Top 7 HR Challenges in 2026

The HR landscape continues to shift rapidly. What worked even two years ago may no longer be fit for purpose as organisations navigate economic uncertainty, evolving workforce expectations, and technological change. For HR professionals, 2026 brings a distinct set of challenges that require strategic thinking, adaptability, and often significant organisational change.

1. Talent Acquisition and Retention in a Competitive Market

Despite economic headwinds, competition for skilled talent remains fierce in many sectors. Organisations are struggling to attract candidates with the right skills, particularly in technology, engineering, and specialist professional roles.

Retention has become equally challenging. Employees are more willing to move for better opportunities, better pay, or improved work-life balance. The cost of replacing experienced staff – both financially and in terms of lost knowledge – makes retention a critical business issue.

HR teams are having to rethink their entire employee value proposition, from compensation and benefits to career development and workplace culture. Traditional approaches to recruitment and retention simply aren’t cutting through anymore.

2. Diversity, Equity, and Inclusion

DEI has moved from a nice-to-have to a business imperative, but progress remains uneven. Many organisations are struggling to translate good intentions into meaningful change.

The challenge isn’t just about recruitment – it’s about creating genuinely inclusive cultures where diverse talent can thrive. This means examining everything from promotion processes and pay equity to everyday workplace interactions and leadership representation.

HR professionals are also navigating increased scrutiny around DEI efforts, both from employees expecting meaningful action and from stakeholders questioning approaches and outcomes. Inclusion as one of the top HR challenges requires sustained commitment and willingness to address uncomfortable truths about organisational culture.

3. Managing Hybrid and Remote Work

The pandemic permanently changed where and how people work. Most organisations have settled into some form of hybrid arrangement, but getting it right remains complex.

HR teams are balancing employee preferences for flexibility against business needs for collaboration and culture-building. There are questions about fairness – how to ensure remote workers aren’t disadvantaged in terms of opportunities and visibility. There are practical concerns about productivity measurement, technology infrastructure, and maintaining team cohesion.

Then there’s the legal and policy side: updating contracts, managing equipment and expenses, ensuring health and safety compliance for home workers, and navigating right-to-work checks remotely.

4. Employee Wellbeing and Mental Health

Workplace stress, burnout, and mental health concerns continue to rise. The boundaries between work and personal life have become increasingly blurred, particularly for remote and hybrid workers.

Organisations are expected to do more than just provide an Employee Assistance Programme. There’s pressure to create psychologically safe workplaces, train managers to spot and respond to wellbeing concerns, and build cultures where people feel able to discuss mental health without stigma or career consequences.

The challenge is that while awareness has increased, many HR teams lack the resources, expertise, or organisational support to implement meaningful wellbeing strategies. And when wellbeing initiatives are performative rather than genuine, employees see through it quickly.

5. Navigating Employment Law Changes and Compliance

Employment law continues to evolve, and staying compliant requires constant vigilance. Changes to flexible working rights, updates to parental leave regulations, ongoing GDPR requirements, and emerging legislation around AI in recruitment all demand HR attention.

Non-compliance can be expensive – both in terms of potential tribunal claims and reputational damage. But compliance alone isn’t enough. HR teams need to interpret legislation in ways that work practically for their organisation while protecting employee rights.

For smaller organisations without dedicated legal resources, this challenge is particularly acute. HR professionals are expected to be employment law experts on top of everything else.

6. Skills Gaps and Workforce Planning

The skills organisations need are changing faster than they can hire or train for them. Digital transformation, automation, and evolving business models mean that the workforce of today may not have the capabilities needed tomorrow.

HR teams are grappling with workforce planning in an uncertain environment. Which skills will be critical in three years? Should we build or buy talent? How do we reskill existing employees while also bringing in new expertise?

This requires HR to work much more strategically with business leaders, understanding not just current needs but future direction. It also means building learning cultures where continuous development is embedded rather than treated as an occasional training course.

7. Pay Transparency and Reward Strategy

Employees have more information than ever about what others earn, thanks to salary benchmarking websites, social media discussions, and increasing legislative requirements around pay transparency.

This is forcing organisations to examine whether their pay structures are fair, defensible, and competitive. HR teams are dealing with difficult conversations about pay gaps, requests for salary increases backed by market data, and pressure to be more transparent about how pay decisions are made.

Reward strategy has become more complex too. With tighter budgets, HR professionals are trying to create compelling total reward packages that go beyond base salary – but employees are savvy about what truly adds value versus what’s just window dressing. 

The Common Thread

These challenges are interconnected. Poor wellbeing affects retention. Lack of diversity limits talent pools. Unclear reward strategies undermine attraction efforts. Addressing any one challenge in isolation rarely works.

What’s clear is that HR’s role has become more strategic and more complex. The function needs to be forward-thinking, data-informed, and willing to challenge organisational norms when necessary. It also needs leaders who can make the case for HR investment even when budgets are tight.

Building Resilient HR Teams

Tackling these challenges requires HR professionals with the right mix of strategic thinking, people skills, and technical knowledge. Portfolio HR & Reward has been placing HR professionals since 1988, and we’ve seen how the demands on the function have evolved over more than 35 years.

As the #1 rated recruitment agency on Trustpilot with over 3,000 five-star reviews, we understand what differentiates HR professionals who can navigate complexity from those who struggle when challenges mount. Our consultants work with organisations to identify not just technical capability but the adaptability and strategic mindset needed for modern HR roles.

We provide salary surveys, market insights, and benchmarking advice to help organisations build HR functions capable of responding to these challenges effectively.

Work With HR Experts

Whether you’re looking to strengthen your HR leadership team, build specialist capability in areas like employee relations or reward, or find HR professionals who can handle the breadth of challenges facing the function, Portfolio HR & Reward brings deep expertise to your search.

For specialist hiring in HR and reward strategy, contact Portfolio HR & Reward’s recruitment team.