diff --git a/JoshHeaps.Net/Content/Socialism/capital-accounts.md b/JoshHeaps.Net/Content/Socialism/capital-accounts.md index fbd8bf3..029c5c6 100644 --- a/JoshHeaps.Net/Content/Socialism/capital-accounts.md +++ b/JoshHeaps.Net/Content/Socialism/capital-accounts.md @@ -51,7 +51,7 @@ Members can also raise their own salaries instead of taking profit, but that doe ## How it's paid out -- **Each year's credit is paid back after five years.** The money credited to your account for 2030 is paid to you in 2035, the 2031 credit in 2036, and so on, oldest first, each after that year's audited accounts are closed. Each co-op can set the wait anywhere from three to seven years in its bylaws. It's one of the two ways US worker co-ops already pay out accounts, called a "roll-over" ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The co-op gets to use each year's credit for years, and nobody's savings are stuck until they retire. +- **Each year's credit is paid back after five years.** The money credited to your account for 2030 is paid to you in 2035, the 2031 credit in 2036, and so on, oldest first, each after that year's accounts are closed and checked by an outside accountant ([What the Rules Cost a Small Co-op](compliance.md#what-a-review-can-and-cant-stand-in-for)). Each co-op can set the wait anywhere from three to seven years in its bylaws. It's one of the two ways US worker co-ops already pay out accounts, called a "roll-over" ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The co-op gets to use each year's credit for years, and nobody's savings are stuck until they retire. - **The wait is fixed when the credit is made.** A vote to change it applies only to credits made starting the year after the vote, so senior members can't speed up their own money or slow down anyone else's. - **Leaving doesn't change the schedule.** When you leave, your balance is fixed at the end of that year, after that year's profit or loss is counted, so nobody can quit just ahead of a bad year and escape it. After that it stops sharing in losses, earns the plain Treasury rate, and each year's credit is still paid on its own date. - **Small balances are paid early, for everyone.** Once anyone's whole balance is under $2,000, member or not, it's paid at the next payout date. That keeps a co-op from tracking small sums for years, and since it doesn't depend on leaving, nobody gains by quitting. diff --git a/JoshHeaps.Net/Content/Socialism/compliance.md b/JoshHeaps.Net/Content/Socialism/compliance.md new file mode 100644 index 0000000..45ef44f --- /dev/null +++ b/JoshHeaps.Net/Content/Socialism/compliance.md @@ -0,0 +1,154 @@ +--- +title: What the Rules Cost a Small Co-op +section: The Co-op +order: 32 +summary: The model's checks, from audits to the lock-holder's reviews, are scaled to a co-op's size and done once a year in one package, with audits by lot to deter cheating, though even the lighter package costs a small co-op real money. +--- + +# What the Rules Cost a Small Co-op + +Every page of this model adds a check. Someone has to confirm that members were paid the going rate, that the job titles are honest, that the equipment isn't wearing out unreplaced, that nobody is being pushed out before they'd join. Each check makes sense on its own. Together, they could cost a small co-op more than it earns. + +That matters for two reasons. Rules a small firm can't afford end up existing only on paper, or they quietly keep co-ops out of small, low-margin work, which is where [the model most wants them](who-gets-loans.md). This page says what's checked, by whom, how often, and who pays. + +## What gets checked + +Across the model, a locked co-op is asked to do these things every year: + +| Check | Where it comes from | +| --- | --- | +| Year-end accounts, closed and checked by an outside accountant | [Capital account payouts](capital-accounts.md#how-its-paid-out), [savings cover pricing](savings-guarantee.md) | +| Every worker paid at least the going rate for their job, by occupation code | [The pay rule](the-long-run.md#the-rules), [Is the profit share pay?](labor-law.md#is-the-profit-share-pay) | +| A sample of timesheets matched to payroll records | [What counts as an hour](taxes.md#what-counts-as-an-hour) | +| Direct care job titles checked, where Medicaid's 80% rule applies | [When Medicaid decides how much goes to pay](high-turnover.md#how-a-co-op-meets-it) | +| Overtime recalculated once the profit share is set | [Overtime and the profit share](labor-law.md#overtime-and-the-profit-share) | +| Pay ratio and pay bands, by job, gender and race | [Who Sets the Pay](pay.md#everyone-sees-the-bands) | +| Warnings, hearings and dismissals, plus an anonymous workload survey | [When a member won't do the work](free-riding.md#when-a-member-wont-do-the-work) | +| Hires, and people let go before they could join | [No pushing people