Hiring freeze is one standard cost-saving measure taken by smart companies. Financial challenge is one of the primary reasons why companies go for it. The process involves temporarily stopping the hiring process, except for some critical needs. It helps companies to reduce their expenditures. A hiring freeze has been implemented frequently in recent years. The economic uncertainty during the pandemic and reduced consumer spending seems to be the reasons for it. However, there are some consequences of hiring freeze and benefits as well. Let us dive into the article and see how it works.
Table of contents
- What is a Hiring Freeze?
- Hiring Freeze: A Glance at the Types
- Hiring Freeze: The Reasons that Lead to it
- Hiring Freeze: The Effects on Current Employees
- Hiring Freeze: The Darker Side
- Hiring Freeze: Summing it Up
What is a Hiring Freeze?
A hiring freeze is when a company puts a halt on hiring. The question that must arise in a novice’s mind is how and why does a company abruptly stop hiring new employees? The simple answer is economic and financial instability. They also do this when they need to cut costs, and a hiring freeze seems to be the simplest solution. It is a common practice amongst companies because it helps them get over the financial crunch and get back on track.
Hiring Freeze: A Glance at the Types
It is essential to know that there are several types of hiring freeze. They all differ from each other and have different purposes. Listed down are the types of hiring freeze.
Complete Hiring Freeze
As the name suggests, this type of hiring freeze prohibits all hiring. There is no room for hire, regardless of the position or level of urgency. The complete hiring freeze is typically a response to severe budget cuts or financial crises. It is one serious case of an economic downturn.
Partial Hiring Freeze
The partial hiring freeze is one where the company does not stop hiring in all departments. Instead, it chooses to halt the hiring process in specific departments. For example, the company will continue engaging in critical departments like logistics but will not hire at non-essential positions. This is one strategy where they demarcate between critical and unimportant roles. Companies implementing particle hiring freeze tend to come out of the financial crisis soon.
Limited Time Hiring Freeze
Limited time hiring freeze is when a company sets a time limit to a hiring freeze. They have start and end dates when they will resume hiring again. The limited-time hiring freeze does not affect the company long term because they have their schedule set. The schedule lets them get a hold of many things, and they remain in control.
These are some of the types of hiring freeze. A company with the apt knowledge of running a business will know they have to assess the situation before implementing a hiring freeze. They cannot be irrational because the hiring freeze affects the company for longer.
Hiring Freeze: The Reasons that Lead to it
There are certain circumstances under which a company decides to freeze hiring. Here we discuss some of the reasons why companies opt for a hiring freeze.
Market condition is a key decision maker when it comes to implementing a hiring freeze. Revenue generation and overall profitability highly depend on how the market conditions are. If the conditions fluctuate and hinder the smooth running of a business, companies see it as a threat. This threat forces the companies to go for a hiring freeze until the conditions are back on track or are stable.
Some market conditions like economic slowdown play a crucial part. Companies want to reduce costs and conserve resources in such market conditions. All of this is possible when they opt for a hiring freeze. Moreover, changes in regulation, such as increased taxes, are one type of market condition the companies have to deal with.
Budget deficit is one of the common reasons why companies go for a hiring freeze. When they investigate the overall financial situation and the possible downturns, they hold off hiring new people. However, this also falls under the category of delayed hiring. They slow down the hiring process until there is a significant improvement in the company’s finances. This makes sense because you should not be expanding your team when your company is already going through a financial crunch. After all, it will cost you a lot of money.
Global crisis is another major reason why companies go for a hiring freeze. One of the latest examples we can take a look into is COVID-19. We saw how the world suffered from different problems due to the pandemic. It impacted almost every business, and there was no escape. In such a global crisis, companies stop hiring new people. They keep on reading and assessing the global market before they start hiring new employees again. Their main concern during this crisis is to maintain their current team with them instead of hiring new people.
The decline in liquid assets is also one prominent reason companies will go for a hiring freeze. Liquid assets are easily converted into cash in a short period of time. Cash, market instruments and marketable securities are a few examples of liquid assets. A company can use liquid ratios to investigate liquidity issues.
Now, the question arises about how well a company seeks solace in the hiring freeze option. When companies become aware of such liquidity concerns, they stop hiring employees because it helps them focus on their current teams and how more profit can be made. Even during a hiring freeze, the primary purpose of the management is to grow as a business.
Hiring Freeze: The Effects on Current Employees
The effects of a hiring freeze on employees can be of different natures. We all agree that there are different types of employees. Those who like to take up the additional work and those who hate it. A hiring freeze means that there will be some extra work that has to be taken care of by the current employees.
