A hiring freeze is a great way for companies to reassess their long term financial stability while eliminating increasing payroll costs in the present.
Many companies put into place a hiring freeze when they are facing financial difficulties. This could be the result of budget cuts, industry disruptions, or even economic downturn.
What Is a Hiring Freeze?
A hiring freeze is a temporary halt in all hiring activity of an organization for a certain period of time. It’s intention is to reduce any future payrolls costs, and is usually the first step a company takes when in financial downturn.
If a hiring freeze isn’t successful, many organizations will take the next steps to actually start eliminating payroll costs through either a voluntary or involuntary reduction event.
There are many different things to consider when thinking about implementing a hiring freeze. But before we dig in deep with the details, make sure to download our sample hiring freeze announcement template:
Okay, now let’s dig in.
Hiring Freeze: Things To Consider
There are several opinions about whether hiring freezes are actually a good tool for companies experiencing financial downturn.
In an article for Talent Economy, CHRO Joni Duncan talks about some of the negative consequences:
“In general, I think that hiring freezes may work as a short-term fix,” Duncan said, “but you end up either hiring those same people or sometimes hire more because needs are created during the time that there are freezes.”
While good in their intent, hiring freezes can actually cause more issues than they solve. If a company is in financial downturn, creating more long term problems with a hiring freeze might not be the solution.
Here is some more insight from Duncan about the results of a hiring freeze she implemented at her healthcare organization:
“As a result, managers pushed back, saying they weren’t staffed properly to care for patients, which led the hospital to offer flex or premium pay for existing workers to cover additional shifts. Additionally, some employees felt overworked, which hurt morale.”
Just like with Duncan’s real life example, a hiring freeze can actually create more cost for an organization than what it is worth. Take, for example, a technology company experiencing financial downturn.
That company may have an R&D team that is working fervently to release a new product that will dramatically increase revenues. If a hiring freeze is implemented, that team might be delayed in their launch to market of said new product, which could actually cause the organization to lose money.
In situations like this, it is important for your executive team to have an understanding of the entire organization. That way they can create exceptions to the hiring freeze for essential revenue-driving personnel.
Similar to layoffs, hiring freezes can also create a negative environment that leads to less productivity, which then results in less revenue for your organization.
Deniz Caglar, the a principal at PWC, has experience with this:
“Another such unintended consequence of freezes is the negative message the move may send to employees. If, for instance, employees recently celebrated a company success, followed shortly by a hiring freeze, they could be easily confused as to the true standing of the organization.”
As to not cause said confusion from your employees, it is important to announce the hiring freeze with some context. Of course, this does not mean that you should lie about the reality of your organization’s financial situation. But if you are implementing a hiring freeze for only one area of your organization because you are looking to phase out a product, or to cause a structure change in a department that has high turnover, you should communicate that to your staff in a way that does not ring an alarm bell.
Without providing this context, your staff will automatically think the worst.
Not only could a hiring freeze create a negative environment that reduces morale, it could also lead to higher turnover rates of your top talent. Since it is fairly common knowledge that a hiring freeze could mean trouble in paradise, many of your top performers could see this as an omen and start looking to leave the organization.
While this could reduce payroll, it could also reduce the amount of revenue coming into your organization if your top performers leave.
Because of all of these considerations, many organizations considering having a hiring freeze because of financial downturn will opt out of having one to instead have a voluntary layoff. This will allow people who want to leave the organization the ability to do so, which could actually improve morale and thus revenue.
While there are a lot of negative aspects of a hiring freeze to consider, there are still some very positive ones.
Overall, a hiring freeze is received much better by employees and the public than a layoff event. Also, if executed correctly it can save the company enough cash to start to recover from a financial downturn. Finally, it can also result in employees being more savvy in their jobs, and compiling work duties that normally would have resulted in an increase in headcount.
How To Announce A Hiring Freeze
So, you’ve reviewed all of the considerations, and have decided that you want to go forward with a hiring freeze. Well, how do you announce it to your organization?