out](high-turnover.md#no-pushing-people-out-before-theyd-join) | +| Spending on buildings and equipment next to how much they wore out | [Running it down](the-long-run.md#running-it-down) | +| Big expansion proposals and how members voted | [When Growing Means Sharing](growth.md) | +| A statement to each member of their account | [Member Capital Accounts](capital-accounts.md) | +| Contracts with insiders, priced like deals with strangers | [The hidden boss](pilot-safeguards.md#the-hidden-boss) | +| Members' share of all work hours, counting agency and contractor hours | [The hidden boss](pilot-safeguards.md#the-hidden-boss) | + +Most of this is data a co-op already has in its payroll and bookkeeping. The expensive part is having an outside accountant check it. + +## What outside checking costs + +Outside accountants offer three levels of checking. A **compilation** just puts the books into proper form, with no checking at all. A **review** asks questions and looks for numbers that don't make sense, without testing the records underneath. An **audit** tests the records and gives a formal opinion. There's also a fourth kind of job, **agreed-upon procedures**, where the accountant runs a fixed list of tests and reports what they found, without giving an opinion on the accounts as a whole. It's billed on top of a review, not inside it. + +For very small firms, the gap between a review and an audit is large. When the SEC wrote its rules for small companies raising money online, it estimated a review at about $1,500 to $18,000 and an audit at about $2,500 to $30,000. The average audit for companies with under $1 million in both market value and revenue was about $20,000 in 2014 ([SEC, 2015](https://www.federalregister.gov/documents/2015/11/16/2015-28220/crowdfunding)). By 2020, commenters and industry sources the SEC cited put a review of a small company at roughly $1,500 to $6,000, and one said at least $6,000 for a company with two years of history ([SEC, 2021](https://www.federalregister.gov/documents/2021/01/14/2020-24749/facilitating-capital-formation-and-expanding-investment-opportunities-by-improving-access-to-capital)). + +Take a cleaning co-op with six members and $400,000 in sales. A yearly audit at $20,000 could be most of its profit. The model's own rough estimate for the package below is more like this, per year: + +| Item | Rough cost | +| --- | --- | +| Review of the accounts | $3,000 to $6,000 | +| The fixed list of extra tests | $1,500 to $3,000 (the model's guess; no good public data) | +| Lock-holder's review, every two years | $500 to $1,000 a year (the model's guess) | +| Staff time | 20 to 40 hours | + +That's roughly $5,000 to $10,000, or 1.25% to 2.5% of sales. In cleaning, where profit might be 5% of sales, that's a quarter to half of the profit. The package is cheaper than yearly audits, but it isn't cheap, and the page doesn't pretend otherwise. + +## How others do it + +**Italy** has checked every co-op for decades. The law requires a "cooperative revision" at least once every two years, or every year where a special law says so. If the co-op belongs to one of the national federations, the federation does it; if not, the government does. The revision has two jobs: to advise the board on running the co-op and on internal democracy, and to confirm the co-op is real. It checks that the members are real, that they take part, and that the co-op qualifies for its tax breaks, and it checks that worker-members are treated as the co-op's own rules say. A co-op that fails can be struck off the co-op register, put under a government-appointed manager, or dissolved ([Legislative Decree 220/2002, articles 2, 4 and 12](https://www.parlamento.it/parlam/leggi/deleghe/02220dl.htm)). + +It's paid for by a fee on a published scale. For 2025–26, the smallest co-ops pay €330 for the two years, but only if they have at most 100 members, at most €5,160 in share capital *and* at most €75,000 in sales. Going over any one of those puts a co-op in a higher band. The top band, for co-ops with over €2 million in sales, is €2,740 ([Ministry decree of 12 February 2025, as reported by Fisco7](https://www.fisco7.it/2025/06/contributo-revisione-cooperative-2025-2026-in-vigore-i-nuovi-importi/)). + +**Italy is also a warning.