Receivable/Accounts - Information for Credit and Collection Issues

Friday, June 2, 2017

A Living Wage In The Collection Industry

So, this week the Ontario government announced a change tominimum wage, with the hourly rate required for employees going from a minimum of $11.60 in October 2017, to $14.00 in January 2018, and then $15.00 in January 2019.  Since that announcement, I have witnessed on Linkedin, Facebook and other social media platforms a tumult of opinions for and against this announcement.

I then thought about some of the collection environments I’ve worked in or managed – and wages for staff have not always been ideal.  One company I worked for had a call center environment working small balance 3rd and 4th placement files, and I had to fight to get my best employees a $13 per hour a wage.  If I were still at that company, working for those directors, they would likely be chewing the wallpaper and wondering how they could possibly continue to operate under this announced cost of wages.

Collections can be a big business industry, representing banks and national creditors, but it’s often a small business environment because it’s often contingency-driven, which means wages and commission schemes are often a fighting point between staff and company owners, because it’s a balancing act (or battlefield) for a profitable company.  And out of the hundreds of agencies, paralegals and law firms in Canada, a great number of them are truly small businesses, eking out an existence with 10 or less employees – meaning that this announcement is going to possibly upset the balance of equity in agencies living close to the edge of profitability.

Allegorically, what I’ve noticed over the years is that in Ontario, collection agents for the most part in the Greater Toronto Area are reasonably well paid – in the neighbourhood of $3000 a month (about $17 per hour) base salary for little or no experience.  That being said, outside the GTA or agencies anywhere that work primarily in first party collections pay far less – often minimum wage.  Take a look today and see what you see here for offered wages ...

Imagine this – a small agency with ten employees, three of which are non-collectors – those three could be managers, sales representatives, IT staff, what have you.  This means if you have seven collectors, each of them collecting a reasonable $7000 in contingency fees a month, it averages out to $4900 per month on average per staff member.   When you raise a collector’s wage from $2000 a month (current minimum wage) to $2600 a month ($15 per hour), that’s an increase of 30% -- now factor in source deductions and other hidden HR costs, it’s probably closer to 40%.  That means a company making less than a 20% profit margin and expecting to pay their staff the bare minimum is going to be deeply in the red within 18 months.

So what will happen?  Collection commission programs will likely be slashed, smaller teams will be cut back and expected to generate revenue to compensate for empty desks?  Small or unprofitable collection companies are going to just close up shop?  I think all of these possibilities are likely to happen in some companies ... but on a wider scale, I think it’s going to change how companies do business.

Oppresive Overheads

The real evil in overheads for collection departments and agencies, the real drain on profitability, in my opinion, is having the 'haves' vs. the 'have-nots'.  The highly paid VP of Sales or Operations Manager working side by side with the minimum wage collector – the biggest cost are those who do not actually generate direct revenue for the company.  Second place for nefarious expenses would likely be software licensing, and after that overly expensive office spaces and inefficient mailing or telecommunication plans.

Every six figure management person needs about 20-40 collectors working at peak performance to cover their costs.  That manager won’t notice the minimum wage increase, but the collectors who work with him will – it will mean while wages will be better for collectors, the environment they work in will be more demanding and less forgiving for not reaching collection targets, or commission schemes will be rolled back, or small things like free coffee, parking vouchers, or health benefits will be cut to save a few dollars.

The Secret To Surviving With A Living Wage

My initial thought was this increase to minimum wage was a good thing, for underpaid individuals, and the provincial economy, because the cost of living has skyrocketed over the last several years – groceries, gas, and housing prices have risen astronomically, and it’s only reasonable wages should reflect that.  I also think that a collection agency is driven by the collectors, and they should be reimbursed first and foremost.

So if you have collectors making below the projected level for minimum wage, you have 18 months to raise the bar and get them there – better to do it sooner, and show them you care about the team you have built, than drag your feet and do it on the mandated government deadline.

If you have collectors above the minimum wage waterline, make sure you increase their wages too, and keep equity in your company in your range of salaries based on performance, duties, seniority, or whatever you value in your team members – the last thing you want is to increase the bottom tier salaries, but leave static salaries for those who have earned a higher wage in the past, and are effectively reduced back to the new minimum wage in 2019.

Hire less managers, and put more authority, responsibility, and oversight into the hands of your collectors – they are on the front lines, doing the work, and deserve the autonomy and credit with clients and co-workers.

Pay your staff as much as you can afford, in wages as well as commissions, bonuses, medical benefits, pensions, and any other perks you can think of.  Make an environment that’s the best possible so people don’t want to leave, they are passionate about the company, and while they are working for you they give 110%.

Don’t just offer clients the lowest possible contingency rate, because that’s not going to cover your overheads any more – built quality clientele with fair rates that cover your cost per FTE.  If their revenues don’t cover the manpower, best to start talking to those clients now.

Build a company that is going to be profitable in the long run, and can survive the pressure of paying your team members a living wage.


I suppose my point of this whole article is don’t build a company on the backs of underpaid employees – I’ve fought for too many years for fair representation for collectors in salaries, commission structures, and working environments, and I consider this announcement by the Ontario a government a win for the employees – hopefully, if the employers embrace it too.

We certainly live in interesting times – this announcement is likely going to also have an affect on emergency leave (paid and unpaid), contractor positions, notification of shift changes, vacation times, and more .. it will be interesting to see what is finalized by the provincial government and rolled out to employers.  It will also be interesting to see how this produces a ripple effect, as it will change the working environment and profitability of the clients we serve, affecting us further as a byproduct.

As always, feel free to post a comment or reach out to me personally to have a conversation!

Thanks kindly,

Blair DeMarco-Wettlaufer
KINGSTON Data & Credit
Cambridge, Ontario


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