Another Look at Member Labor
"Boon or Bane?" was the title question in a section on member labor in the first issue of Cooperative Grocer (October-November 1985). And in discussing the issue, it's difficult not to try to be evenhanded. Here I will review the problems side, while the following article, from Boston Food Co-op, presents a firm commitment to a well-managed member labor program at that store.
Widely used among current generation food co-ops, member labor appears to be declining in importance, especially at stores that are growing. Member labor systems can -- if well managed -- reduce costs for the store and for those members who participate. And such programs promote feelings of solidarity and social purpose among co-op members. In addition, members participating in a work program may do more shopping at the co-op than they otherwise would.
But a critical look is necessary if member labor is to be able to meet the goals of reduced costs and improved social atmosphere. The reality of member labor at many stores is that it is more expensive and less efficient, providing weaker customer service, than having paid, experienced staff members perform the same store functions.
Based on what I have seen and heard from other cooperators, problems in member labor can be grouped into three areas: inefficiencies and performance, taxation and other financial obligations, and elitism.
Inefficiencies and Performance
-Member labor programs usually suffer from high tumover and consequent lack of efficient work performance. Shopping conditions may or may not be improved by having such programs; customer service often takes a back seat to working conditions.
-Large amounts of paid staff time are required for recruiting, orienting, training, and monitoring member labor. This is often a "hidden" cost. But those co-ops which don't manage their member labor well probably end up paying more than those who do.
-What working members earn by way of a discount on purchases often is similar to or even greater than the hourly wage for paid staff (average earnings can be calculated by dividing the total given out in discounts to working members by the total working member hours in the same period). And member labor acts to lower wages for paid staff by diverting part of the total affordable labor costs to working members.
Taxation and Financial Obligations
-Discounts directly tied to hours worked risk being classified by the IRS as wages and therefore subject to withholding of taxes. This has happened to one food co-op (which had a high discount directly tied to hours worked), and could happen again. The tax avoidance discussed so enthusiastically in the Boston Food Co-op article is exactly what this risk concems. Back taxes and penalties could be the result.
-Workers' compensation and liability insurance policies usually do not cover "volunteers" -- putting them and the co-op at risk. Insurance that does cover workers not on the payroll may or may not be available to co-ops wanting such protection.
-Federal tax liability for co-ops is intended to be allocated separately to member and non-member sales -- in general, earnings from non-member sales are taxable separately and cannot legally be applied to losses or eamings on sales to members. Many member discounts are so substantial that they eliminate much of the margin and make member sales by themselves unprofitable.
-When member labor is a requirement, the store limits its appeal to a narrow segment of the public.
-When member labor is an option, discounts may have negative effects on the prices and earnings for non-working members, who are almost always a majority. And, as noted earlier, member labor often means poor service in the store.
These problems and others with working member systems raise the questions: What is the purpose of our co-op? Who is it for?
In considering an answer to these questions and comparing working member systems against it, I arrived at a generic statement of purpose for food co-ops. These are what I would hope to be common features, as distinct from characteristics reflecting the particular community, market niche, product line, management, etc. Each co-op should aim to be:
- a profitable business
- operating according to cooperative principles
- owned by increasing numbers of members
- providing quality goods and services
- to increasing numbers of the public.
Co-ops who want to fit a working member system within such organizational guidelines as these need to manage it well. Some suggestions for accomplishing this:
- Know the cost of the working member program; calculate carefully the staff hours, working member hours, total discounts, and the effect of discounts on margins.
- To reduce tax risks (short of doing away with the member labor program), keep the equivalent wage low, and do not have a discount tied directly to the number of hours worked.
- Have a labor coordinator; require signup for regular tasks, in advance; provide training and supervision; call no-shows; have paid staff available as back-up to member labor slots.
- Encourage member labor in non-storekeeping areas: internal communications, committees, publicity, maintenance.
For most members, the primary forms of participation will continue to be: (1) patronage, and (2) investment.
For continuing discussion of member labor, please see the article on managing working members, by David Barry, which is also found in CG #8, December-January 1987.