New Hires Getting Paid More Than Existing Employees

The practice of new hires getting paid more than existing employees exists as companies seek to attract top talent with specialized skills and remain competitive. While this approach may ruffle some feathers internally, potentially resulting in discontent, decreased morale, and lower productivity among your current staff, it’s important to balance the need for fresh talent. While it is not illegal to pay new hires more than existing employees, it is important for companies to practice fairness and transparency in their compensation practices.

Key Takeaways

Paying new hires more helps attract top talent, brings fresher ideas, and incentivizes them to stay long term
Salary has a direct impact on existing employee morale, productivity, and retention
Researching competitive salaries and adjusting the pay scales of existing employees leads to fair compensation practices

Why Do New Hires Get Paid More?

There are several reasons why new hires get paid more than existing employees. The top reasons include:

Attracting Top Talent: New hires may be paid more because of the competition for top talent. Skilled workers are in high demand, and companies must offer competitive salaries to attract the best candidates.
Limited Candidate Pool: Due to an increase in remote work, job seekers have greater access to opportunities globally, making it harder for businesses to find employees. Because of this companies must provide attractive compensation packages.
Fresher Ideas: New hires often bring fresh perspectives and ideas to a company. Their innovative thinking and different problem-solving approaches can lead to increased productivity and growth. As a result, companies recognize the value of compensating these individuals at a higher rate as an investment in driving innovation within their teams.
Reduced Turnover: Companies may be willing to pay more for new hires in order to incentivize them to join and stay with the company long term. Also, investing in new talent at a higher rate can lead to quicker integration into the company culture.

Impact on Existing Employees

When new hires are getting paid more than existing employees, it can have a negative impact on tenured employees. Click the tabs below to learn more about how this affects your team.

For existing employees, seeing new hires being paid more can be demotivating and lead to decreased morale within the team. It may cause them to question their own worth and potentially seek employment opportunities elsewhere. To mitigate these concerns, you should consider implementing transparent salary structures and regular performance reviews to ensure all employees feel valued.

Did You Know? When it comes to employee morale, 68% of hiring managers say at least one of their direct reports has asked for a raise or threatened to quit over pay discrepancies with new hires.

When new hires are brought in at higher salaries than existing employees, it can have a negative impact on productivity, as they may feel like they are undervalued. Employees who feel unappreciated may give up and stop putting in their full effort on projects and assignments. This, in turn, can lead to a decrease in productivity.

For general statistics on the effects of productivity across your entire organization, check out our employee productivity statistics.

When current employees perceive that their efforts and loyalty are undervalued in comparison to new hires, it can lead to feelings of resentment, demotivation, and ultimately a higher chance of leaving the company. This not only impacts employee retention but also has financial implications through recruitment costs, decreased productivity during turnover periods, and potential damage to your company’s reputation.

Check out our employee retention statistics to learn what causes your employees to leave and how to retain them.

Strategies for Fair Compensation Practices

Maintaining fair compensation practices is vital to the success of your business. There are several strategies for this that can ensure all employees are satisfied with their pay.

Research Market Values

In order to make sure all your employees—both new hires and existing employees—are paid fairly, research the current market values for each position. This involves not only looking at industry standards and regional variations but also staying updated with emerging trends that could affect salary expectations.

By understanding the market value for each role, you can make data-driven decisions when determining salaries or giving raises—which in turn cultivates a more motivated and committed workforce.

Explain Company Pay Structures

Having an open conversation with employees about compensation can help build trust and demonstrate a commitment to fair treatment. By explaining pay structures, you help manage expectations and reduce misconceptions.

When communicating pay structures to employees, transparency is key for building trust and engagement. Provide clear explanations of how base pay and additional benefits are determined to help employees understand the link between their performance and compensation.

Conduct Pay Audits

By actively monitoring pay practices and conducting regular payroll audits, you can proactively address any disparities and take steps toward rectifying them. Gather data on employee demographics, such as gender, race, ethnicity, and age, to uncover potential discrepancies in pay based on these factors.

Additionally, evaluate job roles and responsibilities to ensure that similar positions are being compensated fairly regardless of employee characteristics. By analyzing compensation with an unbiased lens, you can gain valuable insight into potential areas for improvement while maintaining an inclusive work environment for all employees.

Adjust Pay Scales

When you bring on a new employee with a higher salary than your current employees, you may need to adjust existing pay scales. If your budget allows, consider giving loyal employees a retention incentive. This can be a raise to their current salary or provide another incentive, such as a one-time bonus.

You can use salary comparison tools to help you gauge industry standards and determine if your current employees are being paid fairly. Additionally, compa ratios are a useful tool for assessing pay equity and competitiveness.

Create Company Policies

Make sure your policies include pay transparency and documented growth plans. This lets your employees know how they can work toward achieving a higher salary based on performance and merit. This language does not have to be an individual policy but should be included somewhere in your employee handbook.

Address Employee Concerns

When your existing employees voice concerns about salary, it is important to address them immediately. It’s important for companies to create avenues for open communication about compensation. This allows employees to voice their concerns or provide feedback regarding pay structure.

Ensuring Legal Pay Practices

There are several legal considerations that employers must keep in mind to ensure compliance and fair treatment of employees.

Equal Pay Act

Be aware of the Equal Pay Act, which requires that men and women be given equal pay for equal work in the same establishment. Paying different salaries to employees performing the same job may lead to potential discrimination claims based on gender, race, or other protected characteristics. Employers need to ensure that their pay discrepancies are justifiable and not rooted in any form of unlawful discrimination.

FLSA

Be sure you are following the Fair Labor Standards Act (FLSA), which sets standards for minimum wage, overtime pay, recordkeeping, and youth employment. Employers must ensure that they are properly classifying employees as exempt or non-exempt from FLSA regulations to avoid costly violations.

Unconscious Bias

Despite your efforts to promote equality, unconscious biases can still influence decision-making processes related to pay and promotions. To address this, implement structured systems for evaluating performance and determining compensation without the interference of biases. Additionally, provide diversity and inclusion training for managers and HR professionals to help them recognize their biases and make more objective decisions when it comes to pay.

Bottom Line

The issue of new hires getting paid more than existing employees can bring to light pay discrepancies, which can lead to employee dissatisfaction and hurt overall morale. While you may offer higher salaries to attract top talent, addressing it through transparent communication, compensation adjustments, and opportunities for advancement, will create a more equal and harmonious work environment.

New Hires Getting Paid More Than Existing Employees—Why It Happens & What to Do