.
For instance, if your business’s primary activity has changed, update your code accordingly.
A wrong classification can produce a misrepresentation of the potential opportunities and sometimes even make one ineligible for a program that really does serve the needs of the misclassified person.
Why Proper NAICS Classification Is Critical?
- Federal Contracting Opportunities: Your business’s primary and secondary NAICS codes directly impact your eligibility to bid on specific RFPs (Requests for Proposals) and RFQs (Requests for Quotes) issued by government agencies. Accurate classification ensures you are matched with the right contract opportunities.
- SBA Certification & Set-Aside Programs: Participation in SBA programs like 8(a), WOSB, and HUBZone requires businesses to meet specific NAICS code criteria. Choosing the correct code is essential for qualifying for these exclusive federal contracting advantages.
- Market Research & Investor Insight: NAICS codes are commonly used by investors, analysts, and potential partners to understand the industry segment you operate in. A precise classification helps convey your business’s position and market relevance.
- Regulatory Compliance & Reporting: Accurate NAICS classification ensures your business is properly represented in government databases and national economic reports, supporting transparency and compliance with reporting standards.
Conclusion
Selecting the appropriate industry classification is more than a formality. It’s a strategic decision that could influence your eligibility for bidding on contracts and visibility in your industry. While somewhat dormant in some legacy systems, SIC Codes are being supplanted by NAICS Codes. As they are now the standard for federal operations. Make sure your business is properly classified by checking and updating its NAICS Code. That way, you will remain compliant and competitive in the federal contracting arena.