Tiered Pay Plan Law and Legal Definition

A tiered pay plan is a wage system that distinguishes the salary based on time of hire and work performance. Aiming to control labor costs, many manufacturers back in the 1980s established two-tiered wage systems that pay new hires less than established workers. Some companies signed labor contracts that permanently lock in new workers at lower rates, while others, allowed new hires to escalate to full wages over a few years.

Today, two-tiered wage systems aren't as popular as they used to be. Unions, which were willing to accept them in the 1980s, when unemployment was high, have opposed them. Union leaders complain that tiered pay systems hurt workplace morale by creating two classes of workers. Two-tiered systems fuel resentment between younger and older workers, they argue.