Future HR Landscape: 4 Trends Shaping the Industry

Today's world of work is undergoing unprecedented change and is expected to continue to evolve.

If you fail to understand and respond to the intricacies of these changes, your organization risks losing top talent, making poor workforce planning decisions, and missing opportunities for innovation. This can impact your sales, growth and reputation.

However, trying to understand the future of HR can be confusing and overwhelming.

In this article, we discuss the four most important emerging trends in HR. We provide you with easy-to-understand explanations and practical tips to help you manage changing employee expectations, global shifts and technological advances in HR with confidence and ease.

4 new trends shaping the future of HR

1. The rise of competency-based recruiting
2. What NextGen Employees Need: The 4Fs
3. Dealing with the gig economy
4. The ups and downs of AI

1.The rise of competency-based recruiting

We recently surveyed 1,500 employers and employees about their company's hiring practices. The results, detailed in our report "The State of Skills-Based Hiring 2023," show that 70% of companies will employ skills-based hiring in 2023 - compared to 56% in 2022.

If you're not familiar, let's briefly explain what competency-based hiring means and why it's on the rise.

What is competency-based hiring all about?

Competency-based hiring evaluates applicants based on the specific skills required for a job rather than their educational qualifications, previous work experience, personal hobbies and other traditional evaluation criteria.

This could mean asking applicants to demonstrate their skills through online assessments, hackathons, case studies or role-plays.

Why is competency-based hiring becoming more popular?

Hiring skilled workers is becoming increasingly popular for the following reasons:

Tight labor markets in high-income countries

In its 2023 report, the World Economic Forum (WEF) asked 803 companies, employing over 11 million workers, how jobs and skills will develop over the next five years.

The results show that labor markets in high-income countries such as the United States are facing tight labor markets. This means that there are more job vacancies than unemployed workers to fill them, due to the high demand for labor, the low unemployment rate, and the shortage or mismatch between skilled workers. Our own data also shows that around 60% of employers will struggle to find talent in 2023.

Competency-based hiring can help you reach a larger talent pool because it doesn't require specific qualifications or years of experience. It also allows you to reduce the skills gap.

Additionally, our research shows that 82% of employers who use competency-based hiring reduce their time to hire. Faster recruiting helps you secure top talent before other companies.

Low- and low-middle income countries are facing rising unemployment

The WEF report also shows that unemployment is increasing in low-income countries, particularly among women and workers with only basic education. This is expected to continue over the next few years.

We spoke to HR expert Yashna Wahal about why this might be the case.

Yashna Wahal, in her experience hiring in both high- and low-income countries, has found that employers in developing countries pay much more attention to educational credentials - including MBA degrees, years of experience, and previous employment with reputable companies - in their hiring decisions.

Unfortunately, these are the same economies where minority groups such as women have fewer opportunities for education and employment. According to Yashna, "many members of these groups have the right skills, abilities and attitudes to be successful, but are overlooked due to 'weak' resumes."

By using competency-based hiring processes to assess applicants' real-world skills and abilities, employers offer fair opportunities to those affected and increase diversity in their workforce.

Companies are questioning traditional selection processes

87% of employers have problems using resumes as a selection tool. They raise concerns about:

• Assessing resume accuracy
• Classification of candidates and assessment of their skills
• Time spent reviewing resumes
• Influence of the selection process by unconscious biases

Of employers that have implemented competency-based hiring practices, 88% have reduced bad hires, 74% have reduced hiring costs, 82% have reduced overall time-to-hire, and 89% have increased retention of new hires.

Here's how to properly leverage competency-based hiring in future recruiting efforts

Here's how you can incorporate competency-based hiring into your future human resources practices.

Start with simple and effective forms of competency-based hiring - . Talent assessments. Evaluate candidates on the key skills and attributes required for a position. This allows you to quickly identify top performers while eliminating bias from the process.

Then consider role-playing, hands-on workshops, or virtual simulations to test applicants' skills in real time.

