Competency-Based Hiring: Why Is It Important?

Competency-based hiring is often discussed in HR circles – sometimes with genuine interest, sometimes as another fleeting trend that may or may not deliver on its promise. But strip away the jargon and the theory, and you’re left with a deceptively simple idea: hire people for what they can do and how they do it – not just what’s on their CV.

As recruitment evolves (and in some instances, gets harder), organisations are being forced to rethink what “qualified” really means. Let’s take a closer look at the benefits of competency-based hiring, and whether it’s right for your organisation.

What Is Competency-Based Hiring?

At its core, competency-based hiring means assessing candidates against a defined set of skills, behaviours and attributes that are essential to success in a given role. Instead of focusing on knowledge, qualifications and education, competency-based hiring prioritises qualifying experience, skillset and capabilities

These might include:

• Technical skills: e.g. knowledge of payroll systems, financial reporting, compliance regulations.
• Behavioural competencies: e.g. problem-solving, adaptability, stakeholder management, attention to detail.

In practice, rather than asking, “Have you done X in your last job?”, a competency-based interview would rather explore “How would you approach X if faced with it tomorrow?” or “Tell us about a time when you…”. The aim is to uncover not just whether someone can do a job, but how they operate when doing it.

And for roles where soft skills, judgement and cultural fit are just as critical as technical expertise – which is most roles, frankly – this approach adds a vital layer of insight into thought-processing styles and character.

Why Now?

There are a few reasons this model is gaining traction again – and not just in HR departments.

The 2025 post-pandemic workforce is more mobile, more hybrid, and in many sectors, more candidate-led than ever before. The linear career path is no longer a reliable indicator of ability; people switch industries, retrain, self-teach. Competency-based hiring helps employees better assess CVs that would traditionally raise ‘red flags.’

It also helps avoid the trap of hiring someone who looks great on paper but struggles in practice. You might be surprised how often that happens – especially in high-responsibility functions like payroll, where precision, discretion and pressure-handling can’t be taught on the fly.

As the UK leader in payroll staffing services, we’ve seen how invaluable this approach can be in identifying talent that might otherwise be missed – and avoiding expensive hiring mistakes driven by assumptions about job titles.

The Benefits – Beyond Just “Better Hires”

Competency-based hiring improves candidate quality, but it does more than that.

It also:

• Creates a clearer framework for assessing and comparing candidates fairly, especially across diverse backgrounds.
• Helps hiring managers articulate what they actually need, rather than relying on recycled job specs or gut feel.
• Supports long-term performance and retention by aligning hires with the real demands of the role, not just the theoretical ones.
• Enables faster hiring decisions – when you know what good looks like, it’s easier to spot it.

And most importantly, it makes interviews more productive. Candidates know what to expect, interviewers know what to ask, and everyone comes away with a clearer sense of alignment (or not), which saves time and avoids mis-hires.

What Competency-Based Hiring Requires

To implement competency-based hiring properly, you need to define the competencies first. That sounds obvious, but many businesses jump ahead without doing the foundational work.

Start by identifying the core skills and behaviours essential for success – not just “nice to haves,” but mission-critical traits. These will vary by role, of course; what you expect from a Payroll Manager won’t match what you need from an Executive Assistant or Reward Analyst.

(And if you’re hiring for a senior comp and benefits function, our guide on what to consider when hiring for a reward manager role can help break that down.)Next, build structured interview questions that allow candidates to demonstrate those competencies – ideally with real examples. Avoid hypotheticals where possible – you’re looking for evidence, not speculation.

And finally, ensure consistency in how interviews are conducted across candidates. Competency-based hiring only works when applied evenly, so if one person is assessed rigorously and another more casually, your outcomes will be skewed.

The Challenges

We won’t pretend this is a perfect system. Competency-based interviews can feel formulaic if not handled well, and they also risk disadvantaging neurodivergent candidates or those with less interview experience – even if they’re highly capable. That’s why it’s essential to approach this model thoughtfully and always be open to adapting it as you go.

We’ve found that the best results come from combining a structured competency approach with space for natural dialogue. Ask follow-ups, allow tangents, and let the candidate show who they are, not just tick a box. At The Portfolio Payroll, we also have an exclusive CIPP Payroll Test that we use to qualify candidates on their knowledge

After all – recruitment is a human business, and while frameworks help, instinct still plays a role.

A Smarter Way to Hire

Competency-based hiring isn’t new, but it is practical, adaptable, and – when done well – consistently effective. It gives hiring managers the tools to evaluate candidates on what really matters, reduces guesswork, and creates stronger, more aligned teams in the long term.

At The Portfolio Payroll, we do believe this approach is worth taking seriously – especially for roles where the margin for error is small and the cost of mis-hire is high.

If you’re struggling to translate business needs into meaningful job specs or want to bring more consistency to your interview process, we’re here to help. We support businesses every day in turning talent strategy into action – and making every hire count.

Want to build a payroll team that performs under pressure? As the UK leader in payroll staffing services, we at The Portfolio Payroll know how to match the right people to the roles that matter most. Reach out today to discover how we can help you.