** Cheap checking by the co-ops' own federations has lived alongside a long-running problem of "false co-ops," firms that use the co-op form to underpay workers. In the first three months of 2016, labor inspectors who went looking for them inspected 934 co-ops and found more than half breaking the rules, with 3,768 workers affected ([Italian Ministry of Labour, 2016](https://www.lavoro.gov.it/stampa-e-media/comunicati/pagine/ministero-del-lavoro-vigilanza-sulle-cooperative-spurie)). Those were targeted inspections, not a random sample, so they don't show how common false co-ops are. They do show that a federation checking its own members isn't enough on its own. + +**Mondragon's bank** asked every co-op for monthly financial reports, and gave each a full audit every four years ([Has This Been Tried?](precedents.md)). + +## The rules + +### Checking is scaled to size + +Three sizes. Size is measured by sales and by full-time-equivalent workers, counting hours worked through agencies and contractors, so taking on contractors or part-timers doesn't keep a co-op small. Co-ops that are related, in the sense [the pilot already uses](pilot-safeguards.md#splitting-one-borrower-into-many) (a shared founder, manager, landlord, franchisor or major supplier), are counted together, so splitting a firm in two doesn't either. A co-op moves up a size when it passes either line two years running. + +- **Small: under $2 million in sales and under 25 full-time equivalents.** A yearly review by an outside accountant, plus the fixed list of extra tests (below). No scheduled audit. +- **Middle: $2 million to $10 million, or 25 to 100 full-time equivalents, or any co-op owing the bank more than $750,000.** A yearly review with the extra tests, and a full audit every other year. +- **Large: over $10 million, or over 100 full-time equivalents.** A full audit every year. + +Every co-op also sends the bank its quarterly payroll tax filings, which it already has, so the bank sees hours and pay four times a year at almost no cost. + +### What a review can and can't stand in for + +Wherever the model says "the co-op's auditor," it means whichever outside accountant does that year's review or audit. But a review isn't an audit, and a few rules need the real thing: + +- **Capital account payouts** can go ahead on reviewed accounts. If a later audit finds profit was overstated, the extra credits are taken back out of members' unpaid credits, the same way [losses are shared](capital-accounts.md#how-its-paid-out). +- **Savings cover** starts only after the pool itself audits the co-op, at the pool's cost. After that, premiums can be priced on reviewed accounts, and the pool can audit any covered co-op at any time ([Protecting Members' Savings](savings-guarantee.md)). +- **Spreading the cost of a big project**, under [the long-run rule](the-long-run.md#the-rules), still needs an independent audit. A review doesn't count. A small co-op that wants to use the rule has to pay for one. + +### One package, done once a year + +- **The extra tests are the same everywhere.** The accountant runs a fixed list published by the bank and the federations before the first loan: + - every contract with an insider (a founder, manager, member's family, or a company they own), checked against what strangers would pay, the main way [a hidden boss](pilot-safeguards.md#the-hidden-boss) gets paid; + - members' share of all work hours, checked against payroll *and* against agency and contractor invoices; + - every worker's pay against the going rate for their occupation code, and, in co-ops under 25 full-time equivalents, every worker's code, with a sample in larger ones; + - a sample of timesheets against payroll; + - job titles where the Medicaid rule applies; + - the overtime recalculation. +- **One problem widens the check.** If a sample turns up anyone underpaid, the test is widened to every worker. Everyone underpaid, member or not, gets the difference with interest, and the co-op gets a full audit. +- **The list can't quietly grow.** Adding a test to the package requires publishing what it will cost co-ops, and the whole package's cost is reported every year. +- **The data comes from payroll.** Pay bands, the pay ratio, hires and departures, and members' statements come out of the standard payroll service the model already uses for overtime ([Owners Are Still Workers](labor-law.md#overtime-and-the-profit-share)). The co-op doesn't build them by hand. +- **One report.** Every yearly report on the list above goes on one standard form, filed once, with the lock-holder, the bank and the members. None of the model's own bodies asks a co-op for the same number twice. Government agencies like Medicaid or the IRS will still ask for their own. +- **Small groups are protected from the public, not from the members.** Where a published figure would reveal one person's pay or discipline, the public sees only the total. Members still see everything [the pay rule](pay.md#everyone-sees-the-bands) gives them, including managers' actual pay. The accountant and the lock-holder see the figures person by person, and a gap in pay or discipline between groups is a flag for the lock-holder's review. +- **The federation does the templates.** Standard bookkeeping, the report form, the occupation codes and the benchmark for the going rate are supplied centrally, so a small co-op isn't paying an accountant to invent them. Clean books also make the review cheaper. + +### The accountant isn't the co-op's to pick freely + +- **From an approved list.