The company management may want to speed up the work because they are already going through hard times. Some people will not like how the culture may transform into something they had never imagined. However, we will look into some positive and negative effects.
The Value of the Employee Increases
When a company stops hiring or goes for a hiring freeze, they have trust in their current employees. A company now needs employees more than before because they will solely depend on the existing employees. They will want to see how each employee makes an effort to take the company out of a dark tunnel. There is a reason why they would stop hiring and have faith in the current team.
Another thing to be taken out of this assessment is that now is the time for employees to shine. They have the opportunity to showcase their skills and save the boat. There is a positive side to everything, and it is beneficial to focus on it.
The Maximised Focus on Team Building
A hiring freeze means that no other person or group of people can deal with it. Employees can focus on strengthening their relationships with the current team force. It is a good time to help each other out and see how you can contribute to the company’s growth. Also, if employees take a more humble approach, this is the right time to dive into the tasks and learn from your coworkers. Shedding off your egos and creating an environment where everyone learns from each other is what great companies and employees are made of.
Fear of Termination
Some effects are detrimental to employees. For example, the fear of termination may increase in some employees. This fear comes from the insecurity that the company is in bad shape and may want to terminate some employees. Those who are already underperforming will have a hard time settling around the breeze of the hiring freeze. They may be threatened by how things are going, and they may also start messing up their work out of fear.
The Morale Goes Down
The morale of the employees is deeply affected by the hiring freeze. The stress and frustration unhinge them, and they feel they are not advancing in their career. There is a decrease in their perks and benefits when a company faces a financial crunch. The perks such as paid time off and health insurance are now in danger, and they feel discouraged. They also cannot maintain a work-life balance, affecting their mental health.
Hiring Freeze: The Darker Side
Now that we have seen some positive effects of the hiring freeze on the employees, let us see how it has some dark sides regarding the company’s reputation. Here are some things that can harm the company after the hiring freeze.
Companies cannot survive without having creditors or other companies willing to do business with them. A hiring freeze indicates that the company is going through some financial issues, which will put the creditors in some doubt about the position of the company. The financial crunch may not have caused the hiring freeze, but other companies will always assume finance to be the primary cause.
The news about a company’s hiring freeze spreads like wildfire and can be exposed to bad publicity. It not only affects the current situation but also impacts the company’s future. It will lose its market position, which is one nightmare for any company.
Shrinks the Chances of Profitability
A company’s profitability takes a hit after they choose to go for a hiring freeze. The reason is simple. There are no new hires who could expand a company’s chances of growing. Hiring freeze may help to curb the costs, but they also decrease productivity. When there is no productivity or revenue, the company gets stuck in the middle of nowhere.
Chaos of Burden
It is common to assume that the hiring freeze will be chaotic. The current employees will have to bear the brunt of the hiring freeze because they will have to take on additional tasks themselves. Increased tasks and responsibilities will tire the employees, and there will be employee burnout. The burnout will put the company into a darker and deeper hole because they will lose productivity.
Everything is interconnected when we see from a distance. A company cannot just decide to stop its hiring process without evaluating the effects of this action on its employees. There must be a middle ground where a company can control the hiring process while understanding the other crucial factors, such as the mental health of the current employees.
Losing employees is also one of the dangers of a hiring freeze. Employees get drained and tired because there seems to be no way to get a promotion. Their workload increases daily, but they do not see any chance of upgrading their position in the company. It is easier to understand this point by imagining how the culture must become after a company stops hiring.
The hiring freeze typically indicates that the company does not have the financial resources to hire new employees and puts all the pressure on the current employees. The low esteem that erupts in the employees is one reason why they quit their job, and the company suffers even more.
Loss of Talent
As the company suspends hiring new employees, it is susceptible to losing many talented people. There will be times when someone extraordinarily qualified and well-trained comes to find a job with the company, but they will be helpless.
The talent drain can cause them harm they cannot imagine. It also leads us to see how it will impact the competition. Companies are always competing against each other in recruiting top talent. A company that does not have the financial capacity to hire will always suffer.
Hiring Freeze: Summing it Up
A hiring freeze can have significant consequences for the company and the employees. A complete or partial hiring freeze can lead to increased workload and stress for employees still working for the company. A hiring freeze can limit a company’s ability and chances to retain and attract top talent. The lack of new talent impacts a company adversely. We must mention here that a hiring freeze is a critical step in certain situations.
However, we also believe that companies should weigh a hiring freeze’s potential risks and drawbacks. Once they are well planned and have a clear path by knowing the benefits and disadvantages of the hiring freeze, they will be able to ultimately minimize the factor of crumbling. Monitoring the drawbacks is also vital for the well-being of the employees as they are the backbone of any company.
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