How Skills-Based Hiring Will Transform Talent Acquisition in 2025

Today’s labor market is strikingly different from a decade ago.

Fewer candidates have the ‘traditional’ background of a four-year degree; instead, we have a growing number of young people who choose online education in favor of college, more senior staff opting for portfolio careers (with several jobs in not-always-related fields), and plenty actively upskilling in a new area.

All these professionals hold valuable competencies, but you might not spot them in a sea of resumes. So, to ensure recruiters are identifying the right people to fill their vacant positions, skills-based hiring is now a top talent acquisition tactic.  

TL; DR—Key Takeaways

• Skills-based hiring shifts hiring managers’ focus from candidates’ self-reported credentials, such as degrees, experience, or job titles, to verified real-world competencies.
• Educational institutions struggle to align curriculums with real job requirements. Both employers and graduates feel degrees no longer provide the competencies needed in the modern workforce. Alternative educational paths, such as online programs and professional training, are gaining traction.  
• Employers eliminate skills mismatches, address talent shortages, and future-proof organizational growth by focusing on candidates’ actual skills rather than how they acquired them.
• Companies with skills-based hiring practices report benefits like higher caliber candidates, lower cost-per-hire, improved candidate experience, and overall team diversity.
• To succeed with skills-based hiring, you need to understand the professional competencies and personal qualities needed for the open role.
• Based on our experience, we recommend using skills assessments as a pre-screening method for roles with many applicants and as a reliable measure of candidate competencies for shortlisting.
• Combine different types of assessments and interview formats to screen for qualities your organization needs. 

What is skills-based hiring, and how is it revolutionizing the hiring process?

Skills-based hiring is a talent acquisition approach that systematically evaluates candidates’ real-world abilities and competencies rather than using college degrees or other educational credentials to determine their job fit.  

Put simply, skills-based hiring focuses on what the candidate can do, not just their job titles or educational background. That’s a power move because it allows you to attract a wider talent pool, gain greater confidence in candidate assessments, and increase your time-to-hire. 

Hiring for skills is 5x more predictive of job performance than hiring for education and more than 2x more predictive than hiring for work experience.

McKinsey & Co

Criteria	Skills-based hiring	Traditional hiring
Focus	Emphasizes skills and competencies	Prioritizes education and work experience
How talent is evaluated	Skill assessments, practical tests, and performance-based evaluations	Resumes, cover letters, and interviews
Hiring bias	Reduces unconscious bias by focusing on skills rather than background	Prone to biases based on education, work history, and personal factors
Diversity & inclusion	Increases workforce diversity by considering a wider range of candidates	Potentially faster due to a more streamlined evaluation process
Candidate pool	May limit diversity due to the focus on traditional qualifications	Smaller pool due to focus on specific qualifications and experience
Speed of hiring	Potentially faster due to more streamlined evaluation process	May be slower due to extensive background checks and evaluation of qualifications
On-the-job performance	Higher correlation with job performance as hiring is based on skills needed for the role	Lower correlation with job performance due to reliance on formal credentials
Employee retention	Higher retention as employees are better matched to job requirements	Lower retention due to potential skills mismatch

Education skepticism, the driving force behind skills-based hiring

Is a college degree worth it? Both hiring managers and job seekers have their doubts. 

There is a growing disconnect between what curriculums teach and what employers require. 90% of employers surveyed by Newsweek don’t believe higher educational institutions produce graduate students with “relevant skills that today’s business community needs.”  

This is a global problem. For example, Germany lacks 310k professionals in science, technology, engineering, and mathematics (STEM). According to a 2023 report by The German Economic Institute, the proportion of graduates in these areas is declining.

In Belgium, the Netherlands, and France, over 60% of employers struggle to find people with the right skills, although graduate rates haven’t dropped sharply. Candidates also realize that college is no longer the ‘golden ticket’ to a successful career. 

Only half of American workers believe a college degree is necessary to get a well-paid job, Pew Research found. The prospect of acquiring crippling college debt is also a deterrent. Only 22% agree the cost of college is worth it if you need to take out a loan. 

In Europe and the UK, where higher education is more affordable, graduates also struggle to justify their educational decisions. In an interview with The Guardian, Noah, a 23-year-old graduate in modern history BA, found a new well-paid job because he taught himself to code during classes. That’s hardly a unique story if you browse LinkedIn. 

Over 70 million U.S. adults are skilled through alternative routes and possess skill sets for more senior roles that they currently hold.

Opportunity at Work

More and more workers complete online courses and training programs to sharpen their skills and get new jobs.

The new cohort of upskilling startups, such as BloomTech (software engineering), BrainStation (UX, cybersecurity, digital marketing), and Chegg Skills (various digital professions), is deferring tuition until participants secure a job.

Large corporations like Amazon, Microsoft, and Google have also launched free initiatives to prepare for the future of work. 

The rise in online learning opportunities is driving further reluctance among professionals to pay top dollar or enroll in rigid-schedule, outdated programs. At the same time, it eliminates the utility of a “college degree” as a reliable proxy measure of job seekers’ qualifications — a reality that now exists among many employers.

