How HR challenges have evolved from 2025 to 2026

Recruitment, Retention and Skills: From competition to capability building

The competition for talent is a defining feature of both years. In 2025, recruitment and retention challenges were heavily shaped by a tight labour market and skills shortages, with organisations often needing to pay a premium to attract scarce expertise. Retention efforts focus on pay frameworks, grading systems, flexible working and cultural initiatives designed to reduce attrition. By 2026, this challenge becomes more integrated and strategic.

Recruitment and retention challenges are no longer treated as separate problems but as two sides of the same coin. Employers recognise that they cannot rely indefinitely on external hiring and must instead build internal skills pipelines, career pathways and succession plans. Additional pressures also emerge in 2026, including:

• Declining availability of migrant talent
• Location constraints and return-to-office tensions
• Retaining key people through restructuring and transformation

Specialist and scarce skills remain difficult to attract and retain in both years, particularly in technical and professional sectors. While the focus in 2025 was to pay premiums and refine frameworks to compete for talent, organisations are now focusing more on developing a strong internal pipeline of capability and skills.

Pay Transparency and Equity: From preparation to reality

Pay transparency was largely a future-facing compliance concern in 2025, with organisations preparing for evolving legislation by building more robust pay structures, improving benchmarking and strengthening internal equity. The focus was on readiness rather than delivery.

In 2026, pay transparency moves into the foreground. Driven by UK and EU legislation and growing employee expectations, it becomes one of the most transformative issues for HR and reward teams. Organisations anticipate complex challenges around:

• Open communication of pay frameworks
• Managing internal equity and perceived fairness
• Addressing pay compression between junior and managerial roles
• Ensuring consistency across merged or multi-entity organisations

Transparency is increasingly viewed as both a compliance obligation and a trust-building opportunity, but one that requires strong governance and financial commitment.

In both 2025 and 2026 predictions, HR professionals highlighted that pay structure integrity and equity are critical enablers of trust and engagement.

Regulation and Employment Law: From anticipation to operational impact

Regulatory change features prominently in both years, particularly around the Employment Rights Bill, now the Employment Rights Act 2025. In 2025, organisations anticipated increased costs and liability associated with “day one” rights, unfair dismissal protections and reasonable adjustments. The focus was on understanding the implications and preparing policies and processes.

By 2026, regulation is no longer theoretical. HR teams expect tangible operational and cultural impacts, including:

• System and policy updates
• Increased union activity and industrial relations complexity
• Greater administrative burden
• The need for clear communication and manager capability (especially around requests for flexible working)

Pay transparency legislation and NLW increases further compound these pressures. While HR professionals in 2025 anticipated interpreting legislation and planning for change, in 2026 the focus will be on implementing, enforcing and embedding new legal requirements. Compliance remains inseparable from cost, reward design and employee relations in both years.