** The co-op chooses its accountant from a list the bank approves, and changes firms at least every seven years. +- **The lock-holder picks the samples**, so the co-op can't steer which timesheets or pay records get tested. +- **The report goes straight to the lock-holder and the bank**, as well as to the members. +- **Changing accountants is a warning sign.** If an accountant resigns or is replaced, the outgoing one writes to the bank saying why, and the co-op gets a full audit. + +### Audits by lot, and when something looks wrong + +Scaling checks down leaves more room to cheat in small co-ops. Three things close part of that gap: + +- **One in twenty, by lot, after year-end.** Each year, after the books close, the pilot's outside reviewers draw one small co-op in twenty for a full audit, by a method published in advance, the same way they run [the support lottery](pilot-spec.md#the-support-lottery). At least half the draw is purely random. The rest is weighted toward co-ops with warning flags: heavy use of agency or contractor hours, a lot of insider contracts, or high turnover. The auditor is assigned, not chosen. What the audits find is published every year. +- **Warning signs trigger an audit.** A small co-op gets a full audit if: + - its accounts are late, or its accountant resigns, is replaced or qualifies its report; + - the extra tests find a problem; + - it loses money two years running; + - equipment spending stays below wear long enough to call in [the inspector](the-long-run.md#running-it-down); + - payments to insiders grow faster than sales; + - its payroll tax filings don't match its accounts; + - members' share of work hours falls toward the minimum, or many hires are let go before they could join; + - it ends a year below Medicaid's 80% pay ratio, where [that rule applies](high-turnover.md#when-medicaid-decides-how-much-goes-to-pay); + - a labor or anti-discrimination agency makes a finding against it; + - it falls behind on the bank's loan; + - or before any sale of a large part of the business under [the lock](the-lock.md#closing-the-back-doors). +- **Anyone who works there can complain.** Members, non-members and anyone who left in the last two years can complain anonymously, in their own language, to the lock-holder or straight to the bank. They're protected by the same rule that protects members who report problems ([When a member won't do the work](free-riding.md#when-a-member-wont-do-the-work)). An upheld complaint leads to a targeted check of what it's about, not a full audit, so it can't be used just to run up a co-op's costs. Either side can appeal the lock-holder's decision to a different approved lock-holder. + +The bank pays for audits by lot and for triggered audits, as part of its cost of lending, counted in its results like any lender's monitoring. When an audit finds fraud, the co-op pays it back. + +### The lock-holder's review, every two years + +- **Like Italy's revision, with more workers in it.** At least once every two years, the lock-holder checks that the members are real and do most of the work, that the membership rules and the insider-deal rules are followed, and that working conditions and discipline follow the co-op's own rules. It talks privately with a random group of workers, members and non-members, including people who left in the last two years, with an interpreter where needed. Its report goes to the members' meeting and the bank, not just the board. +- **Advice is separate and optional.** A co-op can buy advice from its lock-holder or federation, but the person who checks a co-op can't be its paid adviser in the same years. +- **A fee set from the real cost.** Lock-holders charge on a scale set by size, but the scale is approved by the bank from what a real review costs, not set by the lock-holders themselves. A fee too low to pay for a real review would just buy a weak one. Where the federation holds the lock, the fee is part of its dues and isn't charged twice. +- **Switching lock-holders is allowed, but not to escape a check.** A co-op can move to another approved lock-holder by a members' vote, but not while an audit, an unresolved finding or a vote the lock-holder can veto is open, and not in the 12 months before a review is due. The old lock-holder's file goes to the new one, and the review clock doesn't restart. + +### What happens when a co-op fails a check + +In steps, and each step can be appealed. A finding comes with a deadline to fix it. If it isn't fixed, payouts to board members and managers stop, new savings cover is suspended, and the bank can treat it as a breach of the loan. A co-op that refuses to be reviewed or audited is in breach of the loan and of the lock, and the lock-holder can go to court. None of this gives the lock-holder power to run the co-op. + +### Who pays at the start + +The bank's first loan can include the first three years of checking