Worker Cooperatives: Another Way to Conduct Business
The New York metropolitan region is one business magnet that draws people from across the globe hoping to improve their standard of living. Through a mix of business savvy, a viable business model and financing, men and women are intent on actualizing their dreams. For many, it’s a dogged climb to the top of their industry, while others ponder, ‘Isn’t it possible for me to make money by offering quality products and services without short-changing my workers on their wages? Better yet, can we see ourselves as a body sharing the profits of our labor by contributing our individual business acumen?’
Worker cooperatives demonstrate that it all can happen. Dozens of them throughout the five boroughs offer such services as pet care, senior services and architecture. The Network of Worker Cooperatives (NYC NoWC), headquartered at 495 Flatbush Avenue, exists to build individual capacity. This reporter contacted Director of Membership and Communications Pablo Benson Silva to learn more about this sector.
Please define what a worker cooperative is and under what US tax code operates.
There isn’t one legal definition of a worker cooperative in the US, but the consensus within our sector is that it is a business governance structure that includes the following: 1) one worker-one vote and 2) shared patronage: workers share the profits of the business.
Worker cooperatives in the US vary. There are S Corporations, C Corporations and Limited Liability Companies (LLCs). What distinguishes them from traditional forms of ownership is that they generally have cooperative bylaws or operating agreements that clearly define democratic decision-making and ownership structure. States have various incorporation statutes; New York is one of the few states that has a Worker Cooperative (Cooperative Corporation-COO) option. But most of the cooperatives in our network are not incorporated as COOs and tend to be either C Corporations or LLCs because of the restrictive requirements for COOs.
Worker cooperatives are taxed according to the federal tax liability of their legal entity; i.e., if Co-op X is incorporated as an LLC it will be taxed as other LLCs. I am not an accountant, but as I understand it, there are excellent federal tax benefits for cooperatives that are structured as a S Corporation ESOP (Employee Stock Ownership Plan): S Corporations, the percentage of ownership held by the ESOP is not subject to income tax at the federal level (and usually the state level as well). That means, for instance, that there is no income tax on 30% of the profits of an S Corporation with an ESOP holding 30% of the stock, and no income tax at all on the profits of an S Corporation wholly owned by its ESOP. Note, however, that the ESOP still must get a pro rata share of any distributions the company makes to owners.
Most of the cooperatives in our network are not structured this way, primarily because most of are on the smaller side.
How long has the NYC Network of Worker Cooperatives been in existence? What does it mean to be part of a network?
NYC NoWC (phonetically pronounced NICK-NOCK) is the local trade association for worker-owned businesses. We are like the Chamber of Commerce for the worker cooperative sector in the New York City metropolitan area.
NYC NoWC was founded in 2009 through a grassroots effort on the part of New York City- based worker cooperatives, cooperative developers, community-based organizations and established nonprofits. After a long process of affiliating with the National Worker Cooperative Trade Association, aka U.S. Federation of Worker Cooperatives,and establishing its membership structure in 2014, NYC NoWC was awarded its 501c-6 status. Since then, NYC NoWC has tripled its dues-paying membership to include over 41 worker-cooperative businesses and organizations. NYC NoWC focuses on political advocacy, regular monthly programming, direct services and a series of benefits for our members.
What are the advantages to being a part of NYC NoWC?
The worker cooperative movement has almost tripled in the last six years. A lot of that growth is directly related to the New York City Council-funded Workers’ Cooperative Development Initiative. In 2015, New York City became the first city in the country to provide public fundingfor the development of worker co-ops and NYC NoWC was a key player in making that happen.
Since then, we have spent considerable effort in developing a comprehensive policy platform at the city and state level to create more incentives and regulatory supports to encourage the further growth of the worker cooperative sector and other parts of the solidarity economy (credit unions, food & housing co-ops). On top of our member-led policy platform we have encouraged the leadership development of worker-owners through our Advocacy Council, a yearly program where we train members of worker cooperatives to become effective advocates for their industry.
We also provide direct services through the contracting worker cooperatives to provide technical assistance and critical services to other worker cooperatives, practicing the Sixth International Cooperative Principle: Cooperation Among Cooperatives. We also have a training collective that offers an eight-part course on starting a cooperative. The course touches on all the critical skills to launch a co-op: legal entity formation, governance, finances, value proposition and business plan development.
What promotion is done to have the public aware of your organization?
We have an active presence on social media, specifically Facebook and Instagram. We organize a yearly NYC Worker Cooperative Conference, and we organize bimonthly public programs that are free to the public and run the gamut from financial literacy workshops to cooperative markets and fairs.
5) Please explain what is workplace democracy and how does it benefit the consumer and the worker/operator.
When workers own their labor they tend to feel a sense of pride and accomplishment that one is less inclined to feel when you work for someone else. They have direct control over their wages, work schedule and can make decisions on how to distribute their profits. Not only is it a more ethical form of purchasing products and services, but you can see the imprint of worker-ownership in the quality of products and services that our members provide. A case in point is most of the business growth that our members experience has not been through a flashy marketing campaign but through word-of-mouth referrals. Some of our members have seen sales double and triple in just a matter of a few years through satisfied customers eagerly referring our co-ops to their friends and business partners. The quality of our products and services speak loudly about the forethought and care that our worker-owners imprint on the fruits of their labor every day.