University of Wisconsin Center for Cooperatives

Member Labor Programs

Prepared for CCMA by Marilyn Scholl, UW Center for Cooperatives, June 1991


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

    Total dollars of discount to working members plus total administration cost (training, coordinating, etc.) of program divided by number of member labor hours worked
Other Costs
    Errors - conduct routine spot checks to identify where/when errors occur and their causes
    Poor quality service - solicit customer member opinion, conduct regular surveys
Efficiency - how efficient is labor
    Sales per labor hour - total sales divided by total labor hours (compute and track both with and without member labor hours)

    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

Effect of member workers on sales volume and margin
    Compare average working member purchase with average non-working member purchase

      Total sales to member workers (discount dollars x percent discount) divided by number of member workers compared to total sales to members divided by number of active (purchasing) members

    Compare gross margin earned on working member sales (less discount) to gross margin earned on non working member sales

Value of member labor to member
    How much does a member have to buy to make it "worth it. to work? Value "needed" per hour times number of hours required times the discount amount = amount needed to purchase. Example: I will work at the co-op only if its worth $5 per hour. The discount is 10% for three hours of work per month. $5 x 3 hours x 10% = $150 of groceries I need to buy.

    Given how much purchased, how is time valued?
    Amount spent divided by discount percent divided by hours worked = shadow wage. Example: I work three hours per month for a 10% discount and spend $100 per month at the co-op. ($100 groceries divided by 10%) divided by 3 hours = $3.33 per hour value.

Other (monitor)
    Sales trends
    Price, price image, margin
    Percent of available work slots filled
 
Potential Benefits of Member Labor Programs

ECONOMIC BENEFITS

Cheap labor- can help keep down costs, margins, and prices

Extra volume from working members who shop more at the co-op

  1. to maximize discount benefit
  2. due to increased loyalty
  3. due to convenience
Member labor can be more productive since boring and repetitive jobs are done for a few hours at a time

Working member programs can, in the entry stage, compensate for lack of economy of scale

Working members can save money on purchases
 

ORGANIZATIONAL BENEFITS

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
 

SOCIAL BENEFITS

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


ECONOMIC PROBLEMS

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.

 
SOCIAL PROBLEMS

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

 
LEGAL PROBLEMS

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.


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