costs as working capital, so a new co-op doesn't have to find them in its first thin years. The pilot's business-help budget pays only for the shared pieces: the templates, the report form and the payroll service's setup. + +### The cost is measured, and it can move the rules + +Before the first loan, the bank and the federations publish what they expect the whole package to cost a co-op of each size. The pilot then records what it actually costs each co-op, as a share of its sales and of its profit, and publishes it by size and industry, along with what the audits by lot find. + +The goal is under 1% of sales for small co-ops. The estimate above already misses it. If the typical small co-op spends more than 1% of sales for two years running, *and* the audits by lot are finding little, the lightest-value checks are cut back in an order published in advance: the group pay figures to every other year first, then the timesheet sample, then the review itself to every other year, with a compilation in between. If the audits are finding a lot, the checks stay, and the report says what honest checking costs in low-margin work. + +## What this doesn't solve + +- **Less checking means more room to cheat.** A reviewed small co-op is checked less deeply than an audited one. Audits by lot, warning signs and complaints make cheating risky, not impossible. Italy's false co-ops are the warning. +- **It costs real money in the work that can least afford it.** At 1% to 2.5% of sales, the package could take a large part of a cleaning or home care co-op's profit. The model has no way to make honest checking free, only cheaper. +- **The cost numbers are rough.** Two of the four lines in the estimate are guesses. There's no good US data on what small firms spend on outside accounting as a share of sales. The pilot's own numbers will be the first. +- **Checkers can be captured.** The co-op still pays its accountant, and lock-holders depend on the co-ops they check. The approved list, rotation, samples picked by the lock-holder, draws by outside reviewers and the limits on switching are meant to limit that. Italy has the same tension. +- **Fees don't cover staff time.** Filling in a form and answering an accountant's questions takes hours in a firm with no office staff. Payroll data and templates cut that down. They don't remove it. diff --git a/JoshHeaps.Net/Content/Socialism/index.md b/JoshHeaps.Net/Content/Socialism/index.md index cb31507..901faea 100644 --- a/JoshHeaps.Net/Content/Socialism/index.md +++ b/JoshHeaps.Net/Content/Socialism/index.md @@ -13,7 +13,7 @@ summary: A working model for building an economy where the people who do the wor This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them. -- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, and part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Where Medicaid requires 80% of home care payments to go to care workers, co-ops meet it from wages alone. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md) +- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally, per hour worked, which is how federal tax law lets co-ops pay tax on it only once. Salaries still exist, and hard jobs still pay more. Part of each year's profit goes into a personal account that pays it back a few years later on a fixed schedule, whether or not you've left, which is designed to keep it outside federal pension law, and part goes into a permanent reserve that keeps the business investing. Members can't drain it through high pay or let the equipment quietly wear out, and big bets get an outside opinion first. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. A fair, fast process deals with members who won't do the work, with protections so it can't be turned on the wrong people. Members are the co-op's employees, so they get the minimum wage, overtime and injury insurance like anyone else. Where the law leaves owners out, of unemployment insurance in some states or of union protection, the co-op's charter fills what it can. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Where Medicaid requires 80% of home care payments to go to care workers, co-ops meet it from wages alone. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. The checks behind all this are scaled to size, so small co-ops get a yearly review and random audits instead of a full audit every year, though honest checking still costs them real money. [Worker Ownership](worker-ownership.md), [Does Sharing the Profit Mean Less Effort?](free-riding.md), [When People Don't Stay Long](high-turnover.md), [Owners Are Still Workers](labor-law.