Hiring Freeze

What Is a Hiring Freeze?

A hiring freeze is when an employer temporarily halts non-essential hiring of personnel to reduce costs, usually when an organization is under financial duress. Such a cost-cutting effort may also be undertaken by management due to a recession or other economic or market dislocation or crisis, such as one that causes production overcapacity or redundancy.

Hiring freezes may be short term or long term and are often used to otherwise avoid laying off employees. Hiring freezes may be accomplished by not filling open positions caused by worker terminations or natural attrition. In addition, no new positions may be created.

Understanding a Hiring Freeze

Hiring freezes can happen at struggling companies but also successful ones that have unexpected challenges to their balance sheets. A sudden economic downturn, catastrophic event, product failure, unexpected cost, or rise in costs may lead management to conclude that cost-cutting is the best short-term solution.

Hiring freezes allow companies to reduce or eliminate non-essential positions, in effect hitting a reset button on payroll expense growth. With hiring freezes, management may be able to restructure workgroups and consolidate employees to create greater efficiency in producing the essential goods and services for its customers. A company still must do everything it can to maximize revenue, even during a hiring freeze.

A hiring freeze may not mean that all hiring is stopped. Companies may still fill positions that are essential to meeting the demands of customers or for specialized job roles that are key to an organization's operations. Such positions are easier to fill with freelance, part-time, hourly (non-salary), or contract position workers, which allows managers to circumvent full-time hiring freeze rules. Even during hiring freezes, organizations need to maintain their core activities, such as product development, production, and sales.

Hiring Freeze Impact

A hiring freeze can put a strain on existing employees, as there might not be any replacements for individuals that leave the company (e.g., retirement, maternity leave, or regular turnover). This requires existing employees to fulfill the job responsibilities of vacant positions. If the situation gets too extreme, the overall performance may suffer, along with employee job satisfaction. This can also lead to employees leaving the firm if they feel the workload is too intense and they are not being compensated fairly.

A hiring freeze may also compel managers to retain low-performing employees rather than dealing with their underperformance, either through remedial action or termination. In addition, the hiring of temporary, freelance, or other casual employees may result in the clawing back of some of the cost savings of a hiring freeze, and may also create a lack of continuity or erosion of transferable job skills or intelligence when hiring resumes.