The most common way is to send out an internal memo to your staff explaining what a hiring freeze is and why it is occuring at your organization.
To download our sample hiring freeze announcement, just click the button below.
Remember, though, we are not lawyers. Please make sure to review a hiring freeze announcement with your legal team before releasing internally to ensure that you comply with all local, federal, and state laws.
Here are the things you need to include in your hiring freeze announcement:
- A simple greeting, such as “Dear [insert information] employee”
- A date
- Background about the financial situation of the organization, and steps that have been taken to assess and correct any issues before this hiring freeze
- An announcement of the hiring freeze, including why this choice was taken
- Information about how exceptions to the hiring freeze will be handled
- Information about how long the hiring freeze will be (if this is known)
- A high level overview of how the organization plans to monitor the effectiveness of the hiring freeze
- Appreciation for the employees continued hard work and dedication to the organization
- A simple signature from the top executive
In today’s information driven age, it is almost a guarantee that this memo will be leaked to the press. Because of this, make sure that the language in the memo corresponds with your brand and does not paint the organization in any bad light. A leaked negative memo is an easy way to scare investors and plummet your organization’s stock.
And speaking of the press…..
As with all events that can shine a negative light on an organization, it is important to get out in front of it to control the narrative.
The best way to do this is to create a press release to go out on the same day as your internal memo. This press release should explain that your organization is having a hiring freeze to to ensure it’s long term financial success.
Since there is a direct correlation between employer brand, retention, and recruitment, crafting this press release should be given special attention. You should have your communication and PR team work on it, with the advice from your legal counsel to ensure compliance.
Talent Management During A Hiring Freeze
Keeping your staff motivated and productive during a hiring freeze is vital to the long term health of your organization. It's a common pitfall for organizations to announce a hiring freeze and then actually see worse overall company performance because of low morale and productivity.
There are several ways to combat this if your managers are given proper training. Make sure that these strategies are communicated well throughout the organization prior to, and several times throughout, your hiring freeze to ensure that the freeze can be as successful as possible.
- Take measures to keep your team calm. It is a normal reaction for team members to become stressed out about the announcement of a hiring freeze. They will wonder if their job is secure in the long run, and they will worry about how their team will split up work left undone because of open positions on their team. Managers should listen to all of these fears and take measures to calm nerves. This doesn’t mean lying to your team, and you shouldn’t make promises that you can’t keep. But just listening to them and communicating about short and long term plans will help to ease this nervousness.
- Executive leadership and HR should communicate the company’s vision and mission throughout this time. If employees have something bigger than themselves to buy into, than they will be able to dig down deep to find that productivity level that will really turn the organization around.
- HR should put in place recognition programs to ensure that employees feel appreciated throughout the hiring freeze. This will increase productivity, and will also deter nervousness if employees are able to see that the organization and individuals within the organization are achieving goals for the betterment of the bottom line.
- Finally, on an organizational level there needs to be communication about the hiring freeze. (Not just on a team level from their managers.) Employees need to know how the organization is doing against its goals, how long the hiring freeze will be, and if there are any changes to the organization’s long term plans. This transparency will also calm nerves and help employees to be more productive as they feel that they have a stake in the current growth trajectories of the organization.
How To Evaluate Your Hiring Freeze
There is a lot of content online about how to announce a hiring freeze, but very little information about how to evaluate the success of one. To ensure that your hiring freeze is successful, your organization should continuously monitor not only your financial performance, but also other metrics associated with the growth of your company.
Knowing what metrics to monitor depends on the reason for your hiring freeze. If your organization is using a hiring freeze as a financial band-aid while you prepare for a reduction event, it might not make sense to spend a ton of effort monitoring the following metrics.
But if you are looking to use a hiring freeze as a solution to your financial and talent problems, then it is important to pay attention to the following metrics:
- Employee Productivity
- Employee Morale
- Employee Turnover
- Online Employer Brand
- Percent Increase In Profit
- Cash Flow
The simplest way to measure employee productivity and morale is to send out an employee engagement survey before announcing the hiring freeze. This is fairly easy to do with a tool likely SurveyMonkey. They have several different survey templates for this purpose.