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [How a Locked Co-op Is Taxed](taxes.md), [Protecting Members' Savings](savings-guarantee.md), [Investing for the Long Run](the-long-run.md) and [What the Rules Cost a Small Co-op](compliance.md) - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md) - **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. It serves deals the SBA's rules shut out, which ask a co-op, unlike an ESOP, for cash up front and one worker's personal guarantee. Its results are compared with SBA-financed purchases and ESOP sales, and its pay test follows everyone who worked there at the sale. [When an Owner Wants to Sell to the Workers](buyouts.md) - **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. If a co-op goes bankrupt, only another co-op can buy it whole, and its workers get a real chance to be that buyer. That needs an amendment to federal bankruptcy law, drafted here. [The Lock](the-lock.md), [When a Locked Co-op Goes Bankrupt](bankruptcy.md) diff --git a/JoshHeaps.Net/Content/Socialism/labor-law.md b/JoshHeaps.Net/Content/Socialism/labor-law.md index 70c8197..8795b65 100644 --- a/JoshHeaps.Net/Content/Socialism/labor-law.md +++ b/JoshHeaps.Net/Content/Socialism/labor-law.md @@ -59,7 +59,7 @@ State co-op law supports the owner's-share reading, but it doesn't settle it. Ma - **Where it's unclear, the co-op doesn't bet on it.** The bank publishes a checked entry for each state, signed by a lawyer licensed there and reviewed every year, saying whether its wage law could reach account credits. Before lending in a state, the bank asks the state's labor agency for its view. Where the answer is "could," co-ops in that state don't use members' accounts. The members' share is paid all in cash, and a co-op that wants more money to invest sends more of its profit to the permanent reserve instead. Members there don't build savings in the co-op until the state's law changes. - **The model state law fixes it at the source.** It amends the state's wage-payment law itself, not only its co-op law: a written share of profit that a business allocates to its owners, under a formula set in advance and only after every worker has been paid at least the going rate, isn't wages for that law. It applies to any business that does this, not only co-ops, so it isn't a favor to one kind of firm. It sits in the short law that already recognizes locked co-ops ([Making It Last](durability.md#federal-test-state-copies)). - **Every credit comes with a written notice.** Each year, each person gets a notice showing the amount credited and when it's scheduled to be paid, which is what those co-op laws describe. It also says plainly that the credit isn't a wage, that it can be reduced by losses or paused until it's paid, and where to file a wage claim if they think wages are owed. -- **The going rate is checked.** The owner's-share argument only holds if wages really come first. So the co-op's auditor certifies each year that every worker was paid at least the going rate, against the public benchmark in [the pay rule](the-long-run.md#the-rules), and any shortfall is paid as wages before any profit is shared. +- **The going rate is checked.** The owner's-share argument only holds if wages really come first. So the co-op's outside accountant tests each year that every worker was paid at least the going rate, against the public benchmark in [the pay rule](the-long-run.md#the-rules), and any shortfall is paid as wages before any profit is shared. In small co-ops that's a fixed test of every worker's pay rather than a full audit ([What the Rules Cost a Small Co-op](compliance.md#one-package-done-once-a-year)). **What members give up.** Calling the share an owner's share has costs. Unpaid wages get priority in a bankruptcy, up to $17,150 per worker ([11 U.S.C. § 507(a)(4)](https://www.law.cornell.edu/uscode/text/11/507)). Account credits don't, and they rank behind the co-op's lenders ([Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)). Unemployment and injury benefits are figured from wages, so the share doesn't raise them. Federal limits on garnishment cover any "bonus" paid for work ([15 U.S.C. § 1672](https://www.law.cornell.edu/uscode/text/15/1672)), so a cash share probably gets that protection anyway. The [savings insurance pool](savings-guarantee.md) covers part of the bankruptcy gap for people who have left. diff --git a/JoshHeaps.Net/Content/Socialism/open-problems.md b/JoshHeaps.Net/Content/Socialism/open-problems.md index 8d6358e..af45124 100644 --- a/JoshHeaps.Net/Content/Socialism/open-problems.md +++ b/JoshHeaps.Net/Content/Socialism/open-problems.md @@ -39,4 +39,6 @@ An honest list of what the model hasn't solved yet, most dangerous first. 13. **Work where people don't stay long.** *(Partly answered.)