Indeed found only 18% of job postings in the US still include degree requirements. In general, formal education requirements have declined in 87% of occupational sectors. 

Why so many companies are taking a skills-based hiring approach

Traditional hiring emphasizes resume screening for degree(s), titles, and years of experience — factors that don’t always indicate strong competencies.

Instead, skills-based hiring has emerged as an optimal approach to verifying candidates’ competencies, soft skills, and real-world abilities acquired through a portfolio of work experiences and educational pursuits. Crucially, all of these can be verified through pre-employment testing.

Last year, almost three-quarters of companies used skills-based hiring to close the skills gaps, address talent shortages, and pursue new business opportunities.  

Skills gaps

In the last 12 months, 1 in 4 organizations hired full-time roles that required new skills. Three-quarters of human resources professionals said hiring for these roles was somewhat (62%) or very difficult (14%). 

Many roles now require sharp technical skills and niche competencies that didn’t exist five to ten years ago—for example, AI prompt engineering, TikTok marketing, or even knowledge of the latest business analytics or project management tools. 

The evolution of competencies is also accelerating. Entry-level jobs require fewer data entry skills and more analytical or creative capabilities. New professions are emerging in response to wider economic shifts and advances in technology adoption. 

Talent shortages

By 2030, 85 million open positions could remain unfilled due to limited talent supply. Technology, healthcare, and manufacturing face the tightest squeeze.

However, European hiring managers also struggle to hire technicians, customer care experts, and administrative staff. On the other side of the world, Australian leaders face a shortage of qualified teachers, electricians, and sales and marketing managers. 

Organizations often self-aggravate the problem by severely limiting the talent pool with unrealistic candidate requirements, below-average worker compensation, or poor workplace culture. On the other hand, companies that recently eliminated college degrees from job descriptions and started using more inclusive language are seeing a greater influx of candidates, even for competitive roles. 

The Burning Glass Institute report also says that some 15.7 million people remain outside of the candidate pools because 37% of middle-skilled jobs didn’t remove the degree requirement. This, however, is changing. 

Opportunity gaps

Lack of talent and skills mismatches hinder your business growth. Limited workforce capacity and skill sets are among the top barriers to digital transformations.

Short-staffed teams struggle to keep the core business going and have no proper ‘headspace’ for innovative thinking. At the same time, a lack of skills delays progress on ambitious initiatives and further aggravates the divide between leaders and laggers.

Companies that switch to skills-based hiring reduce both the time to hire and the odds of mishiring. For example, Proxify, a tech recruitment firm, shortened its time to hire to just 12.5 days with skills-based hiring—a critical factor for a company receiving over 3,000 job applications every month. 

Creative agency Riotly Social, in turn, filled their talent pool with 37 highly qualified potential hires in three weeks, reducing the hassle of constantly restarting the hiring cycles. 

Faster hiring times mean you can act faster on new business opportunities to stay competitive and confidently scale. 

The benefits of skills-based hiring

By aligning talent acquisition efforts with actual job requirements, companies get a compendium of benefits.

Higher quality of new hires

Less of a focus on college degrees and more interest in skills means successful candidates already know the ropes. As a result, 78% of companies using pre-employment assessments have improved the quality of their hires.  

Such hires are quicker to become productive in the new role and are also 2.5x more likely to be high performers. 

Lower cost-per-hire 

The average cost of hiring an employee keeps climbing. Costs typically rise when recruiting teams spend more time (and money) on job postings, talent sourcing, and long interview processes. 

Skills-based hiring platforms reduce the teams’ workload with data-backed candidate screening (based on test scores), automated candidate feedback sharing, and streamlined collaboration processes between different hiring managers.

Faster, more predictable hiring leads drive down talent acquisition costs. 

Lower odds of mis-hire 

Pre-employment testing brings data into your hiring process. Rather than comparing people with different titles, degrees, and backgrounds, you can stack them in terms of specific skills. With more objective data, you eliminate doubts and (un)conscious bias. 

Stellar candidate experience 

Candidate experience dictates your ability to attract and engage the top talents.

Slow recruiters often duplicate information requests, provide substandard candidate feedback, and struggle with interview scheduling—all common repellers for experienced candidates who know their worth. 46% of candidates will move on if they don’t get a status update within 1-2 weeks after their interview. 

Skills-based hiring practices replace (often) redundant job application steps and interview rounds with a more interactive experience. 4 out of 5 candidates who completed Toggl Hire skills tests love their experience. 

Better employee retention 

Statistically, skills-based hires are 9% more likely to stay with the same company. The average skills-based candidate will stay with the company for 4.7 years, compared to 4.3 for traditional hires. This is most likely because they feel placed in a role where they can give their all and reach their best potential.

Improved diversity, equity, and inclusion (DEI) metrics 

By removing unnecessary barriers, you can access a much broader and more diverse talent pool. According to LinkedIn, skills-based hiring can increase the proportion of Gen Z workers in the candidate pool by 10x and Millenial by 9x. 

