Is that the wisest course? There are indications that it isn’t.
For starters, an overqualified candidate may have been out of work for an extended period, and be anxious for any job they can get. Or perhaps they’re newly retired and bored, but reluctant to take on a job that involves too much in the way of pressure or stress. These people have to eat too, after all, and if you’re willing to take a chance and hire them, you’ll find that they’ll serve well and loyally.
Additionally, you can bet that they’ll perform well in the position. They are, after all overqualified, and as such, it won’t be difficult for them to master the job and wildly exceed your expectations. Even better, their skills tend to “rub off” on those around them. Their enthusiasm for the position is infectious, and their knowledge diffuses through the rest of the team they’re working with, increasing the productivity of the group as a whole.
The main thing is to come to some understanding about why the overqualified employee is applying for the position. Once you can get a handle on that, you can predict, with a fair degree of accuracy, if they’re interested in the job for the long term, or if they’re just planning to use it as a way station – a paycheck until something better comes along.
Hand in hand with that, you should also take pains to provide a path for advancement. Sometimes that, all by itself, can completely change the equation. In any case, it’s probably a mistake to simply dismiss them out of hand. You might be passing over the next rising star in your organization.