Industry Commentary

The after-effects of Ontario’s minimum wage increase on the BPO industry

By May 2, 2018July 25th, 2023No Comments

The topic of minimum wage hikes in Ontario has become a political hot potato of sorts, given that province’s upcoming election in June.  Ryan Strategic Advisory is pleased to help cut through the partisan rhetoric with this guest analysis from Toronto resident and long-time BPO commentator Tarun George, who discusses the impact of this legislation on Ontario’s outsourcing space.

Following Ontario’s minimum wage increase in January from $11.60 to $14 per hour, Canadian media erupted with predictions about mass job cuts and companies struggling to remain competitive. The outsourcing industry seems particularly at risk with this move. Four months later, we look at how BPO vendors are adapting, how their clients have responded, and what all this says about the outlook for Canadian outsourcing.

In Ontario, economists say the minimum wage increase will impact about eight percent of all workers, with a further 15 percent also seeing a bump in their wages. This certainly affects BPO vendors on the ground in Ontario who must either take a hit on the higher costs or pass them on to their client partners.  For many, these wage increases have been too much to absorb, leading to some difficult conversations with clients during which price increases have been discussed.

Those conversations are tricky because outsourcing contracts are usually locked-in with stipulations on how the parties will handle a mandatory wage increase. Sometimes the higher cost is automatically owned by the buyer, while in other cases the vendor bears the full burden. It all depends on how the contract is written.

Managing churn by reviewing pay scales

Last month we wrote about the need for contact center outsourcers to address attrition. This is even more critical in Ontario now as the gap between the pay scales of minimum wage agents and their supervisors has suddenly lessened. Staff members who have been trained and honed for supervisor roles would now be paid just marginally higher than the people they manage. That’s a recipe for significant labour churn, which is often the main factor that deteriorates the vendor-client relationship.

In response, BPO vendors will need to review pay scales across their Ontario staff who are most affected and raise salaries where necessary. It might hurt their bottom line in the short term, but will protect against much costlier labour churn.

Outsourcing competitiveness across Canada

While the Ontario BPO industry seems to have adapted well for now, a second wage increase to $15 is planned for 2019. And the province is by no means alone. Quebec, Alberta and Prince Edward Island are also raising their wage floor this year, and most other provinces are looking at future changes corresponding to the Consumer Price Index.

This could damage Canada’s competitiveness as an outsourcing destination. The foreign exchange value of the Canadian dollar compared to the US dollar is the cause of much of the growth in the Canadian BPO sector over recent years, but all the proposed wage increases do begin to eat up that gap.

Regardless, one of Canada’s advantages has always been stronger regulations and more sensitivity around protection of data and information. In cities like Toronto, added benefits like the diversity and abundance of workforce as well as technical expertise allow outsourcers to provide higher-end support to their customers. So, companies that need those advantages are still focused on Canada, even if the increased price does make them leerier.

The upcoming provincial election

With Ontario’s general election coming up in June, the minimum wage increase could be seen as a political move by the incumbent Liberal government. Premier Kathleen Wynne is extremely unpopular for a leader hoping to be re-elected, but raising the wage floor has been supported by a large number of voters. The Liberals are lagging in the polls, and the wage increase is an attempt to salvage some of the popular vote. But the reality is that many in Ontario simply want a change in government.

With booming industry, lower unemployment and ongoing investment into Toronto from global tech players, the Ontario economy is arguably in one of the best cycles it is been in for decades, at least in the more-densely populated areas. That should be enough to carry a political party through an election. The question is whether voters are able to see past their dislike for Kathleen Wynne. This is also a question for which many outsourcers are anxiously awaiting an answer, in order to determine future Ontario expansion plans.