By eliminating requirements associated with a certain ‘pedigree,’ you open the doors for more workers from traditionally underrepresented groups. Not only do you get a better roster of applicants, but you also contribute to a more equitable job market and more diverse workplace cultures. 

Best practices for implementing skills assessments in your hiring process

At Toggl Hire, our penchant for skills-based hiring comes from our early hiring mishaps. Initially, we struggled to bring in people, and those we hired lacked real skills. So we took a tough decision to fully re-write our hiring process, making skills our focus. 

A decade later, skills-based hiring has helped us grow from a team of just a few to a global team of several hundred. Thanks to skills assessments, we hired over 70 amazing new people, including our CEO (then a developer), saving approximately 22 hours of manual labor for each open role. 

Through our hiring platform, Toggl Hire, we’ve also helped dozens of other companies attract more qualified talents, reduce the time to hire, and gain greater confidence in their hiring decisions. 

If you, too, are ready for a change, here’s how to best integrate skills assessments into the hiring process. 

Know where to place skills assessments

Skills assessments come in many forms and can be used first as a quality filter for roles that attract many applicants and then as a competency filter to shortlist candidates at later stages. Here’s our recommended approach: 

As a quality filter, core competency tests for role-related skills (e.g., customer success, network security, or general sales) allow you to eliminate people who lack the chops and prioritize those with proven abilities. For example, you can easily pre-screen over 200 applicants in one afternoon (real story!) to progress only the best potential hires. 

We also recommend placing skills tasks after the initial screening with a talent acquisition specialist. This way, you retain the human touch and can also explore someone’s job role a bit deeper with a homework assignment or a soft skills test.

Challenge your perception of the ideal hire

Skills-based hiring doesn’t force you to forget about qualifications entirely.

Rather, it challenges you to consider what matters most for the role. Do you need a Harvard graduate for an entry-level admin position? Or a sales manager with 10+ years of experience in big pharma to sell a wellness wearable device? 

Degree inflation (aka, educational requirements for occupations that don’t require them) has resulted in companies with smaller talent pools full of overqualified candidates (and rather unsatisfied staff) in many positions. 

Excessive focus on credentials creates a dynamic in which candidates are forced to over-embellish their resumes to get their foot in the door while hiring managers pass on skilled staff who don’t fit in the “box.” 

At Toggl Hire, we solve this by talking to hiring managers early on about their ideal candidate profiles. We ask questions like, “What are the ‘success traits’ of an ideal hire?” rather than “What school should they have attended?”

Likewise, we use seniority levels rather than peg a precise ‘minimal years of experience’ number to an open role. Someone with five years in a teaching position and a year in project management can be as great in managing expectations and negotiating as a tenured professional. 

Understand which skills you need

Skills-based hiring isn’t a silver bullet to good candidate placement. It’s a tool that helps you objectively compare real-life candidates’ skills and abilities. If you don’t know which you need, you’ll still end up with a poor fit.  

Job titles and role requirements vary a lot from one company to another. A marketing manager from a small startup might handle everything from paid ads and social media marketing to external services provider management. One from a larger firm may have a more specialized skill set. 

Finding a good match begins with understanding what type of person you need. Conduct a job task analysis to map the required competencies, then design a test to measure these. 

Complement skills tests with great interview practices

Skills assessments verify functional skills, leaving you with more ‘face time’ for assessing other candidates’ strengths: their leadership potential, personality traits, and behavioral quirks that make or break a cultural fit. 

Oftentimes, you may want a hire who shares your corporate values or meshes well with the existing team dynamics. Or you’re looking for someone with excellent communication skills to become that ‘glue’ in a slightly socially awkward team. 

Structured interviews further assess whether the shortlisted applicant will match the vibe of your organization. Likewise, interviewing dispels any misunderstanding a candidate may have about the role. Almost half of workers had quit a job because it didn’t match their expectations. 

Skills vs. experience: Which really matters for job success?

Skills and work experience are connected at the hip, but one doesn’t necessarily indicate the other. Experienced professionals may lack up-to-date skill sets, while people with non-traditional career paths may have the qualifications but not the right resume title to back them. 

Hiring managers recognize this and emphasize skills more than experience. Three-quarters will shortlist people with high assessment scores but not enough years of experience, and 68% will focus on people who don’t meet the minimum education requirements. 

The main question is: who do you want to see in the open role? A senior professional with strong chops (and respective salary expectations) or an ambitious upstart eager to prove themselves? 

Skills-based hiring can identify both types of candidates with greater predictability and in less time. 

Hire qualified candidates with Toggl Hire

Draw from a bigger talent pool with Toggl Hire, a skills-first recruitment platform for teams who value data over gut feelings. 

Quickly evaluate candidates‘ skills with customizable skills assessments and compare the scores of different skills rather than past experiences or educational credentials alone. 

Choose from over 150 expert-made questions and templates to build customizable assessments for the competencies you seek. Automatically progress the most qualified candidates to the next rounds while keeping delightful communication with others. 

Create a free account to see how Toggl Hire can improve your hiring process!