When Should You Implement a Hiring Freeze?

As tech companies announce mass hiring freezes, many HR managers are asking themselves if the Great Resignation is over.

The answer? Not quite.

An economic slowdown and credit crunch are forcing employers to take a 2nd look at their recruiting needs and practices. While some industries still face a massive employee deficit, others are making cuts.

In this article, we’ll cover a bit more about the current hiring freeze situation and how to best handle a hiring slowdown in your organization. Since freezes are often linked with reducing costs, we’ll look at optimizing HR, too.

Why is there a hiring freeze during a labor shortage?

Despite the vast number of open job positions, not all industries have suffered a work shortage. And with the potential of an economic downturn, many organizations are freezing their hiring efforts as they restructure departments or review their costs.

According to a LinkedIn Hiring Report, hiring was down nearly 6% in June compared to May. The hardest hit have been tech workers. Big tech companies like Google, Coinbase, and Microsoft have all frozen hiring efforts, with Facebook and Microsoft encouraging workers to leave or proposing layoffs.

The industries most affected by economic downturns

Every economic downturn is unique, but there are general trends regarding consumer spending and its effect on specific industries. Slower economic growth severely affects consumer-facing industries such as retail, restaurants, and hospitality. But it can also slow the growth of real estate, technology, and manufacturing firms.

However, the ongoing labor shortage and supply chain disruptions will likely limit hiring freezes and layoffs. Overvalued businesses, or businesses that have over-hired during the “good times,” are likely to be affected.

There is a silver lining for small businesses. If giant corporations use strategic hiring freezes, there is less competition for recruiting top talent. This allows companies to rely on lean but well-structured benefits packages.

What industries have increased hiring?

Even with the public fretting about the recession, some businesses are still ramping up hiring. In particular, the following industries have increased hiring since 2021:

• Education
• Entertainment providers
• Holding companies
• Oil, gas, and mining

And these organizations have continued to look for new hires since employees between May and June:

• Accommodation
• Education
• Farming, ranching, and forestry
• Holding companies
• Manufacturing

When is it time to implement a hiring freeze?

When a business experiences economic turbulence and stressed budgets, a hiring slowdown reduces immediate costs. A strategic hiring freeze gives an organization time to improve its financial position without resorting to layoffs.

Directives for hiring freezes usually come from senior management, and on average, they last around 3 to 6 months. Depending on your industry and the economy, they can last even longer. If asked to implement a hiring freeze, it’s best to take care to handle it appropriately.

How do you handle a hiring freeze?

While not as emotionally provoking as layoffs and furloughs, a hiring freeze still stresses an organization.

Departments in need of new workers must continue to increase the workload of current employees. At the same time, candidates already in your recruiting funnel, some with acceptances, may now feel like their time was “wasted.” Poor management during a hiring freeze can result in additional stress and reputational damage.

To handle a hiring freeze effectively, it helps to follow these best practices:

1. Be transparent about the hiring freeze.

It’s important to inform current employees and hiring candidates about the freeze in polite, considerate terms. Facebook and Google managers made a significant error when encouraging staff to leave, as some employees found the pressure rude and threatening.

It would be wise not to take the same route.

Instead, be open about the reasons for the hiring slowdown and give an approximate time frame. You may also offer potential candidates if they want you to keep their applications on file for when hiring resumes.

2. Ask for employee feedback for restructuring.

One of the main stressors of a hiring freeze is the increase in workload current employees experience. It may help to ask for feedback about their current struggles — the last thing you want is your staff to burn out.

Together with the on-the-ground workers, management, and your HR team, you may be able to find cost-effective solutions. This can come from automation, temporary independent contractors, or rebalancing position responsibilities.

3. Nurture your employees.

A hiring freeze is an ideal time to shift your focus from recruiting to employee retention. This is when you should review benefits packages, commit to performance reviews, reward star employees, and develop career growth opportunities.

4. Refine your recruiting processes.

Once you’ve ensured your current employees have everything they need, it’s time to revisit your recruiting process and prepare for future hires. This can include revamping your employee onboarding process, shifting to more cost-effective software, or developing an employee referral strategy.

It’s important to remember that while hiring is no longer the focus of your organization during a freeze, it shouldn’t stop completely.

It’s important to remember that while hiring is no longer the focus of your organization during a freeze, it shouldn’t stop completely. The related processes and accounts, as well as a pending list of open positions, should be kept ready.

5. Keep a list of essential and non-essential roles.

In some cases, some positions absolutely must be filled for operations to continue. These key roles should be prioritized, even with a hiring freeze.

That said, it may be worth it to consider hiring from within the organization during an economic slowdown. This can boost employee morale, trust, and productivity while ensuring critical positions are filled.

Look into optimizing HR costs to save money

Many hiring freezes result from budget deficits — particularly for employee salaries. As a result, HR professionals must carefully monitor the numbers and stay in sync with different departments.

At the same time, it can help to reduce costs and superfluous processes within HR itself. Some ways to streamline HR efficiency while lowering costs are:

Digitization and automation

Payroll, onboarding, employee feedback loops, PTO scheduling, timesheets — all of these repetitive HR tasks can be digitized and automated. Reducing time on manual tasks translates into reduced expenses due to fewer errors, corrections, and time spent on low-value activities.

At the same time, your HR team can focus on high-value, meaningful work, such as drafting benefits strategies and resolving workplace conflict.

Improve retention

The cost of employee turnover can be up to 150% of an employee’s salary and up to $1,500 per hourly worker. Hiring freeze or not, high turnover rates cause a hemorrhaging of money. Creating a sound benefits package and a healthy employee workplace can help deter employees from leaving.

Implement employee self-service strategies

Employee self-service for items such as PTO scheduling and benefits selections considerably reduces the workload for the HR team. At the same time, it simplifies otherwise tedious processes for everyone involved.

Prioritize internal promotions

Outside hires can cost the company 18-20% more, and they have higher exit rates. Focusing on internal promotions instead can reduce costs, boost employee morale, and improve productivity. When employees feel that they can progress from within the company, they are more likely to stick around.

Staying remote

Yes, some employees miss the office. But forcing workers back to the workplace increases costs and potential turnover.

Returning to “office-only” setups could result in losing up to 39% of your workforce. Instead, it’s better to maintain remote-friendly options, a hybrid workspace, or a flexible working schedule to accommodate employee needs.

Stay on top of your HR game with these resources

Whether you are slowing down on recruiting or still feverishly posting job ads, we have you covered. We know that HR professionals and hiring managers have a lot on their plates. It helps to have templates and resources to make hiring and retention easier.

To take your HR processes to the next level, check out these complimentary checklists, guides, and toolkits:

• The Ultimate Recruiting Toolkit: how to source, hire, and onboard talent
• Employee Retention Strategies: An HR Checklist
• Hiring and Managing Freelancers and Independent Contractors
• Evaluating the ROI of a New Employee