Every entrepreneur expects their business will grow as well as possible, bringing the expected financial returns, building market position and staying ahead of the competition. However, such a situation does not always occur (due to both internal and external factors), in which case it is necessary to look for ways to get through a worse period. One of the solutions that companies can opt for is the so-called hiring freeze. Below we describe this phenomenon in detail and explain the most popular reasons why companies in various industries decide to do just that
3 reasons why companies opt for a hiring freeze – table of contents:
- What is a hiring freeze?
- What are the reasons for a hiring freeze in an organization?
- Hiring freeze – summary
What is a hiring freeze
The term “hiring freeze” refers to a situation in which a company – for individual reasons – decides to stop recruiting new people, which can be both temporary and permanent. In practice, this means that the organization refrains from filling positions in case of employee layoffs and does not open new recruitment for previously non-functional positions. The consequences of such a decision are felt by employees, partners and other stakeholders, as well as the company as a whole (since usually such an action leads to a halt in the pace of development), so each time it must be properly thought out and examined in terms of the possible results it will bring in both the short and long term.
What are the reasons for a hiring freeze in an organization?
The decision to freeze hiring in a company will always be primarily driven by individual reasons related to the current condition. However, it is possible to identify the 3 most typical situations in which companies are likely to implement a hiring freeze, hoping to improve their performance in this way. We list them below.
- The need to reduce costs
- Economic instability of the economy causing uncertainty
- Willingness to examine and improve the current condition of the company
Recruiting new employees is undoubtedly one of the biggest cost-generating processes for companies in various industries – so when there is a budget deficit, it is necessary to put it on hold. If a company finds itself in a distressing financial condition (e.g., due to a drop in sales, disrupted cash flow, bad investments, etc.), its managers will have to look for various ways to stay afloat – a hiring freeze to improve the situation will be just one of them. The hiring freeze is an alternative to having to lay off some employees due to the company’s precarious or dire financial situation.
When the economy is booming, companies are eager to invest, innovate or plan overseas expansion (such development plans usually necessitate increased employment), wanting to make the most of favorable market conditions. It’s no surprise, then, that in the face of an apparent industry downturn or economic crisis – such as the one we’re seeing now due to the consequences of the 2-year COVID-19 pandemic – companies decide to adopt an entirely different strategy to cut costs and keep existing employees employed. One of the solutions that organizations will reach for in such a situation will be precisely to stop recruiting, hoping in this way to contain the negative consequences associated with the change in existing market conditions.
We indicated above that companies usually decide to freeze hiring in a situation of internal or external crisis – but the reasons for doing so are not always negative. Also in a stable situation (both within the company and in the market), hiring can be put on hold. For what reasons? To examine the current condition of the company, assess the real need for new employees, rethink the division of tasks in the team, conduct a financial audit or determine the position on the market and verify development plans (both short- and long-term).
In such situations, the hiring freeze is typically temporary, and the reopening of recruitment processes takes place after analyzing the situation and implementing changes in daily business practice. It can repeat at the company from time to time (e.g., during a period of lower interest in the products or services offered).
Hiring freeze – summary
A hiring freeze undoubtedly sounds worrisome to a company’s employees (especially for those in HR who deal with recruiting daily), but it doesn’t always have to indicate negative consequences. However, we should stress that making such a decision clearly shows that the company is aware of the situation it is currently in, what its needs are, and is looking for strategies to ensure improvement. Freezing recruitment for a shorter or longer period should therefore be considered as a solution to a problem related to internal or external conditions – and whether it brings the expected results will already depend on the individual condition of the company.