An Introduction to Skills-based Hiring

Skills-based hiring is rapidly gaining ground over traditional degree-based recruitment. NACE found that nearly two-thirds of surveyed employers used skills-based hiring, and that more than half of employers used skills-based hiring always or most of the time in their hiring processes.

This illustrates a shift in hiring: companies are increasingly recognizing that skills, not credentials, determine job success.

Yet, although skills-based hiring is promising, some might argue that skills-based hiring does not fully address key challenges (and NACE research also shows that 46% of employers still screened candidates by their college grade point average).

One thing we all can agree on? We're moving towards an era where creating equitable opportunities for all job seekers is vital for workplace diversity. Read on to discover how skills-based hiring can be a driving force for change.

Key Takeaways

• Skills-based hiring prioritizes people’s skills over their formal qualifications and certifications.
• It aims to provide a solution to the talent acquisition gap in several vital industries around the world.
• Compared to traditional hiring methods, skills-based hiring can provide a more inclusive hiring process.
• You can tap into a wide pool of overlooked skilled talent by opening up your search to candidates without college degrees. 

What is skills-based hiring?

Skills-based hiring is a way to recruit candidates based on their skill set rather than traditional markers like college degrees or formal credentials. This approach aims to yield more qualified candidates, increase diversity, and create a fairer hiring process in many cases. 

In its simplest form, skills-based hiring is finding candidates whose specific skills align with the job in question.

This approach is gaining traction as organizations seek to address talent shortages and enhance workplace diversity. It enables employers to tap into a broader talent pool, particularly among candidates who are skilled through alternative routes (STARs) rather than formal education.

“75% of employers report difficulties filling roles across industries like IT, healthcare, and logistics​” — ManpowerGroup

75% of employers report difficulties filling roles across industries like IT, healthcare, and logistics. Plus, these sectors often require specialized skill sets that are scarce or emerging, further complicating talent acquisition efforts.​ 

For instance, the public sector struggles to find the best talent in fields like cybersecurity, or other technical fields like healthcare and engineering. Many of these roles require niche skills that are not always covered by a conventional college degree. 

In the private sector, technology-driven roles like data science are notably difficult to fill. Employers face a mismatch between rapidly evolving job requirements and the static qualifications provided by traditional degrees.

Skills-based Hiring vs. Traditional hiring

What is driving the shift towards skills-based hiring? 

Economic Shifts

With tuition fees at record highs, many individuals opt for alternative education routes, such as coding boot camps, online courses, or vocational training, to acquire job-relevant skills without incurring debt. 

This trend makes it logical for employers to focus on demonstrable skills rather than requiring expensive and often inaccessible degrees. For example, companies like Google and IBM now accept candidates from alternative educational backgrounds, emphasizing skills-based assessments instead.

Again, employers are motivated by cost efficiency. While a 4-year bachelor’s degree can show that a person is schooled in their field, it doesn't guarantee that they're skilled for the job. 

Technological Evolution 

Advances in automation, artificial intelligence (AI), and digital tools have created a demand for specialized skills that traditional degree programs often fail to address. As industries increasingly rely on tech-based solutions, hiring individuals with specific, job-ready skills is becoming more important.

Companies like Microsoft, for example, might require hands-on skills for roles in AI, a field where traditional degrees may be less critical than practical expertise. 

This focus on competencies ensures employees can adapt to new tools and innovations, making skills-based hiring not only practical but essential in tech-driven industries.

Even more, technology-driven hiring tools have simplified the identification of skills-based candidates. AI-powered recruitment platforms, like those offered by Daxtra, analyze resumes and match candidates with jobs based on their demonstrated competencies rather than their formal education. 

This precision can help reduce hiring bias and improve efficiency, further supporting the shift toward a skills-first approach.

The Pandemic Effect

The COVID-19 pandemic profoundly accelerated the shift toward skills-based hiring. One major impact was the widespread need for workforce adaptability. 