* In home care, most workers leave within a year or two. Membership is now automatic after a short probation, the buy-in comes out of profit shares rather than pay, and pushing people out before they'd join counts against the co-op ([When People Don't Stay Long](high-turnover.md)). Still open: with a five-to-ten-year profit share ramp, only a small minority of care workers ever reach a full share, so the people who stay collect much of the profit the others helped make. A much shorter ramp for low-margin, high-turnover co-ops would fix that, but it would go against the founding plan's range and weaken the ramp's protection against under-hiring. Also open: whether default members take part in governance, and whether Social Security counts a profit share as earned income for SSI, which decides whether members on SSI lose more by joining. SSI may also count an account credit as income when it's made. Until Social Security answers, members on SSI get their share all in cash and join only if they say yes ([How a Locked Co-op Is Taxed](taxes.md#benefits)), and workers who have only an IRS taxpayer number still can't be members. How labor law treats worker-owners now has its own page ([Owners Are Still Workers](labor-law.md)). Federal labor law probably doesn't protect members' own organizing, so the charter does, and fixing the law takes a separate bill that may never pass. Some states leave members out of unemployment insurance, and whether founders' unpaid work before the co-op forms is outside wage law still needs the Labor Department's answer. A federal rule due in 2030 requires 80% of certain Medicaid home care payments to go to care workers' pay. Co-ops meet it from wages alone and pay any shortfall as wages, but in that work it leaves little room for profit shares or a reserve, and whether the rule survives is unknown ([When Medicaid decides how much goes to pay](high-turnover.md#when-medicaid-decides-how-much-goes-to-pay)). +16. **What the rules cost a small co-op.** *(Partly answered.)* Every check the model adds costs a small co-op money. [What the Rules Cost a Small Co-op](compliance.md) scales checking to size: a yearly review and a fixed list of tests instead of an audit for small co-ops, audits by lot and on warning signs, and a lock-holder review every two years. Even so, the model's own estimate is 1% to 2.5% of a small co-op's sales, which could be a large part of the profit in cleaning or home care. Whether lighter checking lets more cheating through is something the audits by lot will show. Italy's "false co-ops" are the warning. + *Not problems here, because nobody's company is forcibly bought:* valuing every firm in the economy, owners stripping value before a takeover, foreign capital flight, and years of payouts to former owners. The contractor boundary isn't an economy-wide problem either. Its co-op version, hiring non-members to dodge membership, is handled by [the lock](the-lock.md)'s membership requirement. diff --git a/JoshHeaps.Net/Content/Socialism/savings-guarantee.md b/JoshHeaps.Net/Content/Socialism/savings-guarantee.md index 5cdbf65..3797a8c 100644 --- a/JoshHeaps.Net/Content/Socialism/savings-guarantee.md +++ b/JoshHeaps.Net/Content/Socialism/savings-guarantee.md @@ -120,7 +120,7 @@ That's about 4% of the $600,000 annual profit in the [capital accounts example]( - **No stuffing accounts.** Amounts added to accounts in the year before a failure are covered only up to the co-op's normal split, meaning its average over the previous five years. - **No inflated final wages.** Covered pay is the lower of a worker's average over the previous 12 months and what appears in the co-op's payroll tax filings. Paid time off counts only at the co-op's normal accrual. In a co-op's first year, final-wage cover is four weeks, not eight. - **No paying insiders first.** Loans that directors or members guaranteed personally, repaid in the year before a failure while wages went unpaid, are clawed back. -- **No cover for brand-new shells.** Account cover starts after a co-op's first three years of audited accounts, and every covered co-op must pass the same checks as bank borrowers: real members doing most of the work, verified against payroll records (see [Guarding the Pilot](pilot-safeguards.md#the-hidden-boss)). +- **No cover for brand-new shells.** Account cover starts after a co-op's first three years of checked accounts and an audit by the pool itself ([What the Rules Cost a Small Co-op](compliance.md#what-a-review-can-and-cant-stand-in-for)), and every covered co-op must pass the same checks as bank borrowers: real members doing most of the work, verified against payroll records (see [Guarding the Pilot](pilot-safeguards.md#the-hidden-boss)). - **No trading claims.** Covered claims can't be sold or transferred, except in a divorce or to an estate. - **No underreporting.** Payouts are based on the lower of what the co-op reported and what it actually owed. Unpaid premiums are charged to directors and to uncovered balances, not to protected ones, and directors who file false reports are personally liable. diff --git a/JoshHeaps.Net/Content/Socialism/the-lock.md b/JoshHeaps.Net/Content/Socialism/the-lock.md index cc52ce3..e42f675 100644 --- a/JoshHeaps.Net/Content/Socialism/the-lock.md +++ b/JoshHeaps.Net/Content/Socialism/the-lock.md @@ -47,6 +47,7 @@ A lock written only into a co-op's own rules can be voted away by its members. A - **It can't be a buyer, or benefit from a sale, in any deal it reviews.