University of Wisconsin Center for Cooperatives
Member Labor Programs
Prepared for CCMA by Marilyn Scholl, UW Center for Cooperatives, June
Economic Evaluation of Member Labor Programs
Compute and record these key indicators. Compare to other cooperatives, industry standards, and historical data.
Cost to co-op per member hour
Poor quality service - solicit customer member opinion, conduct regular surveys
Sales per labor dollar - total sales divided by total labor cost (compute and track with and without member labor discounts)
Percent of sales for labor cost - total labor cost divided by total sales (FTE = Total hours worked per week divided by 40)
Sales per FTE - total sales divided by number of FTE
Compare gross margin earned on working member sales (less discount) to gross margin earned on non working member sales
Given how much purchased, how is time valued?
Price, price image, margin
Percent of available work slots filled
Potential Benefits of Member Labor Programs
Cheap labor- can help keep down costs, margins, and prices
Extra volume from working members who shop more at the co-op
Working member programs can, in the entry stage, compensate for lack of economy of scale
Working members can save money on purchases
Member workers can have a better attitude about the work than paid staff and therefore provide better customer service
Provide a way for members to participate
Increase sense of involvement in the cooperative
Increased loyalty to the co-op
Working members are a good source of part time paid workers
Provide additional avenues of communications
Create sense of community and purpose among members
Can create a better atmosphere in the store
The good feelings about the cooperative that result linger long after the worker stops working on a regular basis
Members can gain job skills, experience, and work references
Members can meet people, have a positive social experience
Potential Problems of Member Labor Programs
Can be inefficient and more expensive than paid staff
High turnover leads to inconsistent work quality
High turnover and inefficient work lead to poor shopping conditions and poor customer service
Staff cost to recruit, train, supervise, schedule and organize member labor add significantly to the cost
Possible increase in errors
High discounts per contribution can depress wages for paid staff.
Member workers receive a discount whether the cooperative is profitable or not both. This is both an unsound practice and unfair to non-working members.
Inefficient systems lead to non-working members subsidizing working members through higher prices
Continuous effort is required to recruit, train, supervise member labor
A paid staff position is required to effectively design and implement a good system.
Opportunity not equally available to all members
Decreases paid employment opportunities
Can be dissatisfying to member workers due to poor training, poor system
Dissatisfied member workers lead to poor public relations, decreased sense of loyalty to co-op and lingers long after end of regular working relationship.
Problems with working member systems grow as the store grows
Trend has been toward fewer members being interested in working in the store
Creates two classes of membership and can be seen as elitist
If member labor is required, membership is limited to those who can work
Discounts may be considered compensation by the IRS requiring withholding and social security taxes to be paid - both the employee and employer share. (This would more of a record keeping problem than a large expense.)
Department of Labor considers member workers to be employees and applies minimum wage requirements to the compensation. Two co-ops have been forced to cease their member labor programs. Another faces a possible $100,000 liability.
Workers compensation policies generally do not cover volunteers, putting the co-op and the member at risk. If the co-op includes member labor in its workers compensation plan, then the door is open for the IRS and DOL.
Federal tax laws require separate record keeping on member and non-member income. Losses, if any, on member sales (due to discounts) cannot be used to offset profits and reduce tax liability on non-member sales.