Are SMEs leveraging AI in HR to help with decision-making processes?

With artificial intelligence (AI) tools popping up everywhere, human resource (HR) departments may find AI data helpful with hiring, retention or lay-off decision-making. But are small to medium-sized enterprises (SMEs) leveraging AI data to transform these HR processes? Capterra surveyed over 1,300 SME employees regarding the implementation and concerns of AI in HR in Australia.

The technology landscape continues to evolve in the workplace as AI tools can help HR professionals deal with the everyday challenges that their departments may face. Capterra's first article in this two-part series on employee exit strategies looked at how Australian SMEs manage offboarding processes. Whilst AI can help with various HR-related tasks, such as onboarding, retention and redundancy procedures, it is no stranger to controversy.

HR-related decisions made by AI tools may come with ethical concerns. For HR professionals, it's vital to avoid unconscious bias or favouritism with potential new hires, promotions or redundancies. Rules must be in place if companies incorporate AI data into decision-making processes to ensure they treat employees fairly. Australia has yet to implement specific legislation or regulations solely dedicated to AI. So what are the general opportunities and concerns about using technology to aid HR professionals?

Capterra interviewed 1,376 employees working in the same company for the last year to understand how Australian SMEs use AI in HR. The full methodology is available at the bottom of this article.  

One in five Australian SMEs use AI in HR

The use of AI in HR can save HR professionals time by automating manual tasks, such as finding applicants that match job descriptions, scheduling interviews, shortlisting skilled candidates and personalising employee training programs.

Surprisingly, Capterra found that most SMEs (60%) don't use HR-related AI tools, according to employees surveyed. Only one in five (21%) said their HR department uses AI technology in any aspect. SMEs will likely have a smaller workforce and a tight budget to invest in tools initially. But HR-related AI tools can help automate certain tasks where employee resources are limited, especially for newer businesses. This enables employees to focus on tasks humans may do more effectively with soft skills, such as communication and empathy.

AI technologies have been integrated into various HR tools and can help automate repetitive processes, analyse large datasets and make data-driven decisions. Employees might be unaware that AI is incorporated into HR tools, meaning more SMEs may use it than stated.

HR tool adoption can also vary among SMEs as companies will want to embrace software for processes that are specific to their needs. Capterra asked survey-takers who said their HR department uses software to share which tools they are using. Unsurprisingly, the most popular are HR (35%) and HR analytics software (35%).

These were followed by:

• Employee recognition software (30%)
• Attendance tracking tools (29%)
• Performance appraisal software (28%)

When it comes to adopting new technologies, there are likely to be challenges for any company. The barriers that companies face investing in new tools were highlighted in Capterra's Buyer Behaviours Survey in 2022.

71% of employees are uncomfortable with AI determining lay-offs

For the employees who said their company's HR department uses AI technology in some aspect, over half of respondents (52%) said they are concerned about AI-powered HR in general. It is understandable that some workers may have ethical concerns about HR tools assisting in making decisions in sensitive areas such as employee dismissals.

Most survey respondents (71%) said they are uncomfortable with AI technology determining which employees to lay off in their company, with only 29% feeling comfortable. When asked why they felt uncomfortable, survey-takers mostly said, 'it’s unethical to make that kind of decision through AI' (55%).

While software can provide insights by analysing various employee data, such as performance metrics, attendance records, and skillsets, it lacks human judgement. Therefore it is essential to strike a balance between both. HR professionals are more likely to consider personal circumstances or extenuating factors that may affect the reasons to keep an employee or let them go. An AI-driven process may overlook reasonings and intensify feelings of discomfort among workers.

But not all employees surveyed were as anxious about using such technology. Capterra asked the employees who feel comfortable with AI determining lay-offs for the reasons why. The most popular answer was that AI could ‘avoid decisions based on a manager's personal issues with an employee’ (44%). Other reasons some employees felt comfortable were:

• AI is unbiased (39%)
• AI can rely on real data about performance to make a decision (36%)
• AI can generate more accurate decisions (30%)

Undoubtedly, people can be susceptible to biases and emotions. AI tools can minimise the potential for favouritism or unfair treatment, which may otherwise occur from someone’s personal grievances. However, SMEs should combine objective data analysis with human expertise and emotional intelligence. This is vital for a fair and ethical approach to lay-off decisions. 

