# What AI is Really Changing in HR in 2026 > AI isn’t cutting jobs—it’s changing how HR works. See how hiring, skills, and people management are evolving in 2026 and what SMBs must do next. Source: https://www.softwareadvice.com/resources/hr-and-people-trends-2026 --- 1 million+ businesses helped. Get advice Get Free Advice [Home](https://www.softwareadvice.com/) / [Resources](https://www.softwareadvice.com/resources/) / HR Trends 2026: What's Driving Hiring, Skills, and Retention? # HR Trends 2026: What's Driving Hiring, Skills, and Retention? By: [Ines Bahr](https://www.softwareadvice.com/resources/author/ines-bahr/) on May 20, 2026 On this page: - Is AI causing workforce growth or job cuts in 2026? - The rise of "skillfishing" and why verification is key - Hiring vs. upskilling in 2026 - Why are benefits costs rising for SMBs in 2026? - Where does AI help with people management—and where does it fall short? - What payroll trends should SMBs prepare for in 2026? - How should SMBs adapt their HR strategy as AI evolves? **_AI adoption in 2026 is driving workforce growth, not job cuts, and that's forcing SMBs to rethink how they hire, retain, and develop talent._** _In fact, 62% of organizations expect to grow their headcount this year. This guide covers the six HR and people trends shaping those decisions this year, based on a survey of 1,000 HR leaders._ HR and people trends in 2026 mark a clear shift away from automation-for-speed toward verification, transparency, and long-term capability building. **The gist:** The shift isn't about adopting [HR software](https://www.softwareadvice.com/hr/) faster. It's about using it to improve decision quality, reduce mis-hires, and build long-term capability—with verification, transparency, and skills alignment at the center. **What’s inside:** Based on insights from Software Advice’s 2026 LMS and HR Software Trends survey\* of 1,000 HR leaders, this research report unpacks how AI adoption is reshaping hiring, people management, benefits, and payroll, and what those shifts mean specifically for small and midsize businesses (SMBs). ### Top HR and people trends 2026  - **AI adoption is correlating with headcount growth**, not reduction - **Skills-based hiring has shifted the bottleneck** from sourcing to verification - [**LMS**](https://www.softwareadvice.com/lms/) **+ AI = strategic alignment**, ensuring upskilling efforts drive business outcomes - **Benefits costs are rising structurally** due to healthcare inflation and remote compliance - **AI in people management works best as a signal**, surfacing patterns for human review rather than replacing the conversation - **Payroll transparency is the new expectation**, with EWA and EOR adoption supporting a more flexible global workforce ## Is AI causing workforce growth or job cuts in 2026? **AI adoption is driving workforce growth in 2026, not job losses.** In fact, our data says that the majority of  organizations expect to grow their headcount this year, because AI is replacing tasks, not people. Here’s an overview: - **Headcount expansion**: 62% of organizations expect to grow their workforce in the coming year. - **Replacement of tasks, not people**: AI is primarily replacing tasks, not people. Productivity gains increase capacity rather than eliminate roles. - **The "efficiency reinvestment"**: Savings from automation are being used to fund new teams and growth areas. - **Capability-driven hiring**: There is a surge in targeted hiring to build internal AI and data capabilities. Our data shows clearly that **AI adoption alone doesn’t separate high‑ and low‑performing recruiting teams.** High‑performing teams don’t try to automate everything. They concentrate AI use where it delivers the cleanest returns, typically high‑volume, early‑funnel activities like screening, matching, and scheduling. Just as importantly, they treat AI outputs as directional signals, not final decisions. AI helps recruiters decide where to look, not who to hire. **Speed is no longer the only measure of recruiting success.** Leading teams now optimize for decision quality—fewer mis-hires, stronger internal mobility, and better skills visibility. _**Why this matters for SMBs**__: Productivity gains show up quickly in smaller teams, but so do skill gaps. SMBs adopting AI without parallel hiring or upskilling risk overloading existing employees._ ### What SMBs should do next - **Assess risk level:** SMBs scaling AI without dedicated hiring or learning budgets face the highest risk of capability gaps. - **Identify pressure points first:** Audit current workflows to pinpoint where AI increases output but exposes missing skills. - **Start with controlled use cases:** Apply AI to high-volume recruiting tasks (such as screening and scheduling) before expanding into decision-making. Key software to deliver [Workforce planning](https://www.softwareadvice.com/hr/workforce-management-software-comparison/), [recruiting](https://www.softwareadvice.com/hr/recruiting-software-comparison/), and [learning systems](https://www.softwareadvice.com/lms/) should share data, so make sure your tools integrate with each other. Isolated tools make it harder to see where AI-created efficiencies are actually creating new skill demands. ## The rise of "skillfishing" and why verification is key **Skills-based hiring is now the dominant recruiting approach, but it comes with a significant risk: candidates exaggerating capabilities, a pattern known as skillfishing.