What is a Hiring Freeze? The impact of hiring freezes on the tech industry

Tek Experts -

6 min read

what is a hiring freeze?

As companies around the world prepare for an economic slowdown, many are adjusting their hiring approach, including major tech companies like Alphabet, Meta, and Microsoft who have all put a hold on hiring. But is this a wise move and should you consider doing the same? Understanding the answer to that question begins with understanding what hiring freezes are, how they work, and their impact.

What is a hiring freeze?

A hiring freeze is simply when a company decides to stop all hiring activities, usually in response to adverse economic conditions or an internal crisis at the company. This may be temporary or permanent in extreme cases. Often, a hiring freeze is implemented to avoid the need for layoffs.

In this way, hiring freezes often represent a choice to protect existing employees at the expense of potential new hires. An alternative could be to continue to hire for critical positions while laying off existing employees the business feels they can function without.

How do hiring freezes work?

While the basic answer to this question is in the name, the practical realities can vary quite a bit depending on the company’s approach. A freeze may mean that existing employees are unable to move up within the organization. It also might potentially result in existing job offers being rescinded. Hiring freezes may or may not coincide with budget freezes.

You will occasionally see companies utilize “soft” freezes in which hiring is paused for only non-critical roles.

How long do hiring freezes typically last?

A typical hiring freeze will last 3-6 months, however they can be as short as a few weeks or last years. As they are generally driven by difficult economic conditions, their length will typically correspond to the amount of times those conditions persist. Hiring freezes typically coincide with recessions, which generally last about 10 months.

Is a hiring freeze a bad sign?

Yes and no. A hiring freeze certainly indicates that an organization is going through difficult times. However, it also shows that leadership is being proactive and trying to find ways to weather the storm. Depending on circumstances, a hiring freeze may also be preferable to layoffs. So, it can depend on your perspective, as a hiring freeze is preferable to a company failing outright but it certainly doesn’t point to good times in the near future.

Advantages of a hiring freeze

Cost savings

One of the primary benefits of a hiring freeze is the immediate reduction in labor costs. By not hiring new employees, the organization can save on salaries, benefits, and other expenses associated with onboarding new staff.

Budget control

A hiring freeze can help an organization gain better management its finances, especially during times of financial uncertainty. It enables the company to manage its budget more efficiently and avoid future shortfalls.

Organizational restructuring

A hiring freeze can give management time to review and restructure the company’s structure, roles, and responsibilities. This can help to lead to a more streamlined and efficient organization once the freeze is lifted.

Disadvantages of a hiring freeze

Increased workload

During a hiring freeze, existing employees might be required to take on additional responsibilities to compensate for skills gaps that may have arisen due to lack of new hires. This can lead to burnout, decreased job satisfaction, and a lower employee overall morale.

Talent shortage

Skill gaps that have presented themselves as a result of a prolonged hiring freeze can make it challenging for the organization to meet its long-term goals once the market conditions improve.

Decline in innovation

A lack of fresh perspectives and expertise from new hires can negatively impact the levels of innovation and creativity within the organization.

What’s the impact of a hiring freeze?

The chief impact of a hiring freeze, and doubly so in the case of layoffs, is that organizations are less equipped to manage workloads and deadlines that remain at the same levels of intensity as when hiring more talent was an option. Hiring freezes often result in workers having less bargaining power over salary and work conditions, inhibiting potential career growth for existing employees within the organization.

Based on historic trends, these hiring restrictions will eventually be lifted to address attrition rates and the need for expansion to support ongoing growth. In the meantime, teams are being forced to do more with less and don’t have the same agility to respond to emerging challenges or consumer needs.

Leaders who have been through this cycle before, know that hiring freezes are not always synonymous with budget freezes, leaving the option open to backfill and resource their projects with the skills they need through vendors.

Previous examples of hiring freezes

To better understand what a hiring freeze might mean, how it can affect organizations and employees alike, and even how long it might last, it’s best to look at historical examples.

The Covid-19 pandemic

When the Covid-19 pandemic got underway in 2020 it triggered a wave of hiring freezes around the world as companies struggled to deal with the unprecedented economic situation it created. In fact, a full 59% of CEOs implemented hiring freezes during the pandemic.

An important difference between this set of hiring freezes and typical examples was that the length of time they may last was unknown. The world has seen many tough economic times throughout history and it’s possible to roughly predict when an economic downturn will abate. However, the Covid-19 pandemic represented a real unknown, particularly in its early months.

