Definition

• A salary freeze is a temporary suspension of salary increases and raises due to financial difficulties. The intent is to prevent the need to lay off employees when a company is going through a rough period, by saving the money that would otherwise be allocated to salary increases.
  
  

Reason for a Salary Freeze

• Salary freezes are common and are often fairly widespread during times of economic recession. But, a salary freeze can also be enacted when an employer is facing financial difficulties of its own, regardless of the general state of the economy.
  
  

Effects of a Salary Freeze

• For employees, a salary freeze can mean, in effect, a pay cut. As inflation continues to rise, salaries aren't increased to meet the inflation rates, thereby making it more difficult to stick to the same budget. For an employer, a salary freeze frees up money that can be used to keep the business afloat or prevents the company from going into debt, if the money doesn't exist.