** The recruiting advantage in 2026 goes to teams that move verification earlier in the funnel, not teams that simply hire faster. In terms of overall trends, recruiting leads AI adoption across all [HR software](https://www.softwareadvice.com/hr/) categories, with an **81% utilization rate**. This high adoption is driven by the fact that AI-powered recruiting delivers measurable returns more quickly than other HR tools. ### What is skillfishing and why does it matter for SMB hiring? While **58% of HR leaders** believe skills-based hiring will have the biggest impact this year, a significant problem has emerged: **"Skillfishing"**.  Skillfishing happens when candidates exaggerate skills on resumes or in interviews, and AI-assisted applications make it easier than ever to do so. Candidates look strong on paper but struggle once hired into the role.  _**Why does it matter?**_ _Skillfishing is not driven solely by candidate behavior; it emerges when skills‑based hiring scales faster than organizations' redesign verification systems can keep pace._ #### How can recruiters reduce the risk of skillfishing? HR leaders are responding to skillfishing by shifting from attraction-first hiring to verification-first hiring, using a mix of process changes and software support. - **Use AI to narrow the pool, not make the hire**: 51% of organizations use AI for candidate matching and shortlisting, reflecting where automation adds the most value. This helps reduce volume so recruiters can focus on deeper evaluation rather than replacing judgment. - **Replace static interviews with live skill validation:** As AI-generated resumes become easier to produce, leading teams are moving toward live problem-solving, project critiques, and real-time walkthroughs. These approaches make it harder for candidates to rely on scripted or AI-assisted answers. - **Build governance alongside automation:** Organizations using AI in recruiting report higher compliance challenges (23% vs. 15% for non-AI users). High-performing teams respond by documenting how screening tools work, regularly auditing outcomes, and clearly defining where human review is required. _**Why this matters for SMBs**__: Smaller teams have less margin for error when hiring. Verification-focused processes reduce the risk of costly mis-hires without slowing hiring velocity._ Key software to deliver Prioritize [recruiting software](https://www.softwareadvice.com/hr/recruiting-software-comparison/) that integrates skills assessments or [LMS](https://www.softwareadvice.com/lms/) data and offers transparency into AI-assisted decisions, so speed gains don’t come at the expense of trust or compliance. **_Avoid costly mis-hires!_** [_Download the “Skillfishing” detection and verification checklist to identify inflated skills early and strengthen your hiring decisions._](https://static-assets.softwareadvice.com/managed/downloads/SA%20-%20Webinar%20-%20Downloadable-Asset-1.pdf) As AI absorbs more operational recruiting work, the recruiter's role is shifting from execution toward verification, judgment, and stakeholder advising. Rather than optimizing solely for time‑to‑fill, recruiters are increasingly accountable for decision quality, ensuring that skills are validated, signals are trustworthy, and trade‑offs are clearly communicated to hiring managers. ## Hiring vs. upskilling in 2026 Hiring and upskilling aren't competing preferences—they're capital-allocation decisions with different cost profiles. **Hiring adds recurring fixed costs; upskilling front-loads investment with declining marginal costs over time.** The risk isn't choosing one over the other, it's over-indexing on one while neglecting both. In 2026, the traditional question of whether to hire new talent or train existing staff has been complicated by the speed of AI. HR leaders are now using **AI-driven recruitment** to "buy" immediate capabilities and **AI-enhanced LMS platforms** to "build" long-term institutional knowledge. ### 1\. When does hiring new talent make more sense than upskilling? Hire externally when the skill gap is urgent and your team has no internal baseline to build from. Practically speaking, organizations should lean toward recruiting when the skill gap is a "fire" that needs immediate extinguishing or requires expertise not currently present in the building. - **Urgent market entry**: Use AI-powered [applicant tracking systems](https://www.softwareadvice.com/hr/applicant-tracking-software-comparison/) (ATS) to quickly source and verify candidates when launching new AI-adjacent departments. - **High-volume administrative needs**: Chatbots taking over initial screenings is highly helpful, allowing recruiters to focus on tailored experiences further down the pipeline. - **Niche expertise**: When your internal skills inventory shows a zero-base for a specific technical skill, external hiring is often the necessary path. Roles that introduce entirely new capabilities or carry high execution risk are typically better suited for external hiring. For example, functions such as data engineering, AI development, or entering new markets require expertise that most SMBs can’t build quickly enough internally. Hiring is also more effective in areas like compliance, payroll, or security, where mistakes are costly and require applied, real-world experience. ### 2\. When is upskilling a better investment than external hiring? Upskilling works best when the goal is long-term retention, cultural stability, and protecting institutional knowledge. This is because upskilling is often seen as a "retention shield" by 2026 employees. - **Predictive succession planning**: 28% of HR leaders use employee development and succession as a retention strategy. AI can help identify future leaders earlier, reducing leadership risk. - **Institutional knowledge preservation**: Upskilling builds loyalty and tenure while deepening the internal expertise your team already has. - **Cost efficiency**: Upskilling reduces long-term hiring dependency and limits recurring cost growth. Use the framework below to decide whether hiring or upskilling better fits your current situation. #### Hiring vs. upskilling framework in 2026  **Decision lens** **Hire (external capability injection)** **Upskill (internal capability compounding)** **Risk profile** Reduces execution risk when failure is unacceptable Reduces dependency and long‑term talent risk **Capability signal** Prioritizes immediate role output Builds future role readiness and agility **Skill scalability of**  Difficult or costly to replicate at scale Designed to scale across teams and roles **Institutional knowledge impact** Introduces a fresh perspective, limited context Deepens institutional memory and coherence **Cost behavior over time** High upfront and recurring fixed costs Front‑loaded investment with declining marginal cost **Retention and succession effect** Neutral to negative if overused Strong positive signal for growth and continuity _**Why this matters for SMBs**__: Hiring solves short-term gaps, but upskilling protects institutional knowledge. SMBs that rely only on external hiring face higher turnover and rising costs._ SMB Essentials **Which roles are most worth upskilling vs. hiring for?** Roles such as **operations, customer success, and HR** already rely on company-specific knowledge. Upskilling these employees (e.g., adding AI tools or data literacy) increases output without losing context or continuity.  Functions like **marketing, finance, and recruiting** benefit from incremental capability gains (e.g., AI-assisted analysis, automation). These roles don’t require full reinvention—just augmentation. These verification and upskilling pressures help explain why benefits and payroll investments are rising simultaneously. ## Why are benefits costs rising for SMBs in 2026? In 2026, HR is moving from "buying talent" via salary to "investing in talent" via holistic benefits. This has led to a structural cost increase: **78% of organizations expect benefits costs to rise** this year, more than any other HR expense. **Drivers of the 2026 cost spike:** - **Benefits as a "retention shield"**: Unique benefits are a primary way to differentiate company culture. - **External pressures**: Healthcare costs are increasing faster than inflation, driven in part by high-cost specialty treatments. As a result, employers are paying more each year even if they don’t expand or change their benefits offerings. - **The "work-from-anywhere" administrative tax**: Adopting hybrid or global remote models to retain talent comes with costs that scale with each new hire location. - **Software investment**: 78% of organizations are already using [benefits administration software](https://www.softwareadvice.com/hr/benefits-administration-comparison/). Recent purchases in this category are driven by the need for better software integrations (33%) and adding AI capabilities (26%). SMB Essentials **What can SMBs specifically do to manage rising benefits costs?