After getting the initial response, send out the survey again in a set cadence to determine if your overall productivity and morale have improved or gotten worse throughout the hiring freeze.
You can also use a survey to measure your employer brand in the communities where you work. Tools like SurveyMonkey have audience features that allow you to buy responses based on certain demographics. So, if you have a hiring freeze that is implemented in your three locations: Kansas City, Pittsburgh, and Philadelphia, you can buy responses from people in those locations at a fairly reasonable cost. Send out the employer branding survey before your hiring freeze, and then in a cadence throughout the freeze and afterwards to asses the damage it has done to your employer brand in the community.
Employee turnover should be watched very closely to determine if the hiring freeze is causing your employees to leave the organization at a quicker rate than usual. Then, compare this with your survey responses and also the increase or decrease in profit to see if there is any causation or correlation.
Finally, research your online employer brand. Create Google Alerts for your organization to watch what is said about it online. Use a tool like Mention to see when your organization is talked about on a social media platform. And monitor your Glassdoor profile for any new reviews or changes in your score.
What Comes After a Hiring Freeze?
As mentioned earlier, a lot times a hiring freeze is used as a band-aid for an organization in financial downturn. Executives announce a hiring freeze as a way to stop the hemorrhaging of money while they prepare for bigger reduction events.
In this case, after a hiring freeze your organization should have a 12-month plan to reduce payroll costs further. This could be done through a voluntary layoff event or through a permanent reduction.
If permanently losing large amounts of human capital scares you, your organization could also try a furlough or unpaid sabbatical. These would allow your employees to leave the organization for a predetermined amount of time, saving you payroll costs over the short term to get out of a financial downturn.
If you decided to go this route, make sure that your organization can fully recover after a furlough or paid sabbatical. For example, if your industry has been completely disrupted and you have to shift strategies to stay relevant, a lot of your employees won’t have the skills necessary for this shift. In this case it might make more logical sense to eliminate their positions permanently in hopes of getting different skilled workers that can add more value in the long term, as opposed to the short term gains of smaller payroll costs.
Now, if your organization instituted a hiring freeze as a mean to an ends, your steps forward will be significantly different. First, you will want to institute a hiring plan that assumes a normal growth rate for your headcount. It is normal for managers to start hiring like crazy after a hiring freeze ends, for fear that soon another hiring freeze will be implemented and that they will once again not be able to hire the talent that is needed.
This hiring frenzy can cause recruiters and hiring managers to make poor talent decisions out of haste, as well as ignore the synergies that may have been produced while the hiring freeze was active.
For example, if Todd, a hiring manager of a merchandising team at Jayhawk Retail hastily hires 6 new workers after the freeze. This can cause major impacts. First, if Todd did this out of fear for future hiring freezes, he probably did not hire the best talent out on the market. This can actually lower productivity and organizational revenue (the opposite of what your hiring freeze was trying to accomplish). And second, Todd might act so hastily that he doesn’t review the own flow of work within his team.
The hiring freeze obviously made his team reassess their duties and work more efficiently, so they might not need 6 more team member with this new flow of work. They might be able to get by with only 3 new team members. But, if your executive team didn’t properly train Todd on the pitfalls of hiring after a freeze, he may fall susceptible to this and cause more harm than good for your organization.
Your executives should also take precautions to make sure they a hiring freeze does not happen in the future. There should be a full assessment done as the causes for the financial downturn, that way they can be avoided in the future.
Unfortunately, this may mean that certain departments, or beloved product lines, need to be eliminated. It could also mean that your organization needs to find a way to redeploy its resources (human, infrastructure, or capital) in a different way to increase overall profits.
Executives needs to take ownership of this process or another financial downturn will occur, and probably an even worse one than before. Continued hiring freezes, or reduction events, have horrible effects on employee morale and productivity. Because of this, special importance needs to be given to these concerns after a hiring freeze.