3 of the Most Critical HR Trends That Will Impact Small and Mid-Sized Businesses in 2025

The workplace changes prompted by the pandemic are still evolving and being tested today, especially for small and mid-sized businesses.

By Katie McLaughlin Walsh, Senior HR Consultant
28th January, 2025
Katie specializes in partnering with global SMBs to build and enhance their HR functions during scale-up and beyond. With a strong foundation as a full HR generalist, she partners with leadership teams to create tailored HR roadmaps, aligning team development with company growth goals.

As employers of all sizes strive to find the optimal balance among in-office, remote, and hybrid work arrangements, they’re tackling many related changes in an effort to ensure the business’s success while enhancing the employee experience.

Based on our work helping premier businesses navigate this environment, NorthstarPMO believes the following are among the most critical trends that will dominate the HR landscape this year and demand greater attention from senior leaders.

1. Engagement Will Become More Purposeful

The shift to remote and hybrid work has redefined the workplace. Though these models eliminate or cut down on unproductive commuting time and provide much-appreciated flexibility, they also make it tougher for employees to feel connected with each other and engaged with the organization as a whole. And while tools like Zoom solved some of the initial logistical challenges, simplifying the mechanics isn’t enough. Successful organizations recognize they need to do much more to meet the expectations of a modern workforce that craves meaning and purpose. The need for better engagement has never been more pressing, as evidenced by a 2024 Gallup survey that found employee engagement has reached its lowest level in a decade. Only 31 percent of respondents reported that they feel engaged and 17 percent are actively disengaged. The engagement measures that saw the greatest declines included clear expectations, strong relationships, and development encouragement and opportunities.

In 2025, businesses will leverage widely available tools to reverse this decline and make employee engagement more purposeful, avoiding the high costs of turnover and enjoying higher productivity and profitability. It’s likely to be a pivot year for engagement, as companies optimize existing tools to better equip employees at all levels to build connections and collaborate effectively. We’ll see organizations invest in training that helps managers provide the guidance their direct reports need, without the benefit of daily in-person interaction.

We also expect to see a rise in micro-communities: subcultures that enable employees to connect more meaningfully with others who share their personal or professional interests or with colleagues they may have nothing in common with but want to get to know. By helping employees build camaraderie, micro-communities can break down the barriers inherent in a workforce that spends little or no time connecting in person.

2. Personalized Career Development will Drive Retention

No organization can thrive without retaining talented, ambitious employees. And the best and brightest will want a clear career path—one that validates their value and provides a visible sign of their progress. Yet, small and mid-sized businesses can’t continually promote employees through job titles and roles of increasing responsibility; there simply aren’t enough such slots to fill.

In the face of this reality, more organizations will make personalized career development a priority in 2025. Hyper-personalized development enables smaller businesses to overcome the challenges of a limited corporate ladder and offer advancement opportunities that fit each individual’s preferences and needs.

AI-enabled tools are making it easier to create customized development pathways that allow employees to grow and develop without necessarily changing roles. These applications help identify each employee’s development needs and define a path forward, matching customized training, coaching, and opportunities to their interests, goals, strengths, and performance history. Though this approach was once limited to high-potential (HIPO) employees, advanced technology makes it feasible to offer personalized development to a much broader group, creating a more inclusive environment.

But while technology will be an important enabler of personalized career development, it’s not the sole solution. Managers will need targeted training on how to expand employees’ roles in the absence of promotion and how to apply coaching techniques to understand each individual’s goals and interests, discern what they value, and identify tasks and projects that enable them to develop the corresponding skills.

3. HR Will Optimize Technology

Many technology solutions already exist to improve a wide range of HR activities, including recruiting, performance management, and benefits administration. The rapid evolution of generative AI is expanding the pool of options and making them even more powerful. Yet, the growing list of readily available and affordable technologies has the potential to feel more overwhelming than useful.

In 2025, small and mid-sized businesses will expand how they use HR tools for the best outcomes. In many cases, that will require customizing and optimizing existing tools for the organization’s specific needs. For example, many businesses have already implemented performance management solutions that improve the review process. This year we’ll see them apply the technology to do much more, such as enhancing goal-setting and tracking. When managers use a tailored, purpose-built tool for these tasks, it makes performance-related discussions more productive and conducive to progress.

Small and mid-sized businesses will also go beyond the basics already in place in many organizations—like automated applicant screening and streamlined compliance reporting—to fully leverage technology’s ability to handle mundane HR tasks. In turn, that will free staff to

focus on more strategic work, such as workforce planning and culture development, along with tasks that require human judgment.

With its ability to streamline routine tasks and synthesize large data volumes, AI will undoubtedly play a role in the evolution of HR. But it will never replace the need for professionals who understand the complexities of a complex work environment and have the expertise to establish guidelines and policies on the effective, appropriate, and ethical use of AI for HR and other functions.

NorthstarPMO Can Help You Respond to These and Other HR Trends

These are just some of the many ways the HR function is rapidly changing, placing new demands on organizations of all types. But CEOs and other senior executives in small and mid-sized companies can find it tough to attend to these issues while handling many other responsibilities and providing the leadership to grow the business. The fractional HR professionals at NorthstarPMO can help you address the HR trends of 2025, taking the burden off your staff and turning potential challenges into positive opportunities. Our team will:

  • Conduct a detailed evaluation and gap analysis of your HR function, then develop a roadmap that gets you where you need to be, effectively and cost-efficiently
  • Help you select, customize, and implement HR tools that boost engagement, facilitate personalized career development, and achieve other essential goals
  • Advise you on how to drive adoption for both new and existing HR tools, so you maximize their value
  • Train your managers on how to boost engagement with their teams and across the organization, using effective techniques like gamification and focusing on critical skills such as open communication, goal setting, coaching, and conflict resolution
  • Help you develop policies for appropriate AI use, both in HR and across other functions

When you choose NorthstarPMO’s fractional HR service, you gain access to a trusted HR professional or team on a flexible, customized, part-time basis. We leverage our expertise and experience to help you tackle whatever HR challenges your business faces, while keeping you compliant and competitive. And by taking on your HR function, we free your team to focus on other critical initiatives. If you’re facing new HR challenges in the new year, NorthstarPMO is ready to solve them. Book a discovery call to learn more.