For years, conversations about hiring have focused on scale: big enterprises, big budgets, and big workforces. But these discussions often ignore the small and medium-sized businesses (SMBs) where some of the most important work shifts are happening.
SMBs make up the backbone of the global economy, yet their hiring realities are often misunderstood. The State of SMB Hiring Report found that 2025 hiring challenges weren’t rooted in cost or caution, but in complexity from roadblocks like slower hiring cycles, changing labor expectations, and operating with leaner teams–and SMBs are adapting to it.
Large enterprises are now facing many of the same pressures SMBs have dealt with for years: tighter budgets, slower hiring cycles, and leaner teams. But the difference is that SMBs have learned to thrive under those constraints, developing hiring habits that larger companies could benefit from.
Retention-first thinking creates stronger hiring discipline
Half of SMB leaders say their biggest hiring challenge is finding qualified candidates. Nearly as many report that filling open roles was more difficult in 2025 than in 2024. In that context, replacing an employee becomes just as risky as it is disruptive, making retention a top priority.
When it comes to retention strategies, competitive pay is most cited by SMB leaders at 45.9%, outpacing flexible scheduling (39%) and performance bonuses (36.5%). While culture and perks matter, this reinforces that compensation sets the baseline for retention, a reality SMBs can’t afford to ignore.
At the same time, flexibility has become a critical complement to pay. Nearly half of SMBs now offer remote or hybrid work options, and more than half of employees are already working in some flexible capacity. For smaller employers that can’t outspend larger competitors, flexibility is often the difference between staying competitive in hiring or falling behind.
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Leadership perspective shapes hiring outcomes more than policy
The report also found that SMB hiring decisions are driven as much by leadership perspective as by market conditions, revealing clear differences in assessments of risk, growth, and retention.
Gender plays a notable role, with over half of male leaders planning to expand headcount in 2026 while nearly one-third of female leaders expect staffing levels to hold steady. These differences extend into retention strategy as well, suggesting that male leaders are more motivated by direct financial incentives, while female leaders place greater value on autonomy, flexibility, and control over how work fits into their lives.
These aren’t conflicting approaches, but rather a reflection of different risk assessments. Expanding headcount assumes confidence that the business can grow while maintaining profitability and covering the costs of new hires. Flexibility often prioritizes sustainability, engagement, and protecting teams from burnout.
Generational differences further reinforce this pattern. Younger business owners are more growth-oriented, as 51% of leaders under 25 plan to add positions in 2026, compared to just 36.5% of those aged 45-54. Among leaders aged 55-64, the most common plan is to maintain the current headcount rather than expand.
For large organizations, these findings underscore how workforce frameworks are often shaped by hiring leaders’ experiences, not purely rational or reactive decision-making. SMBs make this visible because the people making decisions are directly involved and often see the results right away. Enterprises can benefit from recognizing these differences rather than flattening them into a one-size-fits-all policy.
AI is changing which roles are in demand, not whether hiring happens
Perhaps the biggest misconception about SMB hiring is that technology is reducing the need for people altogether, but the data tells a more nuanced story. More than 84% of SMBs are already using or considering AI and automation tools, and nearly 40% say those tools reduced their hiring needs in 2025.
But reduction is about reallocating work, not shrinking teams. Most SMB leaders expect AI to transform the types of roles they hire for in 2026. Two-thirds believe automation will change job requirements, and 20.8% expect minimal impact, while 23.2% say AI will actually increase demand for more specialized workers.
This reflects a discipline that comes from constraint. SMBs use autonomous technology to absorb repetitive or administrative work, allowing existing employees to focus on higher-impact tasks like customer relationship building, creative problem solving, and company growth initiatives. As a result, new hires are more intentional, more skilled, and more closely tied to business outcomes.
Younger leaders are driving much of this shift. Among SMB owners under 25, more than a quarter say AI has already significantly reduced their hiring needs. By contrast, nearly one-third of leaders aged 55-64 say they’re not using AI and don’t plan to. These generational differences shape not just AI adoption, but how hiring decisions are made in the first place.
The lesson for big companies isn’t to hire fewer people, but with a clearer intent. As automation expands, the question shifts from how many roles to add to which ones truly move the business forward.
Why this matters beyond SMBs
The SMB hiring scene shouldn’t be analyzed as a separate labor market, but rather a preview into where hiring decisions across the economy are headed.
When hiring is costly and teams are small, every mistake shows up quickly, and every gap matters–that makes clarity in decision-making essential. Every new role carries weight, every decision has consequences, and leaders have to be honest about what and who is going to generate the strongest impact.
As large organizations face greater scrutiny around headcount, productivity, and retention, they’re being pushed to rethink how they grow and manage teams. The SMB approach offers a practical model for navigating the future of hiring – one that’s led by retention-first thinking and deliberate use of technology.
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