The Effects of Underpaid Customer Service Employees


Share on LinkedIn

Too many companies assume that they can afford not to pay their customer service employees a fair wage. After all, these hourly workers tend to have a high turnover rate anyway, so what’s the point in trying to keep them?

It turns out that the money companies think they save on low hourly wages comes back to bite them in the profits later.

Poor morale

When staff are frustrated and tired at work, irritated about doing what they’re doing, and doing the bare minimum to get by, they’re often suffering from low morale. This may also result in more absenteeism and errors in work. While it’s difficult to really estimate how low morale has to go before it starts to have noticeable institutional cost, a recent Gallup poll suggests that disengaged employees cost the overall economy around $350 billion per year in terms of lost productivity. If a company isn’t willing to pay its employees fairly, some part of that figure is coming out of their profits.

High onboarding costs

Companies often consider lower wage employees almost disposable, figuring that there are plenty more people willing to take a customer service job if necessary. What they may not factor in is the cost of onboarding. Onboarding is the process of hiring and training new employees.

While the cost of onboarding new employees varies wildly from company to company, some estimates put the average price tag around $4000. Few companies can afford to pay that cost regularly.

Angry customers

Customer service representatives who hate their jobs aren’t going to put in their best efforts. This means that it’s more likely that they’ll have bad interactions with customers. Negative interactions can immediately put a customer off a company, especially if they don’t have a positive history with the business already. Almost 60% of customers will not return to a business after they’ve had a negative experience. Those customers are direct losses to a business’s bottom line.

Lower profits

All of these different factors add up to lower profits for a business. While it may initially seem like a good idea to pay less than the market wage for employees, it should be obvious that paying the bare minimum can only save a company money in the short run. Over time, companies that won’t pay their employees fairly will not survive.

How do you know if you’re paying enough?

If underpaying employees is so obviously harmful to a business, the solution seems obvious: pay employees what they’re worth. But how does a company determine the appropriate wage for their employees?

Market research

The first step is to conduct market research. Use resources like LinkedIn and Glassdoor to see the average salary for a customer service position in the area. Focusing on a particular area is key; the average cost of living in a major metro area is very different from in a smaller, more rural community. Competitive salaries consider factors like commute costs, cost of housing, and general expenses in the area.

Once market research has been conducted, a company needs to decide whether it will offer a salary at or above the local average. Aiming above the average may attract the most qualified employees, but it isn’t necessarily the most important item workers are looking for. Potential candidates are looking at growth opportunities, great company culture, a mission they can believe in, and an opportunity to do a job where they can learn and excel.

If a company can’t afford to provide a top-notch salary or hourly wage, the next step is to consider what they can offer. For example, a company could offer flexible scheduling, more comp time than is typical in the area, or an excellent health and dental plan. They could create membership discount opportunities with local gyms, or make sure to have catered lunches every few weeks in the office.

What amenities are most useful depends on the particular office culture and even the particular employee, but considering these possibilities can help a company begin to plan for a more comprehensive package.
Raises and bonus structure

Customer service does tend to have a high rate of turn-over, for many reasons. While low morale in busy, understaffed call centers is obviously one of them, another factor that simply isn’t considered enough is that not everyone is good at customer service. It’s difficult to figure out during an interview whether or not someone will be able to de-escalate a conversation and retain a customer who is angry or frustrated. Some employees can be trained to do a better job, but occasionally, they simply need to be managed out.

One way for companies to protect their bottom line but also make sure their employees are reasonably paid is to look at their structure for bonuses and raises. While a company may not be able to pay an employee at the average market rate on day one, if there is a clear set of well-defined goals that will get the employee to a higher wage, they may be more willing to stick it out and get the job done.

Margarita Hakobyan
CEO and founder of, an online marketplace of local moving companies and storage facilities. Business women, wife and mother of two with bachelor's degree from the University of Utah with a concentration in International Studies and a Masters Degree also from the University of Utah with a degree in International business.


Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here