The NPCs will only adjust to your level the FIRST time you enter their map area:
Suppose, on your first trip through Beregost, you go into Kagain's house, recruit him, see that he's Level 2, take his nifty helmet, drop him, and leave. Much later in the game, when your party is all Level 5-6, you go back to Kagain--he's still Level 2.
But, if you never entered Kagain's house/store, you can go in there with a Level 5-6 party, and Kagain will be Level 5-6.
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Volothamp's Comeuppance
Everything you ever needed to know about the entire Baldur's Gate series......except spoilers.
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