Labor is never an expense in your situation.
When you prepare your tax return (form 1065) each partner will get a K-1 statement. Essentially, the business reports income and expenses as a "pass-through". If the business has $100,000 of gross income and $60,000 of expenses, each partner's K-1 will show $33,000 of gross income and $20,000 of deductible expenses, and each partner will show taxable income of $13,000 (assuming each partner is an equal, or 1/3 partner). Each partner will pay self-employment tax and income tax on their share. If you leave all the cash in the business bank account, the taxable income is still $13,000 to each partner.
This is fine if all partners contribute equally. If the partners contribute unequally, you can issue the K-1 on that basis (for example, if partner A contributed 41%, partner B contributed 36% and partner C contributed 23%, you can issue the K-1 statements on that basis). However, you should have a written partnership agreement that specifies exactly how income and expenses will be divided, and how effort will be tracked if it is not exactly 1/3 each.
The other way you could operate the business is as a corporation. Each partner becomes a shareholder of the corporation (maybe there are 100 shares and each partner owns 33-1/3 shares). As a corporation, each person who works for the business, including shareholders, becomes a regular employee. They must be paid a fair salary for the work they do and they must get a W-2 at the end of the year. (If money is tight, it is acceptable to pay the salary in one lump sum at the end of the year, or monthly or quarterly instead of weekly, but you must pay a fair salary). Here, you might base the salary on the number of hours or days worked to account for differences in individual effort. The salaries are subject to income tax and employment tax withholding like they would be for any other employee. The salaries are deductible business expenses. At the end of the year, if there are leftover profits after paying salaries, that money can be left in the business, or can be distributed to the shareholders as a kind of dividend, which is also taxed, but slightly less than the wages are taxed. That way, the shareholders who created the business share equally in the dividend, but a person who works more hours gets paid more.
You should really talk to a qualified accountant before changing your status to a corporation, because there are some downsides as well as upsides. Even if you stay as a partnership, you should probably pay an expert accountant to review your situation and help set up your books, explain how you get paid, and so on, so you don't make any mistakes you will regret later.
