Australian businesses face skills shortages that will hinder their growth in 2025 - 20% of employees are not proficient, and 30% of organisations struggle with recruitment in a tight labour market (AHRI, 2024). This creates significant challenges when business needs evolve and skill shortages widen. A possible solution is skills-based hiring.
What is skills-based hiring?
Skills-based hiring focuses on evaluating candidates based on their potential rather than on their experience and qualifications alone. This approach involves assessing a candidate's current behaviours and determining how those behaviours align with the job's requirements. It also considers the candidate's ability to learn new skills quickly or improve their existing ones to perform at their best. This type of hiring focuses on specific competencies and transferable skills instead of only focusing on formal qualifications and experience. For example, a candidate may not have a degree in computer engineering but could excel in several coding languages. Similarly, an accountant might not possess a Chartered Accountant designation, yet could effectively manage financial data and transactions. By broadening the criteria for evaluation, skills-based hiring expands the talent pool, making it particularly advantageous for businesses hiring at scale or businesses that cannot afford to pay at the upper quartile of market salaries but need someone who can 'hit the ground running'.
Benefits of skills-based hiring
Increased Quality of Hire
When employees demonstrate the required behaviours or have the potential to do so, their performance and satisfaction improve, leading to positive outcomes for the employees, clients, and the business (Forbes, 2023).
Future-Proof Your Roles
Skills-based hiring provides flexibility in defining career paths. As skills rapidly change, focusing on behaviours fosters effective onboarding for potential candidates and targeted learning, paving the way for internal mobility (HBR, 2023).
Improving Retention Rates
Aligning job descriptions with candidates' skills lowers turnover. Skills-based hiring is five times more predictive of job performance than education, and employees without degrees stay 34% longer (McKinsey, 2024).
Reduce Employment Costs
When approaching candidates already in similar roles, they are often paid around the median salary. To entice them to move, you may need to offer 10% to 30% more, which can increase your employee costs to the upper quartile of the market. Instead, consider candidates, through skills-based hiring, who may not have the official title or salary but exhibit the necessary behaviours. This strategy allows you to attract capable employees without the high costs (Comco, 2025).
Potential barriers to skills-based hiring
Where do I start?
One of the first challenges you may encounter is identifying the behaviours employees need to exhibit to succeed in the role. Conducting a thorough job analysis or competency profiling is essential to understand what the business requires from the position and which behaviours will best meet those needs.
Unreliable and invalid assessments
If you assess candidates' behaviours using unreliable or invalid methods, you will likely introduce biases into your recruitment process, defeating the objective of identifying future-ready employees. Make sure your assessments are valid and reliable.
Lack of investment in onboarding
When onboarding employees with potential and future-ready skills, providing adequate support is important. Without this support, they may feel overwhelmed and begin exploring other job opportunities, leading to challenges in their well-being and retention. It’s important to give them feedback on their strengths and identify opportunities for their development. Additionally, they offer on-the-job training and informal learning opportunities to help them grow.