When an organization's financial outlook becomes uncertain, its immediate impulse may be to reduce costs through layoffs. However, organizations should consider layoffs as a last resort since they can create risks, such as legal liabilities, lower morale and employee distrust, and negatively impact business operations by decreasing productivity and proficiency. Instead, organizations may be able to minimize the need for layoffs by choosing to slow hiring or pause it entirely. This decision is known as a hiring freeze. According to a recent Fiverr International Ltd. survey, 85% of U.S. companies plan to implement a hiring freeze during the current economic downturn.

Hiring freezes allow organizations to curb costs, save money and potentially avoid laying off employees. This article explores the practice of hiring freezes, including when organizations use them, how they can provide an alternative to layoffs and how they may impact employees.

Why Organizations Implement Hiring Freezes

Organizations commonly resort to hiring freezes to cut costs in response to financial difficulties. As such, hiring freezes can be a proactive approach to minimizing the need for future layoffs. Hiring freezes may be short- or long-term, and they may result in organizations halting hiring completely or only filling their most critical job openings. For example, organizations may stop hiring for new roles, thereby keeping headcount fixed, or they may stop hiring new employees entirely. As a result, many positions are left vacant, and new positions are not created. Hiring freezes can also entail limiting or pausing all promotions and compensation increases, including bonuses.

While hiring freezes tend to be viewed as a tool used by struggling organizations, successful organizations may also implement hiring freezes when responding to an economic slowdown or recession, addressing overstaffing or protecting profit margins. A hiring freeze can also provide an organization the opportunity to evaluate how to improve hiring efficiencies and assess their long-term workforce needs.

Hiring Freezes Versus Layoffs

When attempting to reduce costs, layoffs tend to be an organization's last resort due to the negative impacts they can have on employee morale and the organization's brand. Layoffs also can expose employers to potential legal risks and liabilities since they often trigger litigation. Hiring freezes, on the other hand, allow organizations to reduce costs without having to terminate employees. In this way, they can be an effective alternative to layoffs.

Moreover, hiring freezes allow organizations to repurpose existing talent and improve internal mobility instead of letting employees go. A hiring freeze allows organizations to create career paths and grow opportunities for existing employees based on their skills. If a position is no longer necessary, instead of terminating that employee, a hiring freeze allows an organization the opportunity to reskill the individual for a different role that's needed. This is beneficial to both employers and employees as it allows employers to fill positions when hiring isn't an option and provides employees with career growth opportunities.

Addressing Employee Concerns

Although a hiring freeze has benefits that may be preferable to a layoff's impacts, it's still unsettling for employees. Hiring freezes can send a message to current employees that their employer is experiencing financial difficulties and, by extension, their employment situation may not be secure. Since many employees will likely be concerned about job security during a hiring freeze, employers need to address these worries. Communicating openly and honestly about the organization's situation and its reasons for implementing a hiring freeze can reassure employees and help regain their trust. Misleading or dishonest communications can also create potential legal risks for employers. Employers who fail to address employee concerns run the risk of exacerbating workplace morale and increasing employee anxiety.

While hiring freezes may be a proactive approach to avoiding layoffs, they can place additional strains on an organization's workforce. Hiring freezes tend to result in more work being performed by fewer individuals. This may negatively impact employee morale. As a result, some employees may choose to voluntarily leave or retire. Additionally, employee performance can decrease as workloads grow during hiring freezes. This can make a hiring freeze an unsustainable long-term solution. Organizations can address the increase in employee workload by hiring contract, part-time or temporary workers. This may help alleviate the strain a hiring freeze can place on current employees and improve an organization's morale. Assuring employees that their positions are secure and that there's an endpoint to their increased workloads can also be beneficial to morale.

Employers can consider providing employees with development opportunities during a hiring freeze. Since organizations cannot hire to fill vacant positions, they can use the opportunity to allow current employees to gain the necessary skills or cross-train to assume new duties or fill positions that would otherwise be left vacant. This provides employers with the flexibility to reorganize their workforce while increasing profitability and employee productivity. It can also increase employee loyalty and morale while reducing the need for layoffs.

Summary

When an organization announces a hiring freeze, it's generally not considered good news; however, its implementation can be effective when responding to financial difficulties or an economic downturn. Employers can use hiring freezes as a proactive approach to minimize layoffs while potentially increasing organizational productivity and profitability.

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This article is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.