Employers turn to hiring freezes

In a troubled economy, hiring freezes are typically the first course of action many employers take, says Vanessa Johnson, president of VLJ Ventures LLC, a human resources and legal consulting firm in Dickinson, Texas. Controlling the work force is a simple way for employers to manage business costs and dodge job losses.

"Labor costs are a significant percentage of most organizations' business expenses," Johnson says. "Moreover, payroll is an expense that leaders can easily manipulate with actions such as reducing headcount or limiting hours. Therefore, to avoid layoffs, one of the first tactics that business leaders typically use to reduce labor costs is to freeze hiring."

Hiring freezes also protect employers from potential liability, says Sheryl Kovach, president and CEO of Kandor Group, a human resources consulting firm in Houston. Rather than laying off part of the workforce or cutting salaries, employers simply cease hiring, which avoids all discrimination claims.

"With a hiring freeze, you don't have to worry about workers claiming they were let go because they were discriminated against or fell into a protected group," Kovach says. "If an employer doesn't hire anyone, then there is no need to worry about all of that."

Coping with a smaller work force

Although hiring freezes can better control employers' payrolls and lessen liabilities, there could still be negative impacts, one being a decreased morale among employees, Johnson says. Often, hiring freezes mean employees must take on heavier workloads and work extra hours without additional pay.

"Depending on whether or not the freeze leaves the organization understaffed, it might have an effect of lowering morale because the existing work force is stretched too thin, which increases employee burnout and can result in increases in turnover," Johnson says. "Understaffed work forces can also indirectly result in more workers compensation claims, accidents and injuries because the overworked employees are tired and not as focused on safety."

Kovach suggests HR departments work closely with their operations teams or department heads to evaluate each employee's workload. Then, the additional responsibilities can be fairly distributed among employees. Though some employers might be tempted to dump all of the excessive work on the top performers, this usually isn't the best approach.

"Don't overload your best performers just because they're your best performers," Kovach says. "They will end up being your worst performers because they have too much on their plates. Instead, tap into different strengths that each person has, so you can allocate that work."

If a hiring freeze is coming, an employer must also be prepared to openly communicate with its employees by announcing a general timeframe of when the situation will be re-evaluated. However, Kovach advises against specifying a definite date.

"Sometimes stating a timeline is a double-edged sword because you don't want to tell employees the hiring freeze is only until a certain date, and then that date comes along, but you still can't hire," Kovach says. "Employers need to let their employees know they will monitor the financial situation over the next 30 or 60 days, and then determine at that time if they are in a stronger position to bring on more staff."

Preparing for the worst

While Congress and the White House continue to squabble over the debt ceiling crisis, HR departments should take this time to prepare for what could result in hiring freezes. Depending on the government's plan, hiring freezes could make a lengthy run, Johnson says, especially if the solution only temporarily answers the debt ceiling issue. Employers crave a sense of certainty, and a short-term solution won't cut it.

"I'm hoping that Congress finds a solution that wards off any negative reactions by the financial markets," Johnson says. "However, I personally believe that a short-term, rather than a longer-term solution, will result in continued uncertainty that might make business leaders hesitant to hire when they won't be sure whether another stalemate with potential catastrophic consequences will occur six months from now." 

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