HR teams are gaining strategic influence, but repetitive administrative work, rising employment costs and widening skills gaps are limiting their capacity to act on it. According to isolved’s 2026 HR Leaders Report, based on a survey of 1,005 U.S. HR decision-makers, 59% report workforce skills gaps, up from 48% in 2025, while nearly half spend at least four hours a day answering repetitive employee questions. The findings highlight a growing challenge for HR leaders: turning their expanding role into measurable workforce outcomes while evaluating how AI, automation and external support can help.
HR’s strategic influence is rising, but capacity remains constrained
HR has made significant progress in becoming a strategic business function, according to isolved’s report. Ninety-nine percent of surveyed HR leaders say their teams are viewed as strategic, compared with 94% in 2025, and 88% are optimistic about the profession’s future.
However, that influence does not automatically translate into more time for strategic work. Nearly half of respondents spend four or more hours each day answering repetitive employee questions. Asked how they would use that time if it were available, 70% said they would focus on strategic initiatives.
The gap illustrates a persistent workforce-management problem: HR teams are expected to shape organizational strategy while still handling substantial volumes of routine employee support. Automating recurring tasks and improving access to workforce information could create capacity for talent development, workforce planning and employee experience initiatives.
Outsourcing is another option under consideration. While 77% of HR leaders believe it could benefit their teams, just 45% plan to outsource in the current year. The difference suggests that recognizing the need for additional capacity does not necessarily translate into an immediate decision to use external providers.
AI adoption expands, with payroll emerging as an early priority
AI is becoming part of routine HR operations, although adoption varies by seniority. Isolved reports that 70% of HR managers use AI, compared with 91% of chief human resources officers. The difference points to an uneven adoption landscape in which senior leaders may be moving faster than some operational teams.
Payroll stands out as both an established area of AI use and a potential target for further investment. Forty-eight percent of respondents identified payroll as an area where their organizations use AI, while 50% saw it as the HR function with the greatest AI potential.
That interest comes alongside continuing operational risk: 65% of surveyed HR leaders reported a payroll error in the previous year. The report does not establish that AI would prevent those errors, but the combination of payroll’s operational importance and reported error frequency helps explain why the function is receiving attention.
For HR technology buyers, the practical question is not simply whether a platform includes AI. It is whether automation can reduce manual work while preserving accuracy, transparency, privacy and human oversight. Payroll decisions directly affect employee compensation, making review processes and clear accountability particularly important.
The technology question also extends to the wider human capital management (HCM) stack. Sixty-four percent of respondents are considering switching HCM solutions within the next 12 months. Among that group, 47% cite stronger AI capabilities and innovation as their leading reason.
This signals potential demand for platforms that can demonstrate useful AI capabilities within established HR workflows. It does not, however, mean that all respondents will replace their systems or that AI is the only consideration shaping purchasing decisions.
Rising costs are changing how employers build teams
Cost pressures are affecting workforce decisions across organizations. Isolved found that 89% of HR leaders face at least one cost pressure influencing those decisions. Benefits and healthcare costs were cited by 51%, while wage inflation and compensation were cited by 50%.
These pressures are prompting some employers to reconsider the balance between hiring, automation and flexible labor. Thirty-four percent said they were increasing investment in AI or automation instead of hiring, 28% were relying more heavily on contractors or temporary workers, and 26% were limiting hiring to selected roles.
The figures point to several approaches rather than a single replacement for traditional recruitment. Automation may help organizations handle some work with existing resources, while contractors can provide flexibility and selective hiring can direct budgets toward priority roles.
For HR leaders, the challenge is to assess these options alongside productivity, employee workload, skills availability and long-term capability needs. Reducing immediate labor costs without addressing the underlying work or capability gap could leave teams struggling to meet business demand.
Skills gaps are widening as recruiting processes fall short
Skills shortages represent another growing constraint. Fifty-nine percent of HR leaders said their workforces have skills gaps, up from 48% in 2025. More than half of respondents, 51%, described the situation as a “talent crisis.” Among those who identified a crisis, 67% pointed to a shortage of skilled workers.
The findings suggest that organizations are facing more than a recruitment-volume problem. Employers must identify which capabilities they lack, determine whether those capabilities can be developed internally and decide where external hiring remains necessary.
Recruitment execution adds to the difficulty. Sixty percent of respondents said their recruiting strategies fall short on speed, while 45% cited weaknesses in candidate communication and feedback. Delays and poor communication can undermine candidate experience at a time when organizations are already struggling to find qualified people.
This creates an opportunity to connect recruiting technology with broader workforce planning. Better skills data, more efficient hiring workflows and internal development programs can help employers understand where talent already exists and where external recruitment is needed. AI may support parts of this process, but the report does not quantify its effect on hiring speed or skills-gap reduction.
The strategic test for HR technology
Isolved’s findings describe a profession with rising strategic expectations but limited operational capacity. AI, automation, outsourcing and HCM replacement are all potential responses, yet each requires a clear business case.
For HR teams, the priority is to identify where repetitive work consumes the most time, where errors carry the greatest consequences and which workforce capabilities are most difficult to obtain. Technology investment is more likely to deliver value when tied to these specific operational needs rather than AI adoption alone.
The survey offers a snapshot of U.S. HR decision-makers’ experiences and plans, not proof that any single technology or operating model will resolve these challenges. Still, its findings show why HR leaders are increasingly evaluating systems, processes and workforce strategies together. Their next challenge is to turn strategic influence into the capacity to make and execute better workforce decisions.
Market Landscape
HR technology purchasing is increasingly shaped by the intersection of operational efficiency, workforce intelligence and AI readiness. Isolved’s survey points to three connected pressures: repetitive work that limits strategic capacity, cost constraints that influence hiring models, and skills shortages that complicate recruitment and development.
These pressures can make HCM modernization more attractive, particularly when organizations want AI embedded in existing workflows rather than deployed as a standalone tool. However, reported interest in switching systems is not the same as completed purchasing activity. Buyers will still need to evaluate integration, implementation requirements, data governance, payroll accuracy and employee impact before committing to a platform.
For HR technology providers, the opportunity is to demonstrate how specific capabilities improve everyday work while keeping people involved in sensitive decisions. For HR leaders, the central measure is whether technology helps the function operate more effectively without compromising trust, compliance or service quality.
Top Insights
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Strategic influence is widespread: 99% of HR leaders say their teams are viewed as strategic, but repetitive employee questions continue to limit the time available for higher-value work.
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AI adoption varies by seniority: Reported usage rises from 70% among HR managers to 91% among chief HR officers, highlighting differences in adoption across leadership levels.
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Payroll is a major AI opportunity: 48% report AI use in payroll, while 65% experienced a payroll error in the previous year.
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HCM replacement is under consideration: 64% are considering switching HCM solutions within 12 months, with stronger AI and innovation leading the reasons among those respondents.
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Skills gaps are increasing: 59% report workforce skills gaps, up from 48% in 2025, while recruiting speed and candidate communication remain common weaknesses.
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