** If the co-op's federation might absorb the co-op, or would receive its assets on dissolution, a different lock-holder reviews that deal. - **It isn't the only one who can enforce the lock.** Any member, any other locked co-op, the bank and the state attorney general can also go to court. - **It publishes an annual review** of the co-ops it holds shares in. +- **It checks each co-op at least every two years,** including private talks with a random group of workers, for a fee on a scale the bank approves ([What the Rules Cost a Small Co-op](compliance.md#the-lock-holders-review-every-two-years)). - **It also guards membership.** Beyond its four votes, it has one more job: it takes workers' decisions to opt out of membership and checks each co-op's membership records, so that the membership requirement means something ([When People Don't Stay Long](high-turnover.md)). It has no say over who is hired, fired or paid what. **Where the legal risk really is.** Courts are wary of "restraints on alienation": conditions that stop an owner selling property, especially forever ([Cornell Legal Information Institute](https://www.law.cornell.edu/wex/restraint_on_alienation)). For company shares, reasonable restrictions are generally allowed, so that risk is manageable. **The bigger threat is bankruptcy.** Federal bankruptcy law generally overrides contract terms that restrict transferring a bankrupt company's property ([11 U.S.C. § 541(c)(1)](https://www.law.cornell.edu/uscode/text/11/541)). Without a change to that law, a court-run sale could hand a failed co-op's whole business to any bidder, lock or no lock. So the bank's statute has to amend the Bankruptcy Code for locked co-ops. That needs Congress. [When a Locked Co-op Goes Bankrupt](bankruptcy.md) lays out the amendment, modeled on how bankruptcy law already treats charities. diff --git a/JoshHeaps.Net/Content/Socialism/the-long-run.md b/JoshHeaps.Net/Content/Socialism/the-long-run.md index e29a32f..8229211 100644 --- a/JoshHeaps.Net/Content/Socialism/the-long-run.md +++ b/JoshHeaps.Net/Content/Socialism/the-long-run.md @@ -78,7 +78,7 @@ That leaves four ways the horizon problem can still get in. - **Only real development qualifies.** It has to meet the test international accounting standards already use to decide when development creates a real asset: it's technically doable, the co-op intends to finish it and can, and it's likely to earn money ([IAS 38](https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/)). Those standards specifically exclude training, advertising and start-up costs, and so does this rule. Those stay costs of the year they're spent. - **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Each credit waits three to seven years before it's paid, so much of the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers. -- **Limits.** The total cost still waiting to be charged can't exceed half of the co-op's average profit over the last three years, measured before any spreading. Only co-ops with an independent audit can use the rule, and the auditor checks each open project every year. +- **Limits.** The total cost still waiting to be charged can't exceed half of the co-op's average profit over the last three years, measured before any spreading. Only co-ops with an independent audit can use the rule, and the auditor checks each open project every year. The lighter review small co-ops get otherwise doesn't count ([What the Rules Cost a Small Co-op](compliance.md#what-a-review-can-and-cant-stand-in-for)). - **It only changes how costs are divided between this year's members and future ones.** It doesn't touch the co-op's tax return or its reports to the bank. The co-op publishes both numbers side by side. **4. Accounts earn a fair rate while they're at risk.** A current member's account earns the one-year Treasury rate plus two percentage points, credited in years the co-op makes a profit. In a loss year it earns the plain Treasury rate. Money in a current member's account is at risk: it shares in the co-op's losses and ranks behind its lenders. Paying only a risk-free rate on it would push every member to take cash instead. **Once a member leaves, the balance earns the plain Treasury rate.** It no longer shares in losses, so it's no longer at risk, and nobody should collect a premium from the work of people they no longer work alongside. For comparison, Italian law lets co-ops pay members up to 2.5 points above the rate on its postal savings bonds on the capital they've put in (Lomuscio and Tortia, 2023), and Mondragon paid 6% plus an adjustment for inflation (Morris, 1992). The details are on the [capital accounts page](capital-accounts.md#how-the-account-grows).