Finally, we strongly advocate for completely eliminating outdated hiring practices and switching entirely to competency-based hiring.

2.What NextGen Employees Need: The 4 Fs

In the next few years, much of the workforce will be made up of Millennials and Generation Z, who, according to HR expert Medi Jones, "have a mind of their own in the workplace and don't respond to standard employee engagement initiatives or traditional leadership styles."

We looked at several research papers and studies and came across 4 Fs that help motivate, engage and retain these generations of employees: Flexibility, Fulfillment, Financial Stability and Fairness.

Flexibility

In its 2023 survey, Deloitte - one of the world's leading multinational professional services networks - collected feedback from over 22,000 Millennials and Gen Zers worldwide. The results consistently showed that these employees prefer hybrid work arrangements and want autonomy in their work.

This could mean working remotely full-time or coming into an office or coworking space once a week, month, or even year. Only 2% of employees want to work remotely full-time, they want physical interaction and collaboration with their colleagues, but on their terms.

You don't have to offer the full selection. At IceHrm, we encourage employers to find a balance when it comes to hybrid work arrangements - meeting employee needs while maintaining company goals.

Here's how you could approach hybrid work:

• Limit the maximum daily working hours. The International Labor Organization (ILO) has found that longer working hours are associated with lower productivity.
• Adhere to the regulations for statutory rest breaks. The ILO has also shown that these contribute to the long-term health and well-being of workers.
• Establish principles - not guidelines. For example, ask employees to come in three days a week without telling them which days. The Harvard Business Review suggests this can lead to greater autonomy.
• Consider the four-day work week practiced by some companies, according to consulting firm Gartner. This could encourage on-site work while supporting work-life balance.

Fulfillment of requirements

It is no longer enough to retain employees through pay and benefits. Generation Z and Millennials want to have a tangible impact and feel fulfilled in everything they do - from their careers to the success of the company and the world at large.

Here's how you can offer fulfillment to your future employees.

Offer work with meaning

A Gallup poll found that 67% of Millennials said they would be more engaged in their work if they felt it was important to the company's mission. A 2021 study found that 71% of Generation Z employees would even be willing to sacrifice pay for more meaningful work.

Here are some of our top tips for giving your employees a sense of purpose.

• During check-ins and town halls, remind your employees of the company's purpose and how their work contributes to it.
• Involve them in important company decisions and promote a sense of ownership.
• Organize volunteer days, charity runs, and other initiatives that help employees connect with their personal values and find meaning in their work. When an employee feels like their work has meaning, they are more likely to stay with the company.

Promote professional development

O.C. Tanner, a global employee recognition specialist, says that encouraging growth and a sense of accomplishment increases employee satisfaction. Millennials and Gen Zers value their professional development, and 74% are willing to change jobs for better opportunities for advancement.

When you provide these opportunities internally, you meet your employees' needs and your company benefits. Developing employee skills increases productivity and innovation and allows you to close skills gaps without hiring expensive external employees.

Additionally, the World Economic Forum predicts that 60% of workers will need retraining by 2027, due to factors such as the use of technology and artificial intelligence and the growing importance of cognitive skills such as critical thinking. Investing in your future employees now will ensure you don't fall behind later.

HR expert Yashna Wahal, who has many years of experience in the field of employee training and development, shared her best tips to support employee development.

• Help your employees upskill through comprehensive training programs, in the classroom, online or at work.
• Offer your top talents individual coaching.
• Promote internal career mobility by encouraging your employees to work in and learn different roles.
• Offer mentors to give them access to career development support and advice.

Financial stability

In the Deloitte survey, both Millennials and Gen Zers cited the cost of living as their biggest concern. Additionally, over 50% of both groups reported living paycheck to paycheck, a 5% increase since 2022.

There is evidence that financial uncertainty impacts employee performance. According to MetLife, a financial industry leader, companies lose $250 billion annually due to the impact of stress on their employees' work, with one in three employees admitting to being less productive due to financial stress.

We have found two solutions to provide employees with greater financial security.