As businesses rapidly adopted digital tools and remote work environments, they required employees with the technical skills and flexibility to thrive in these new settings. Employers quickly realized that traditional degree requirements often excluded highly capable candidates with practical experience in areas like collaboration software, digital communication, and cloud technologies.

Companies like Salesforce launched reskilling initiatives during the pandemic, such as Trailhead, to help workers develop essential digital skills. These programs emphasize tangible competencies over formal education, enabling individuals to transition into new roles and industries more effectively.

Another factor was the surge in demand for frontline and essential workers during the pandemic, which exposed the inefficiencies of degree-based hiring. Many industries, such as logistics and healthcare, began focusing on job-specific skills and certifications rather than formal degrees to fill roles quickly. This trend highlighted the need for streamlined hiring processes that prioritized skills over credentials.

The economic strain of the pandemic also played a role. With millions of people displaced from their jobs, the focus on skills allowed individuals to pivot to new careers through targeted training programs. Governments and organizations worldwide supported this shift, offering initiatives like the UK’s "Lifetime Skills Guarantee" to help workers acquire new, in-demand skills.

Are there any benefits to skills-based hiring? 

Skills-based hiring is efficient because it allows you, as a hiring manager, to focus your time and resources on candidates who are likely to be a good fit for the job. It can also help you select candidates with the right skills to excel in their roles and thrive within the company for the long term.

Faster Time-to-hire 

Skills-based hiring can help you close the talent gap faster by shortening the time to hire and keeping hiring costs low while helping you concentrate on candidates' skills first.

Using an AI-powered sourcing tool makes it faster and easier to find top talent with skills matching open positions. This assures you a much quicker sourcing time and, ultimately, a faster time-to-hire.

More Diverse Talent Pools 

This hiring approach naturally expands access to diverse talent pools by removing unnecessary barriers, such as degree requirements, that disproportionately exclude underrepresented groups.

“Over 70 million U.S. workers lack four-year degrees but possess valuable skills gained through work experience, military service, or vocational training.” — Opportunity@Work

Opportunity@Work found that more than 70 million US workers don't have four-year degrees, but instead possess valuable skills gained through work or life experience. These people are often overlooked in traditional hiring processes - despite being highly capable. 

By emphasizing skills over formal credentials, companies can engage candidates from varied socioeconomic backgrounds, including minorities and individuals from underserved communities. 

For example, LinkedIn’s 2023 Global Talent Trends report noted that organizations with inclusive hiring practices were 36% more likely to outperform competitors in profitability and productivity. 

Walmart, a leader in skills-based hiring, has adopted policies that open doors to candidates without degrees, significantly increasing its representation of women and people of color in leadership roles.

Focusing on skills also addresses the structural inequities tied to education. The Bureau of Labor Statistics found that in 2022, 34% of Black workers and 25% of Hispanic workers in the U.S. hold a bachelor’s degree, compared to 44% of White workers. 

Removing degree requirements can help ensure a more level playing field, allowing diverse candidates to compete based on their abilities rather than their access to higher education.

More Suitable Candidates 

In the candidate-driven market, there isn't a good reason for companies to require a 4-year degree when you can measure hard and soft skills through assessments. After all, a degree is only a representation of the skills a candidate might possess. 

If you hire based on skill, you have the potential to pinpoint the exact fit for a position. If a candidate has A, B, and C skills, then you should be a good fiit for the role that requires A, B, and C in its day-to-day responsibilities. Plus, a college degree in a certain field doesn’t guarantee that a candidate has the right combination of skills for your role:

"Regardless of an applicant's education, there is no guarantee that someone who has graduated from college will succeed in the business world." — Entrepreneur.com

Increased Employee Retention Rates 

Skills-based hiring can increase employee retention rates. SHRM found that employees hired based on skill tend to stay 9% longer than employees hired through traditional methods. 

If you hire based on skill, you’re more likely to have employees who are great fits with their job descriptions, which, in turn, leads to more satisfied employees and better retention rates.

How can you adopt skills-based hiring practices?

