Why Skills-Based Hiring Is On The Rise

Tech & Finance Recruiting

By Ringside Talent Partners

March 8, 2023

In recent years, companies have been more willing to consider applicants who don’t necessarily have a college degree or minimum years of experience. It’s one of the top workplace trends known as skills-based hiring. According to TestGorilla’s The State of Skills-Based Hiring 2022 report, 76% of employers use some skills-based hiring to find new talent, with almost 55% using role-specific skills tests.

It’s also evident that the shift is accelerating, given that a growing number of professionals don’t need a degree to perform their jobs. For example, in the U.S., over the past year, LinkedIn has seen a 21% increase in job postings advertising skills and responsibilities instead of qualifications. In addition, according to a recent SHRM survey, 1 in 4 organizations that use pre-employment tests plan to expand their use of them in the next five years. And of those who don’t use them, 1 in 10 plan to start.

Despite a challenging economy, companies struggle to attract and retain highly skilled workers. That’s why being able to pivot and implement cutting-edge talent practices is more critical than ever. Let’s look at why the most forward-thinking employers are embracing skills-based hiring.

Better quality of candidates

When a company hires the wrong person, it can be costly. In research by Dr. Bradford Smart, author of Topgrading, the estimated cost of a bad hire ranges from five to 27 times the amount of the person’s actual salary. Yet, when companies implement skills-based hiring, the quality of candidates increases. According to the TestGorilla survey, 92.5% of companies have seen a reduction in their mis-hire rate, with 44% reporting a decrease of more than 25%.

Expanded talent pool

One of the most obvious advantages of a skills-based hiring approach is that it results in a broader pool of workers. At a time when top talent in many industries is scarce, that can be a huge benefit. Moreover, the interest in skills-based hiring goes beyond the private sector. For example, in May 2022, the state of Maryland announced it would remove four-year college degree requirements for almost 50% of its positions. This change is a revolutionary move that allows qualified, non-degree candidates to be considered for opportunities.

Accelerated time to hire

Time to hire—the time that elapses between a candidate entering a company’s talent pool and getting a job offer—is an essential metric for recruiters. Skills-based hiring results in a more speedy, efficient hiring process. By assessing candidates early on, HR teams can quickly rank applicants based on their quantifiable skills. For instance, of the companies surveyed by TestGorilla, 91% saw a reduction in their total time-to-hire, with 40% reporting a decrease of more than 25%.

Reduced hiring costs

When recruiting based on skills, you fill vacancies faster. That means the total cost of advertising and marketing the position is reduced. Also, candidates hired in this manner require little to no training, which saves time and money during the onboarding process.

Improved retention rates

Another benefit of skills-based recruiting is that it helps strengthen retention. According to McKinsey, “hiring for skills is five times more predictive of job performance than hiring for education and more than two times more predictive than hiring for work experience.” Employees without college degrees also tend to stay in their roles 34% longer than those with degrees. At a time when staff turnover rates are on the rise, hiring based on skills can be a huge advantage.

More diverse workforce

The cost of a college education has increased a whopping 25% over the last 10 years. As a result, career paths that require a four-year degree remain inaccessible for millions of Americans who can’t afford it. Skills-based hiring furthers workplace diversity, equity and inclusion by opening doors for people historically excluded from jobs based on education. It also allows candidates to be considered equally as long as they can perform the duties required.

Skills-based hiring is more than a buzzword. It’s a win-win for both organizations and the people that work there. For companies, it offers the agility and flexibility required in the current economic environment. For employees, it opens up opportunities and encourages a culture of continuous growth and development. The question is whether more organizations will be willing and able to implement these hiring practices to keep pace with the demands of today’s workforce. Only time will tell.


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