Recruitment

Hiring Freeze: Reasons, Impacts, and How to Respond

19 February 2024

12 min read

Amanda Chua
Amanda Chua

A hiring freeze is a valuable indicator of a country’s market and can provide valuable insights into its economic conditions. According to CNBC, 20% of companies in Asia Pacific implemented hiring freezes in 2022, with 40% of them only recruiting for essential positions.

In this guide, we will explore the reasons and impacts of hiring freezes. We also provide strategies to help HR leaders navigate them, ensuring your business remains stable and financially secure.

What is a Hiring Freeze?

Hiring freezes are periods where companies refrain from hiring new workers. These freezes, which can be temporary or indefinite, are typically implemented to reduce costs. During a hiring freeze, companies do not fill vacancies left by departing employees and do not create new positions.

It’s worth noting that a hiring freeze usually impacts non-essential positions. In other words, companies may still hire employees for essential roles, work with freelancers, or hire part-time workers if it is cost effective.

By doing so, the critical business functions such as research, development, production, and sales can continue uninterrupted. Disrupting these core operations could lead to a decrease in revenue, which goes against the purpose of implementing a hiring freeze. 

So, the question is – why would companies resort to such measures?

Hiring freezes are often announced in response to financial difficulties, as a proactive measure to prevent financial strain, or as a response to economic slowdowns, recessions, overcapacity, and other market circumstances.

By minimizing operational and payroll costs during times of financial hardship, companies can avoid a more drastic measure for cutting costs such as layoffs and mass firings. 

Reasons for Companies to Implement Hiring Freeze

hiring freeze

As an employer, understanding the reasons for hiring freezes helps you decide when to impose and lift them.

Market changes

Market conditions may change, decreasing revenue and limiting profitability. As such, they might drive even the most successful businesses to cut costs via hiring freezes. Companies may choose to implement a hiring freeze if they anticipate an industry shift or in response to unexpected changes in market conditions. 

For instance, a significant increase in paper costs could impact the publishing industry, forcing a publishing house to implement a temporary hiring freeze due to financial constraints. 

Global crisis

A global crisis can have repercussions on businesses worldwide, leading even successful companies to implement hiring freezes. During these times, companies might halt non-essential recruitment globally while monitoring global trends, maintaining this measure until an effective crisis response plan is in place. 

For example, consider the impact of disease outbreaks, such as the COVID 19 pandemic, which significantly minimized domestic consumption and purchasing power. Coupled with containment measures, this resulted in a worldwide crisis.

Many governments and organizations, including the Philippines government, with its  ‘Bayanihan to Heal as One Act’, implemented crisis response plans. However, despite these efforts, many are still facing challenges. As a result, it is unsurprising that many companies implemented hiring freezes. 

According to the Business Inquirer survey, over 60% of responses in the Philippines anticipated negative business impacts from the pandemic, with half reporting that they have already implemented hiring freezes.

Budget concerns

Suppose you notice that your company’s budget is insufficient to cover additional salaries, benefits, and recruitment costs, and other hidden costs. In that case, you may decide to temporarily halt recruitment until the company achieves better financial stability. 

Implementing a hiring freeze allows companies to avoid laying off current employees and prevents budget deficits or overspending issues. To exemplify, you might find that the total cost of the hiring process exceeds your quarterly employee salary budget, it may be beneficial to impose a hiring freeze until the start of the new quarter or until the balance sheet is balanced.

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Potential liquidity concerns

Liquid assets are assets easily convertible to cash, including cash, marketable securities, and market instruments. These assets are crucial for meeting short-term obligations such as wages and vendor bills.

If you’re worried about insufficient liquid assets, review your company’s liquidity ratios for clarity. If the ratios confirm your concerns, consider allocating a portion of your salary budget to finance your current assets. Implementing hiring freezes can also serve as effective short-term solutions, but this should be viewed as a last resort.

Impending layoffs

As mentioned previously, implementing hiring freezes can help avoid drastic measures such as layoffs due to financial constraints. This approach is a key strategy for maintaining your company’s stability, providing much needed job security for your current employees during a challenging time. 

Picture this: your company faces some financial turmoil, leading to widespread anxiety among employees who fear potential job losses. By communicating that no layoffs will occur and that the freeze only applies to non-essential roles, you can ease their concerns. This approach is likely to increase their willingness to adapt to necessary structural changes, enhance their loyalty to the company, and reduce attrition rates.

Hiring Freeze Impacts

Understanding the impact of hiring freezes provides a multidimensional understanding of the situation and helps you prepare a robust change management strategy. Implementing hiring freezes have dual impacts, affecting both employees and companies.

Impact on employees

Upon announcement, hiring freezes provide employees with the job security they seek. Despite the company’s financial challenges, employees feel reassured knowing the company’s commitment to retaining them, thereby enhancing company loyalty. 

However, during a hiring freeze, some business responsibilities may be left unaddressed due to departing employees, with no plans to replace them. Instead, the additional workload is distributed among existing employees, potentially requiring them to work longer hours, which could lead to employee burnout

This increased workload underscores the importance of viewing hiring freezes as a temporary measure. It’s crucial to ensure that tasks allocated to employees are manageable and that they are fairly compensated based on their performance and efforts. 