** SMBs can manage rising benefits costs by focusing on visibility, flexibility, and active cost control. Start by identifying which benefits drive actual employee usage and retention, then shift toward flexible plans that control baseline spend. Regularly reviewing vendor contracts and removing underused benefits can reduce costs without weakening your overall value proposition. Key software to deliver [Benefits administration software](https://www.softwareadvice.com/hr/benefits-administration-comparison/) is increasingly evaluated on integration quality. Poor connections to payroll or HR systems quickly erode employee trust. ## Where does AI help with people management—and where does it fall short? **AI works best in people management as a signal, not a decision-maker.** It surfaces patterns, in performance, engagement, and scheduling, that human leaders then act on. Where organizations go wrong is treating AI outputs as final answers rather than starting points. In 2026, AI has transitioned from a backend tool to a front-line assistant in daily people management. The five areas below show where AI adoption in people management is highest today, based on responses from 928 HR professionals already using AI features in HR software. Use this table to understand where AI adds the most value in people management, and where over-reliance creates risk. #### AI in people management: High-impact use cases and risks **Management area** **How AI supports retention (the signal)** **Where human judgment must lead (the decision)** **Performance tracking and goal alignment** AI flags misaligned or unclear goals early in the performance cycle. It surfaces hidden risk patterns in employee performance data and supports more frequent, data-informed check-ins between managers and staff. **Avoid metric over-indexing**: Leaders must ensure they don't rely solely on quantitative metrics, as this can overlook the qualitative human context. There must be full transparency regarding how performance data is used. **Learning and skill development recommendations** AI personalizes learning recommendations based on specific roles and desired career paths. It aligns individual development with the organization's future skill needs and dynamically adapts recommendations as the employee grows. **Prevent bias reinforcement**: AI may inadvertently reinforce past biases in career pathing (for example, if certain groups historically had fewer development opportunities, AI may unintentionally repeat that.) Managers must treat AI suggestions as helpful options rather than mandatory, rigid roadmaps for an employee’s future. **Feedback collection and pulse surveys** AI detects subtle sentiment trends and engagement risks across the workforce at a scale humans cannot match. It analyzes open-text feedback to help HR prioritize follow-up actions where they are needed most. **Protect trust**: Employees often question the true anonymity of AI-analyzed feedback. The most significant risk is generating "insight without action," which can lead to survey fatigue and decreased morale. **Scheduling and workforce planning** AI improves fairness and predictability in shift work by anticipating burnout patterns and staffing gaps before they occur. It balances complex business demands with individual employee availability. **Maintain local context**: Over-automation can ignore vital human preferences and local team contexts. All AI-generated schedules should undergo a manager review to ensure they remain practical and empathetic. **Rewards and recognition** AI identifies ‘hidden gems’ or overlooked contributions that might miss a manager's manual radar. It promotes more consistent recognition and reduces the organization's reliance on a manager's memory alone. **Avoid transactional culture**: Recognition must feel authentic, not automated or transactional. HR must prevent employees from “gaming” the visible metrics that the AI uses to trigger recognition. _**Why this matters for SMBs**__: In smaller teams, a lack of transparency around AI-driven decisions—whether in performance tracking or recognition—damages trust faster than in larger organizations. Keep managers visibly in the loop on how AI insights are generated and acted on._ Key software to deliver Favor tools that clearly show how AI-generated insights are produced and where human review is expected. ## What payroll trends should SMBs prepare for in 2026? **Payroll is now a retention driver, not just an administrative function.** In 2026, three emerging capabilities—pay transparency, earned wage access, and employer of record services—are redefining what employees expect from how they're paid. ### 1\. What is pay transparency and why is it now a legal priority? Pay transparency involves being open about salary ranges and how pay is determined, while pay equity focuses on ensuring equal pay for equal work across all demographics. This is arguably the most significant payroll shift of 2026, driven by a surge in global regulations and a workforce that demands fairness.  - **The benefit**: Beyond legal compliance, proactive pay equity builds deep organizational trust and prevents the reputational damage associated with uncovered pay gaps. - **The adoption**: 54% of organizations now regularly calculate pay gaps using dedicated [HR](https://www.softwareadvice.com/hr/) or [payroll software](https://www.softwareadvice.com/hr/payroll-software-comparison/). However, 33% still rely on manual or spreadsheet-based processes, which represents a significant opportunity for software modernization. **​​Why this matters for SMBs**: Manual pay analysis increases error risk and limits visibility as teams grow. ### 2\. What is earned wage access and how does it support retention? Earned wage access (EWA) allows employees to access a portion of their earned salary before the scheduled payday. In an era of economic volatility, this has become a powerful tool for supporting employee financial wellness. - **The benefit**: EWA reduces employees’ financial stress and dependence on predatory, high-interest loans, thereby improving focus and productivity at work. - **The adoption**: 46% of organizations already offer EWA to their employees, and another 33% plan to implement it within the next 12 months. _**Why this matters for SMBs**__: Pay flexibility can reduce short-term financial stress without raising base wages._ SMB Essentials **How SMBs can introduce EWA without disrupting existing payroll cycles?**  Choose EWA tools that connect directly to your payroll system, so advances are automatically reconciled during the normal pay cycle. ### 3\. What is an employer of record and when should SMBs use one? An [employer of record (EOR)](https://www.softwareadvice.com/category/4976-eor-employer-of-record/) is a third-party organization that takes on the legal responsibilities of employing staff in a foreign country on behalf of a company. This allows businesses to hire talent anywhere in the world without the burden of setting up a local legal entity. - **The benefit**: EORs provide instant access to global talent pools while ensuring full compliance with local labor laws, taxes, and benefits, which is essential for "work-from-anywhere" models. - **The adoption**: 26% of organizations are actively using an EOR for international hiring, with 32% planning to adopt this model in the coming year. _**Why this matters for SMBs**__: Global hiring is no longer limited to large enterprises, but compliance risk still scales quickly._ **What should SMBs look for in payroll software?** Before choosing a payroll platform, ask these three questions: - Can the system explain pay decisions clearly to employees? - Does it support flexible pay models without manual workarounds? - Can it scale across regions without increasing compliance risk? ### Insight Payroll transparency, flexibility, and global support are now retention drivers, not just administrative features. ## How should SMBs adapt their HR strategy as AI evolves? **The SMBs that succeed with AI in HR won't be the ones that adopt it fastest—they'll be the ones that use it most deliberately.** The future of HR will be defined by how well organizations adapt to evolving workforce needs while keeping people at the center of every technological decision. Success in 2026 requires moving beyond the adoption of new software toward the strategic integration of AI as a tool for a deeper human connection. As organizations navigate rising costs and shifting recruitment landscapes, the focus must remain on building transparent, equitable, and skill-aligned cultures. By leveraging AI to surface critical patterns and using those insights to drive human-led action, HR leaders can ensure their organizations remain competitive, compliant, and, most importantly, human-centered in an increasingly complex world. ### Read more  For teams looking to explore how these HR and people trends in 2026 translate into software decisions, Software Advice offers additional resources grounded in real buyer feedback and category analysis. - [AI in Recruiting Automation: Practical Use Cases for Today’s Hiring Teams](https://www.softwareadvice.com/resources/ai-in-recruiting-automation/) - [Applicant Tracking Software Pricing (2026 Costs, Models, and Hidden Fees)](https://www.softwareadvice.com/resources/applicant-tracking-software-pricing-models/) - [Recruiting Software Pricing Models: Subscription, Upfront, and Hidden Costs Explained](https://www.softwareadvice.com/resources/recruiting-software-pricing-models/) * * * ### Survey methodology \*Software Advice’s LMS & HR Software Trends survey was conducted in February 2026 among 1,000 respondents in the U.S. The goal of the study was to understand the HR software that companies are buying, the benefits and challenges of adopting AI tools, and how they're managing upskilling, recruiting, and payroll operations. Respondents were screened for employment at companies with more than one employee, working in management-level roles or above. Respondents were also confirmed to be at least partially responsible for HR software purchase decisions within their organization.