How HR challenges have evolved from 2025 to 2026

In 2026, it’s clear that most of the challenges that HR departments and reward teams are facing, and have faced in 2025, aren’t disappearing.

For both 2025 and 2026, the main issues that organisations are consistently facing are affordability, talent shortages and regulation. However, the nature of these challenges has changed in 2026 compared to 2025. What felt like constraint and anticipation in 2025 has become execution, scrutiny and structural change in 2026.

Based on insights drawn from our UK Reward Management Surveys conducted in Autumn 2024, looking ahead to 2025, and Autumn 2025, looking ahead to 2026, this blog explores the differences in key themes identified by HR and reward professionals, which are set to shape the remainder of 2026.

Affordability: From short-term constraint to structural cost pressure

For 2025, the biggest HR and reward challenge that organisations faced was affordability. This led to tightening budgets, creating modest pay awards, rising benefit costs and the knock-on effects of increasing National Minimum Wage (NMW) and National Living Wage (NLW) for many organisations. Employers were focused on staying competitive in the market while working within constrained annual budgets.

Now, in 2026, the contrast is that affordability is no longer a temporary squeeze for organisations, but more of a structural and ongoing pressure. There’s more reference from respondents to no-profit environments, restructuring, budget cuts and the demand to do more with less. This means that the challenge changes from managing annual pay rounds to funding the total reward proposition sustainably, including pay progression, bonuses and compliance-driven changes.

Many organisations have been constantly trying to balance rising employee expectations against limited financial headroom. However, in 2026, the tolerance they have for incremental fixes is starting to wear thin. This is because in 2025, organisations were managing affordability within their existing frameworks and short-term pay cycles, but for 2026, this is no longer working. Instead, organisations need to shift their focus towards redesigning their reward strategies to remain viable under prolonged financial pressure.

Recruitment, Retention and Skills: From competition to capability building

During both years, a defining feature is the tough competition for talent. In 2025, recruitment and retention challenges were heavily shaped by a tight labour market and skills shortages. This meant that organisations often needed to pay a premium just to attract the very scarce expertise they wanted. During this period, retention efforts were focused on pay frameworks, flexible working arrangements, grading systems and cultural initiatives that were designed to reduce attrition. In 2026, this challenge has become much more integrated and strategic.

These recruitment and retention challenges are no longer treated as separate problems. Instead, they are seen as two sides of the same coin. Employers have started to recognise that they can’t fully rely on external hiring alone. They must also ensure that they build internal skills pipelines, career pathways and succession plans. Alongside this, additional pressures have begun to emerge in 2026, which include:

• 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 a massive compliance concern for the future in 2026. Organisations started to prepare for these future legislation changes by building more robust pay structures, improving their benchmarking and strengthening their internal equity. This meant that during this period, the focus was very much on readiness rather than actually delivering.

However, in 2026, pay transparency has moved into a key focus. It has become one of the most transformative issues for HR and reward teams, which has been constantly driven by UK and EU legislation and the growing expectations of employees.

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

Today, transparency is increasingly being viewed as both a compliance obligation and a way to build trust with employees by most organisations. This view is one that requires a strong governance and financial commitment to make it effective.

In both our 2025 and 2026 prediction surveys, HR professionals pointed out that pay structure integrity and equity are both critical in enabling trust and engagement in a workforce.

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. This means that the focus was on understanding the implications and preparing policies and processes for the future.

In 2026, regulation isn’t theoretical anymore. 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)

On top of these pressures, there’s also pay transparency legislation and the NLW increases, creating a complex combination. In 2025, HR professionals anticipated interpreting legislation and planning for change, while in 2026, they’re focusing more on actually implementing and enforcing the new legal requirements in the workplace. Compliance remains inseparable from cost, reward design and employee relations in both years.

Structural Change and Transformation: From episodic to continuous

Change was present in 2025. However, this was often linked to specific events, such as mergers, large projects or organisational transformation. This meant that the challenge HR faced was mainly about maintaining engagement through disruption and aligning employees with the changing business direction.

In 2026, transformation is expected to occur and be more systemic and ongoing. Most organisations are now halfway through or planning major initiatives such as:

• New job architecture and grading structures
• Career and capability frameworks
• Skills-based pay models
• Reward redesigns during mergers or restructures

These types of programmes need sustained investment, robust data and strong sponsorship at a time when budgets are under a lot of strain. For both years, HR professionals have highlighted that poorly managed change poses serious, significant risks to retention, morale and trust.

Technology, Data and AI: From enablement to necessity

In 2025, technology played more of a supporting role, particularly in recruitment, where AI and digital platforms were used to streamline hiring and manage skills gaps. This required upskilling and internal development to be prioritised, while technology became a supportive enabler rather than a core capability.

This has changed in 2026, as HR technology, analytics and AI have grown into an essential infrastructure. Organisations have started to recognise that they need technology to gain better data to:

• Support pay and workforce decisions
• Manage complex reward frameworks
• Improve productivity and workforce planning
• Enable responsible AI adoption and role evolution

This reflects a broader change toward evidence-based people management.

2025 was when organisations showed how they were experimenting with technology to improve their efficiency, while in 2026, they’re more focused on building mature and integrated HR tech ecosystems. For both years technology is closely related to managing skill shortages and improving decision-making.

Employee Experience, Engagement and Culture: The human constant

Across both 2025 and 2026, the employee experience remains a vital yet vulnerable priority. During 2025, organisations would focus the employee experience on engagement during uncertainty, flexible working expectations and improving benefits where pay growth is limited.

This has changed in 2026 because the importance of the employee experience has been deepened to include wellbeing, psychological safety and cultural stability during prolonged change. There has been a spotlight on burnout risk, mental health concerns and the importance of trust in a workforce, especially as transparency increases and restructuring continues.

While 2025 predictions were focused on sustaining engagement through uncertainty, 2026’s focus has adapted to protecting the wellbeing and morale of the workforce for the long term. As well as this, both culture and experience remain essential differentiators when financial rewards are constrained.

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Overall, the comparison between 2025 and 2026 for HR challenges shows that there isn’t a complete change in priorities. Instead, it highlights that it’s more of an expansion of them. Most of the challenges have remained the same from 2025, but they are more intense, complex and permanent in 2026. What began as cost management, preparation and adaptation for the future in 2025 has now become structural redesign, transparency and execution in 2026.

For HR and reward leaders, this means that the task ahead isn’t simply to get through another difficult year. It’s about rethinking how reward, capability and culture are designed for a constrained, regulated and transparent future. The organisations that will be successful with this are those that can effectively balance cost discipline with clarity, compliance with trust and transformation with humanity. Contact us to discuss your needs with our experts.