2012 global hiring freeze by carrefour

The second largest retailer in the world at the time, Carrefour, implemented a hiring freeze amidst global expansion. Although it was not a full-blown global recession, the economic situation in Europe was worsening at the time, leading the French retailer to pause hiring for 6 months at the same time it was expanding its operations in India.

This example shows how companies can use hiring freezes as a kind of “brake tapping” while it waits to see what will happen in the broader economy. In this case, the company was worried a recession might be on the horizon and had concerns about competition in the new market. Thus, the hiring freeze was a part of a “wait and see” approach.

The 2008 financial crisis

When a housing bubble burst in the US in 2008, its ripple effects spread around the globe and caused a global economic recession. A poll conducted afterwards found that 48% of organizations utilized hiring freezes in the aftermath of the crisis. Freezes done during this time typically lasted just 4-6 months as companies waited for the worst of the economic fallout from the crisis to pass.

Why do companies implement hiring freezes?

Cost control

One of the primary reasons for a hiring freeze is to reduce expenses. If a company is facing financial challenges or operating under budget constraints, a hiring freeze can help to control labor costs and improve the bottom line.

Economic downturn or market uncertainty

Businesses may implement a hiring freeze in response to uncertainty in the market, changes in industry trends or during periods of economic recession. This allows them to be more cautious and make informed decisions about their workforce until a clearer picture emerges. If there is evidence of an economic downturn, a hiring freeze can also be a proactive measure to manage costs and weather the economic storm.

Restructuring and reorganization

Companies undergoing or in need of significant restructuring or reorganization may put a hiring freeze in place to first evaluate their current workforce, roles, and responsibilities. This freeze allows the company to clearly visualize their existing internal operations, enabling them to plan and implement changes more efficiently before bringing in new employees.

Why is there a hiring freeze in tech?

The recent set of tech hiring freezes are an interesting example as they do not correspond with a confirmed global economic recession and are coming after the seemingly worst effects of the Covid-19 pandemic have passed. So, what’s behind them?

In part, these freezes are designed to get ahead of the very real possibility of a global recession in 2023. But these decisions also reflect specific concerns about the tech industry, as we have not seen nearly as many hiring freezes in other sectors. Many tech companies have operated at a loss for years, hoping to invest in growing market share and potentially revolutionary ideas.

This is why hiring freezes in the tech world reflect a simple decline in the optimism which has driven so many of these companies to hire and grow based on potential future returns. Thus, we can see many of these freezes are being more preventative, with the aim of reducing costs now to avoid worse outcomes in the coming year.

Hiring freeze best practices

Ensure transparency with employees

Be transparent and communicate openly with your employees about the hiring freeze. Explain the reasons for the freeze and how it will affect the organization. Address any concerns or questions they may have.

Prioritize critical roles

Determine which roles are crucial for the continued functioning of the business and prioritize filling those positions if absolutely necessary. Focus on roles that are essential for maintaining productivity and delivering on key objectives.

Utilize internal talent

During the hiring freeze, consider opportunities for internal promotions or transfers. Assess whether existing employees can be upskilled or redeployed to fill any gaps left by the hiring freeze.

Leverage technology

Invest in technology solutions that can automate tasks and improve operational efficiency. Technology can help bridge gaps and increase productivity during a hiring freeze.

Prepare for future hiring

Develop a hiring strategy for when the hiring freeze is lifted. Anticipate the roles that will need to be filled and create a plan to attract and onboard top talent effectively. For immediate access to high-quality talent to fit the roles needed in your organization, Flexible Talent Sourcing should be considered. This can help to provide the talent critical to your business at a reduced cost without compromising quality.

How Flexible Talent Sourcing offers an alternative

The reality is that hiring freezes are often implemented based on assumptions about the cost of labor and availability of talent. Flexible talent sourcing offers ways to access critical talent at reduced costs without needing to sacrifice quality. That’s why, to help our customers access the talent they need now, we purpose-build scalable tech talent solutions around their needs.   

We offer a range of flexible solutions, from straightforward talent sourcing that can be hired directly, to a fully outsourced service, where we recruit and manage technical teams on behalf of our clients, to customer success solutions, driving adoption and consumption of technology.  

Tek Experts can also be the employer of record for your talent, with the option of hosting teams in our dynamic and vibrant tech hubs.  

And when budgets thaw, customers have the option to hire their outsourced teams directly under their employment, or we can continue to employ them as a strategic tech talent partner. That also means that customers can rest assured that when the talent feeding frenzy resumes after this famine, they’ll have already secured their next crop of new hires. 

Sound interesting? Learn more about Tek Experts’ talent solutions and the talent we have available here.

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