Just install it so the seal is level with the outer edge.

I like to do things in groups. In our summer it gets very hot and humid and working in the evening is out of the question. It is so nice now I'm catching up a couple of projects. I keep 5 gallon buckets and drop removed parts in that are getting replaced. I'm working on 30 diff side covers. Half yoke type and half rod change style. Clean remove seal and bush glass bead clean again the press in new bushings and align hone to .001 clearance. Yesterday I stripped a bucket of S CV s flushing grease out and taking them apart to clean and place parts in plastic small containers. I will inspect each then tape the bearing area glass bead the bell area and paint the bell. I hope by keeping the different brands together some parts may interchange within brands. I have found removing the pot and CV from the axles glass beading wire brushing an place in lathe I can check for any run out and paint with lathe in back gear turning slowly. Can lay paint on thick and it will dry even then bake and place on shelf. It would be nice to find a source for the pot joint o ring which is very tiny cross section. If I have enough bearings I will be building 10 disc brake hubs today. Each has been removed from a car, seals and bearings removed inner and outer races all tie wrapped together with spacer. Also the ball joints are removed as well as steering arm. The caliper and disc were removed earlier. 

As for your question about the hub, There are some bearing with a built in spacer. They may be the ball bearing type used with drum brake hubs. I have always tried to get Timken bearings. The tapered roller bearing type normally comes a spacer. I have a jig I place in a big vise and bolt the hubs to it by the caliper ears. I drive in the outer races careful to keep the bits in the order they came out of package. I the place the inner races with spacer in dry and use a old CV to pull them together. I just hit the 1 5/16 nut with a impact. Should be able to till if it's going to be to tight, to loose or just right. I use a dial indicator to check for play. I have saved all old bearings and spacers over the years. I also have a length of tube correct dia. to machine my own spacers if needed. I have noticed some bearing kits coming with a seal spacer as part of the kit. Again I found a length of tube to machine seal spacer from as required. It works out real nice if you have the OE thicker spacer for the inner seal and the thin spacer for the outer seal. Makes for much better seal alignment . 

I have two buckets of pot joints and I really hate cleaning and rebooting them. Off to buy a new tub of Red Line grease. Steve (CTR)

Having written the latest front bearing article for MiniMag, I can assure you that I fitted the spacer !

If you're talking about the rear bearing, then modern taper-roller bearings have a built-in spacer on the back of the inner race.

Whether or not you need a bearing spacer depends on how the bearing is made, not on new vs old.

It is necessary to control the distance between the bearings for them to have the correct preload and to function properly in the hub.  Some bearings are made with "standard" inner races and a precision ground spacer to go between them.  Other bearings are made with extended inner races that do not require the spacer.

Remember that if you buy new bearings that come with a spacer, you need to use THAT spacer with the new bearing pair.  Do not use the old spacer with the new bearings.  The spacer is machined to match the pair of bearing it is supplied with.  Don't mix the bearings parts or spacers.

What is the reason that inner bearing spacers are no longer needed, at least according to rebuild articles in Minimag and Mini World? I've replaced the bearings on the set of 1965 (I believe) hubs I have and they had spacers 7/32" wide, while the replacement bearings (Timken bought years ago) came with 3/32" spacers, though one article said replacement sets no longer come with spacers. When the axle nut is torqued to specs, is the 7/16" or 3/32" or 0/00" just tightened up correctly. Also how deep does the inner seal need to be placed into the hub--up against the inner bearing or out near the machined surface lip. I've done this procedure years ago on my '71 'S', but my 69 yr. old brain does not remember all of what I did. Randy