Keeping the hiring freeze temporary is especially important considering the trend of job hopping among Gen Z and millennials, known as the “Great Reshuffle”. By keeping the freeze short-term, you can avoid decreases in employee performance, morale, and satisfaction, as well as increasing retention rates. Meanwhile, it’s essential to develop a more sustainable, long-term budgeting strategy

Impact on companies

As mentioned previously, prolonged hiring freezes can negatively impact overall performance and profitability, leading to increased turnover rates.

Additionally, a hiring freeze can signal financial difficulties to creditors and other companies, potentially impacting the company’s reputation and partnerships. 

During hiring freezes, managers may hesitate to address performance issues, fearing that employees will quit and not be replaced, further worsening the problem. Alternatives such as freelancing and outsourcing can be beneficial in the short-term but will be costly and counterproductive when trying to reduce operational costs. 

Temporary hiring freezes can help mitigate these consequences and even offer benefits. Firstly, they provide financial stability by reducing costs associated with salaries, onboarding process, benefits, and training, aiding in restoring financial stability. 

Secondly, a hiring freeze can enhance efficiency by encouraging management to restructure, train, and invest in current employees, optimizing internal talent and boosting morale. They also save time and energy by streamlining processes without the need for onboarding and welcoming new employees.

Lastly, temporary freezes allow for reflection on business goals and operations, as managers have the opportunity to assess current strategies and identify growth opportunities. This period of reflection can lead to revised plans, policies, and procedures, ultimately improving the company’s long-term outlook. 

3 Ways HR Can Respond and Handle Hiring Freeze

hiring freeze

1. Be proactive and transparent

Ensuring clear communication of the hiring freeze to your employees is crucial. Emphasize that their jobs are secure and that additional tasks are temporary. Utilize open communication channels, and 1-on-1 meetings to encourage cooperation. 

Prepare strategies to mitigate potential increase in performance gaps and decrease in employee engagement during the freeze. Stay interviews can be valuable tools. 

While questions asked during exit interviews help you understand why an employee is leaving, stay interviews tend to be more proactive. They involve speaking with current employees to understand why they choose to remain with the company. This insight into their values, perspectives, and priorities can inform the development of a targeted retention strategy. 

Finally, inform any promising candidates who were in the interview process about the freeze. Maintaining contact and providing regular updates can help nurture these relationships and can be beneficial for when the freeze is lifted. 

2. Support internal transfers

Internal job transfers occur when existing employees take on new roles within the company. Compared to external hiring, they require less time for hiring, onboarding, and training, making them a more cost effective option. 

Furthermore, internal transfers boost employee motivation by highlighting the opportunities for growth within the company. This aids in retaining high quality employees during hiring freezes. 

Most importantly, internal transfers allow you to streamline business processes and utilize employees’ skills and talents effectively. This minimizes stress and additional tasks for employees during the hiring freeze, preventing employee burnout. 

3. Maintain employee engagement

Given that hiring freezes can increase the workload of existing employees, there is a risk of reduced moral and employee engagement. Therefore, it is crucial to invest in employee engagement during a hiring freeze using various strategies. 

Need some inspiration?

According to Josephine Lanzarone, vice president of marketing, Asia Pacific, Pluralsight, “If there is no incentive for employees to remain in an organization, employers will be hard-tasked to sell-in roles to prospective talent in the first place—leaving or expanding gaps in teams and compounding the challenges they are tasked with addressing.”

She adds, “Much of what drives employee satisfaction, and therefore retention, benefits the organization itself. For example, 65% of all skilled professionals rate learning and developing new skills as the most important priority for them.”

Providing current employees with resources, coaching, and training, such as cross-training, which is cost effective, can help them handle their additional responsibilities. It is unwise to assume that employees will leave the organization after upskilling. By investing in their future, employees are more likely to feel engaged and remain with the organization. 

Another effective method of maintaining engagement levels during a hiring freeze is through active listening. Making employees feel heard through employee satisfaction surveys and performance conversations and promptly addressing their concerns demonstrates your commitment to their satisfaction.

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Finally, employee recognition and acknowledgement are essential, particularly when employees are putting in extra effort during hiring freezes. Utilize group channels, recognition walls, and weekly meetings to acknowledge outstanding individuals. Promote deserving employees and highlight the significance of the company’s work to help employees understand their role in the bigger picture and recognize the value of their contributions. 

Strategic Workforce Management with Omni 

While hiring freezes present challenges such as increased workload and potential morale issues, they also offer benefits like cost savings and the opportunity to optimize current talent. 

HR professionals play a crucial role in navigating these challenges, ensuring effective communication, employee engagement, and support for employees. Omni makes it easy for People leaders to manage workforce dynamics during hiring freezes through one, automated platform.

With Omni, HR professionals can leverage automation and expert created templates to build seamless processes to support each stage of the employee lifecycle, and manage each function in a centralized, easy-to-use platform. Omni’s data analysis and smart-reports allow you to derive real-time, actionable insights on your employee experience so you can build an award winning culture of growth, innovation, and engagement even during periods of hiring freeze.

Book a demo with our team today to learn more about how Omni can help uncover the insights you need to build a highly engaged workforce.

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