How Worker Co-ops Decide to Share Profits

Principle 3: Member Economic ParticipationWorker cooperatives can help build community wealth through sharing profits with workers.   The Third Cooperative Principle is “Member Economic Participation” which describes how members invest into the cooperative and benefit from the surplus of the cooperative, as well as share any financial burdens it may have in difficult times. Similarly, the Second Cooperative Principle is Member Democratic Control, which is a key to this equitable sharing process as members decide how the surplus is distributed.

Your legal structure will determine different aspects of how the cooperative can distribute profit or surplus. For the sake of this blog post, I’m referring to Worker Cooperatives that are incorporated under corporate statutes. As incorporation statutes do change in different states, any of this information you would want to review with an accountant and/or lawyer in your state (and preferably one that knows co-ops – CDI can help you find one, get in touch.).

Cooperatives often define their profits as “surplus,” but more accurately surplus describes the net income that is generated by members, also known as worker-owners, whereas profit describes the net income that is generated by non-owner workers. For example,  if you had a total of 1000 hours worked in the year with 600 hours worked by worker-owners and 400 hours worked by non-owner workers, then 60% of the total net income would be the “surplus” and 40% of the total net income would be the “profit.”

The profit generated by non-owner workers must be returned to the indivisible reserves of the cooperative and not distributed directly to the worker-owners.  This helps to build the long-term capital of the cooperative and improves its financial stability.

Read the full article on the Cooperative Development Institute website

 

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