Saving with employer support

Commonwealth, a Boston-based financial security organization, suggested that employers offer to deposit a portion of their employees' paychecks into separate savings accounts. Seventy-five percent of workers said they would consider an employer-sponsored emergency savings program, and nearly 100% would participate if their employer matched their contributions.

Additionally, 62% of respondents agreed that an employer-offered savings program would make them work harder, 55% said they would miss work less, and 76% said it would make them work harder to stay with the company.

Better performance programs

Employees also need support for their immediate needs, including unplanned time off, healthcare and childcare. Employers need to improve their benefits packages even if they cannot increase salaries or bonuses for their employees.

2022 U.S. Department of Labor data shows that workers with lower salaries are less likely to have access to paid leave compared to workers with higher salaries. Another Labor Department report found that one in three workers who did not have paid leave depleted their savings when they had to take time off. A lack of paid leave can cause significant financial strain and stress for employees facing emergencies or personal health issues.

Meanwhile, benefits packages can be a big draw for applicants: One survey found that employer-sponsored health plans influence employees' decisions to join a company 46% of the time and stay with the company 56% of the time.

JPMorgan Chase and Patagonia estimated the return on their child care investments at 91% and 115%, respectively. They also experienced lower turnover and higher employee engagement. The evidence is clear: employers benefit from better benefits programs, as do their employees.

3.Working with the gig economy

We can't discuss the future of HR without considering the rapidly growing gig economy.

This is often used interchangeably with "freelancers" or "contract workers" and includes "gigs" - temporary or project-based jobs. They provide services to different customers or companies.

Recent statistics show that there will be nearly 75 million freelancers working in the US by 2023 - an increase of at least 2 million per year since 2017. Analysts expect this number to continue to rise in the coming years, with about 50% of freelancers cite “wanting to save money,” “needing to compensate for gaps or changes in income,” and “having the ability to control their own schedule” as their top reasons for taking up gig work.

At IceHrm, we believe that - contrary to popular belief - employers benefit greatly from hiring gig workers. It opens the doors to more talent and reduces spending on benefits like 401k plans.

To capitalize on the growing number of gig workers, Deloitte suggests that companies adapt their hiring, management and cultural practices to the dynamic nature of temporary work. We imagine what this might look like in practice.

Streamlined onboarding

Develop tools and tactics to hire and onboard gig workers quickly and effectively, without compromising on the quality of hires. You could e.g.  Eliminate training modules on specific employee policies that are irrelevant to temporary employees.

Focus on skills, not jobs

Break away from the traditional view of key positions that you “have to” fill. For example, it is not essential to hire a marketing manager to hold a full-time position and support your entire marketing strategy.

Instead, you could hire gig workers to work on specific campaigns, website SEO, and other projects.

Improve security

Your IT team will need methods to manage the constant movement of employees in and out of the company, creating efficient and standardized processes to revoke access, retrieve company resources, etc.

Adapt your company culture

The increase in gig work coincides with the increasing need for job fulfillment. “Don’t treat gig workers as outsiders like so many companies do today,” says HR expert Yashna Wahal.

If necessary, involve your temporary employees in company decisions, remind them of the assignment and ensure that they integrate well into your full-time workforce. Make your company a place where gig workers want to work.

Consider financial security

Consider how you can provide financial stability to temporary workers. For example, offer your best gig workers a fixed, long-term contract so they feel confident that their company has ongoing demand for their work.

The ups and downs of AI

Artificial intelligence (AI) has found its way into every industry, including human resources. According to Gartner research, 76% of HR leaders believe they should adopt AI solutions in the next 12 to 24 months to remain competitive.

There are numerous use cases for AI in HR, but there are also challenges that need to be considered. You must understand both sides and proceed with cautious optimism.

Upsides

Here are the benefits of AI in HR:

Efficient and better quality settings

A 2023 study published in the International Journal of Professional Business Review found that the use of AI in resume and social media screening, candidate matching, predictive analysis, gamification and VR assessments Saves companies time and money and leads to better quality hires.

