Two-tier system
Type of payroll system / From Wikipedia, the free encyclopedia
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A two-tier system is a type of payroll system in which one group of workers receives lower wages and/or employee benefits than another.[1]
The two-tier system of wages is usually established for one of three reasons:
- The employer wishes to better compensate more senior and ostensibly more experienced and productive workers without increasing overall wage costs.
- The employer wishes to establish a pay for performance or merit pay wage scheme that compensates more productive employees without increasing overall wage costs.
- The employer wishes to reduce overall wage costs by hiring new employees at a wage less than the wage of incumbent workers.[1][2]
A much less common system is the two-tier benefit system, which extends certain benefits to new employees only if they receive a promotion or are hired into the incumbent wage structure.[3][4][5]
That can be distinguished from traditional benefit structures, which permit employees to access a benefit, such a retirement pension or sabbatical leave, after they have achieved certain time-in-position levels.
Two-tier systems became more common in most industrialized economies in the late 1980s.[6][7] They are particularly attractive to companies with high rates of turnover for new hires, such as in retail, or with many high-wage, high-skilled employees about to retire.[8]