How do you shake the old practice of requiring a four-year degree and move into a skills-based hiring mode? The key is to shift into new ways of thinking and hiring. This can be challenging at first, but a good way to get started is to focus on these three things:

• Job descriptions 
• Sourcing tools 
• Skills assessments 

Job Descriptions 

Adopting skills-based hiring begins with transforming job descriptions to focus on essential competencies rather than formal qualifications. Follow these processes to get started:

Sourcing Tools

Invest in recruitment automation software that sources and ranks by skill. Consider a solution that identifies the top skills of each candidate, shortlists them, and comparatively ranks candidates against each other. 

For example, Daxtra’s Search Nexus indexes the candidate records and applies intelligent "natural language" ranking based on a candidate's skills within context, so it ranks the results like a human would, only faster and without having to scroll through pages and pages of search results.

Skills Assessments

How can you assess a candidate's skills without relying solely on a degree? The answer lies in  skills assessments. There is a myriad of assessment tools out there, but you’ll want to use a tool that provides data and leverages real research behind their processes and assessment creation. 

These assessments will help you gauge the abilities and skills of job applicants and help identify the individuals who have the necessary skills for the job while weeding out others.

Types of assessments include:

• Hard skills assessment – tests on skill proficiency
• Work sample test – tests on actual duties related to the position
• Cognitive ability test – tests performance levels and mental ability in different situations under various conditions
• Personality test – identifies and tests on traits best fit for specific roles and cultural fit
• A combination of the above

A bit of work and consideration must go into choosing assessment tools—you’ll need one that’s right for your hiring goals, and one that provides a positive candidate experience. So make sure to dive deep and ask questions about any tool you’re considering. 

Related: 6 Things to Consider When Evaluating GenAI Recruiting Tools

What does a skills-based hiring job posting look like? 

A good job posting is vital to the candidate sourcing and hiring process. It is used to communicate clearly and concisely what an open position entails. 

For competency or skills-based hiring, HR experts recommend rewriting descriptions that focus on skills, competencies, and merits and doing away with strict requirements and qualifications.

Questions to consider when writing a job description/posting:

• What are the expectations for the position?
• What are the areas of knowledge and expertise the position entails?
• What are the basic skills needed?
• Which skills are required, and which are preferred or desired? 
• What results are you looking for?
• What might be a blue-sky skill (a skill that isn’t something you need, but would be awesome to have)? 

Consider the day-to-day processes and responsibilities of the job opening. Get a good idea from people who are familiar with the opening and what is required to be successful at the job. Then, write a list of the necessary hard and soft skills. You may include proficiency level as well, especially for software knowledge. Include the general job description, company profile, and culture statement.

Think about the ideal candidate and consider throwing in a blue sky or extra credit skill, “it’s not required, but it would be great if you also had this skill.” Who knows? You might find your purple squirrel with a request like this!

Work hard at substituting things like “responsibilities” for “requirements” and “qualifications desired” for “qualifications necessary.”

With all of this information in mind, you end up saving a lot of valuable time when you create best practices for writing descriptions. A tic-list of skills that you can check off with each candidate helps identify a better fit for the job. Even better is sourcing software that can do this for you by identifying and ranking candidates.

Related: How to Write an Effective Job Posting

Make the Most of Skills-based Hiring with Daxtra

For too long, recruiters have overlooked amazing candidates who have been right under their noses. The good news? Many now recognize that degree inflation caused a misconception: that degrees were necessary for jobs that don't actually require them.

Fortunately, recruiters and hiring managers are increasingly prioritizing the skills candidates bring to the table, rather than just focusing on their education. This positive shift is paving the way for skills-based hiring to gain momentum.

Skills-based hiring not only opens doors for talented individuals, but also enables companies to tap into a more diverse talent pool that better fits their needs. Plus, this approach enhances employee experience and can improve retention rates, creating a win-win for both candidates and the organizations that hire them. 

Daxtra's recruitment solutions use powerful AI and machine learning to help understand the context of skills on candidates’ resumes. This ensures that you find more qualified candidates more quickly—leading to stronger hires and ultimately better retention rates.

Contact us today to learn how Daxtra can support your skill-based hiring strategies!