Another study showed that applicants positively evaluate the use of AI in hiring. The biggest advantage? Faster response times.

Improved performance management and training outcomes

According to the Society of Human Resource Management (SHRM), generative AI can analyze large amounts of employee data, including performance metrics, qualitative feedback, and even praise from team chats, to "put together good performance summaries for managers to review."

This saves managers a lot of time, which they can instead use for real performance discussions.

SRHM also shows that the use of generative AI can reduce the tendency to over-emphasize recent events or achievements in performance reviews. And that's not all: you can take it a step further with AI that analyzes performance data and recommends tailored training programs.

Speed and precision in managing employee requests

Another SHRM study found that most HR inquiries can now be handled through chatbots and virtual assistants, freeing up HR professionals to focus on people strategy.

Chatbots can help employees with frequently asked questions that have predetermined answers - for example: "I need a list of company holidays." Virtual assistants are more advanced and can assist employees with things like onboarding or signing up for benefits.

Disadvantages

Here are the disadvantages of AI in HR:

Diversity and discrimination risks

A ScienceDirect study highlights the dangers of AI in recruiting, including diversity issues, low accuracy and reliability, and immature technology.

AI makes predictions and generates insights based on past data, which is often tainted with historical biases and discriminatory practices. Unfortunately, this means that AI can learn to perpetuate these biases and jeopardize the company's diversity goals. According to Fortune, Amazon had to abandon an AI hiring process because it perpetuated biases in resume screening by favoring male applicants.

Reuters explained that although AI appears neutral and unbiased, it can lead to discriminatory recommendations that violate the Civil Rights Act of 1964. This law makes it illegal to make employment and pay decisions based on gender, race and other characteristics. AI can learn historical salary biases and perpetuate problems such as unequal pay.

Consider conducting regular AI bias audits to ensure you are not held liable for discriminatory hiring practices. Use the latest U.S. guidelines. Equal Employment Opportunity Commission.

Privacy and security concerns

Using AI in HR means making a large amount and variety of employee data available to it, including confidential or sensitive information - such as personal information, performance reviews, medical records and more. If you're not careful, data could leak and violate data protection regulations like GDPR.

Reuters suggests protecting information by only using “closed” AI systems. They do not share your prompts or employee data with third party platforms.

Displacement

The increasing prevalence of AI has fueled fears that it will replace employees. It is even claimed that 1 in 4 companies have already replaced employees with ChatGPT.

At IceHrm, we believe that the nature of the tasks can change. AI is designed to enhance employees - not replace them - and HR must pioneer the use of AI to improve the employee experience.

Roles are expected to shift over time, and HR leaders will need to support employees whose direct roles have been disrupted by AI through retraining.

Mistrust

There are signs that employees don't fully trust AI, at least not yet. For example, one study explained that employees still ask HR professionals for clarification on their HR queries because they don't fully trust the accuracy of chatbots' responses.

At IceHrm, we recommend leveraging the power of AI in hiring and onboarding, but exercise caution when it comes to sensitive questions, salary and promotion decisions. These still require nuanced, human interactions.

Hiring based on qualifications is becoming employers' top choice for the future of HR

The modern world of work is constantly evolving, and HR departments must adapt to changing market conditions, evolving employee attitudes and increasing technological advances to stay ahead of the curve.

Replacing traditional recruiting tools with competency-based hiring can help you attract top talent and increase diversity in your future workforce. Additionally, flexibility and financial stability are non-negotiable for Millennials, Generation Z and gig workers, who will make up the majority of the job market in the coming years.

Finally, artificial intelligence is on the rise, and with caution and care you can benefit from its speed, efficiency and accuracy.

In this ever-evolving work landscape, embracing the future of HR today can help you become a pioneer in the thriving workplaces of tomorrow.

In navigating the future of HR, embracing trends like competency-based hiring, gig economy adaptation, and AI integration can position businesses for success. IceHrm offers solutions to streamline HR processes in the evolving workplace.