How the use of AI in HR decision-making may affect employees

Most survey-takers (77%) said their company is not currently using AI technology to help determine job lay-offs. However, 14% of survey respondents were unsure, perhaps showing more communication is needed on this topic at their workplace. Only 9% of respondents said their company uses AI tools to aid with lay-offs. 

One of the downsides of using AI tools to make crucial HR decisions is the impact it could have on some employees’ well-being, especially those concerned about job security. Most respondents (71%) said if companies did use AI to lay-off employees, it could lead to heightened stress levels among staff. Only 18% didn’t think it would raise their stress levels. 

The use of AI in this type of decision-making could also lead to employees worrying over their work habits and perhaps questioning how well they are performing. Capterra found that 39% of employees said they would change their work habits, knowing that lay-offs would be more data-driven and AI-based. But the habits that respondents said they would work on the most can be interpreted as positive changes. The habits are as follows: 

• Focusing on goals and key performance indicators (KPIs) (44%)
• Trying to develop new skills (34%)
• Getting involved in new projects (19%)

Employees think training is the most trustworthy use of AI in HR

Employees surveyed by Capterra have different levels of trust and comfort with AI being used for certain HR processes, such as recruitment and selection, employee development and training, and dismissals. So how trustworthy do workers think tools are when used in these areas of HR? According to survey results, employees mainly trust AI tools for training purposes (67%).

Many employees may appreciate continuous learning opportunities, and training tools can personalise the experience with content relevant to their roles and career goals. AI-powered adaptive learning platforms use real-time feedback to adjust the difficulty and pace of training modules based on the learner's progress. This personalised experience can help increase employee engagement and motivation.

Trust levels in AI are lowest in its use for lay-offs (27%), possibly because of a fear of bias or perceived inaccuracy. Workers may need clarification on the reliability of AI in aiding such critical judgements. But again, it's vital to reiterate that redundancies are not solely based on AI data. Employees must understand that human oversight is crucial during a redundancy process. 

The future of AI in HR decision-making

It seems that SME employees see a future for the use of AI in HR whether they are onboard with the idea or not, as half of survey-takers (50%) agreed with the statement: 'In the near future, technology such as AI will be the main driver in making critical business decisions such as lay-offs'. 

Capterra’s survey has found that trust levels vary when using AI in HR, especially when making decisions on sensitive subjects. Unsurprisingly, many workers want humans involved in critical HR decisions that could directly impact their employment. Whilst technology and AI adoption seem inevitable, where do companies start?

Consider the following tips to prepare for the implementation of AI in HR:

1. Identify HR pain points: Focus on the specific HR tasks or processes that can benefit the most from automation. This could include candidate screening, employee onboarding or performance management.

2. Start small and scale gradually: AI implementation can be costly, so begin with pilot projects to test AI solutions and their impact. Gradually expand the use of AI in HR as you become more confident and have seen results with the technology.

3. Choose the right AI solution: Select tools and platforms that align with your HR department's objectives. Consider factors like ease of integration, user-friendliness and pricing.

4. Ensure data quality and security: Ensure your HR data is clean and properly stored. Prioritise data security and compliance with relevant data protection regulations to maintain employee trust.

5. Train HR staff: Provide adequate training for HR staff to help them understand and leverage AI tools effectively. Ensure they are comfortable with the technology and use it to enhance their processes.

6. Promote transparency: Be clear with employees about the use of AI in HR processes. Explain how AI-driven decisions are made, and address any concerns about potential biases or fairness issues. 

While AI can automate many HR tasks, it's important to remember the necessity of the human touch. HR professionals must keep opportunities available for direct communication with employees, especially for more sensitive or complex matters. HR representatives can combine their soft skills with AI data analysis and remain transparent with employees about using AI for critical HR decision-making processes.