Seven in 10 Canadian small and medium-sized businesses still dedicate the bulk of their HR resources to administrative tasks rather than strategy, according to a new national survey released by HR software company Folks.
The 2026 State of HR Report, based on responses from 473 HR professionals, managers, and business owners across Canada, finds that attracting qualified candidates remains the top challenge for 35.1 per cent of respondents, followed by adapting to new employee expectations at 20.7 per cent.
“The 2026 State of HR Report is a testament to our commitment to empowering small and medium-sized businesses with the tools and insights they need to thrive,” said Jimmy Plante, CEO of Folks. “As the HR landscape continues to evolve, it is crucial for organizations to stay informed and adapt to new trends and technologies.”
The survey was conducted in September 2025. Most respondents were from Quebec, though Folks said the findings apply broadly to Canadian employers.
Administrative burden crowds out strategy
Managing employee files, contracts, and absences topped the list of time-consuming HR tasks at 37 per cent, followed by recruiting and onboarding at 32 per cent, and internal communication at 12 per cent.
The report notes that 20 per cent of SMBs still manage HR manually or with spreadsheets. Only 18 per cent have a fully integrated HR management system, while nearly eight in 10 operate with disconnected, standalone tools.
Automating HR processes ranked third among priorities for 2026, cited by 55 per cent of respondents. Organizational culture led at 59.8 per cent, followed by professional development at 57.1 per cent.
AI adoption remains cautious
Artificial intelligence use in HR is still exploratory for most organizations surveyed. About 26 per cent are experimenting with AI for HR management generally, and 47 per cent are using it in recruitment. Meanwhile, 38 per cent say they have no plans to prioritize AI in HR, and 35 per cent have no recruitment AI plans.
Ethical and legal concerns ranked as the biggest barrier to AI adoption, followed by budget constraints and a lack of internal skills.
Despite the hesitation, 67 per cent of HR professionals in the survey viewed AI as a key trend for 2026. Among those already using it in recruitment, 77 per cent said AI improved matching between candidates and roles, while 57 per cent said it sped up job posting creation. However, 40 per cent expressed concern that AI makes hiring feel too impersonal.
Hiring slows, but quality takes priority
The labour market picture has shifted. Nearly 40 per cent of surveyed SMBs filled at least 90 per cent of their open positions in 2025, suggesting the acute talent shortage of recent years has eased in many sectors.
About 85 per cent of companies now use skills-based hiring, and 76 per cent incorporate skills tests or assessments into their recruitment process. The report characterizes the shift as hiring less, but hiring more deliberately.
Time-to-hire remains a potential weakness. While 46.5 per cent of SMBs fill roles within 15 to 30 days, 38 per cent take more than 30 days — a gap that can cost candidates in a competitive market.
Public job boards such as LinkedIn and Indeed dominate recruitment channels, used by more than 80 per cent of respondents, followed by employee referrals, social media, internal postings, and recruitment agencies.
Benefits diversify as competitive tools
With salary increases expected to stay modest — the majority of SMBs plan raises of between two and four per cent in 2026 — many organizations are turning to benefits to compete for talent.
More than 63 per cent of SMBs now offer group RRSP plans with employer contributions. About 58 per cent provide telemedicine or virtual care, and 59 per cent offer dental insurance. Other perks gaining traction include remote-work stipends, wellness budgets, and extra or birthday leave.
Payroll management, however, remains a lower priority. More than a quarter of respondents — 26.8 per cent — said payroll is not a priority for 2026. About 58 per cent of companies still assign payroll and benefits to their finance team rather than HR.
Performance reviews seen as neutral at best
Despite near-universal agreement on their importance — 95 per cent of organizations call performance management processes essential — reviews deliver limited impact in practice. Only 8.7 per cent of respondents described performance reviews as “very positive” for employee engagement. The majority rated them as positive or neutral, while 4.7 per cent called them negative.
The biggest skills gap identified across organizations is leadership and management, cited by 43.2 per cent of respondents. Technical and digital skills came in at 21.1 per cent, nearly tied with interpersonal and communication skills at 20 per cent.
Employee experience centres on clarity, not perks
Role clarity and internal communication ranked as the top employee experience priority for 2026, cited by 51.1 per cent of respondents — ahead of engagement and recognition at 21.6 per cent, and stress and workload management at 20.1 per cent.
Turnover rates are manageable for many organizations, with 42.3 per cent of SMBs reporting voluntary turnover below 10 per cent. However, one in six SMBs exceeds 20 per cent, and more than a third of respondents said they do not track absenteeism at all.
“In 2026, we’re seeing a shift: employees don’t want trendy perks anymore,” said Claudia Lépine, founder of DouceuRH and director of talent and culture at Nexus Innovations. “They want to thrive in organizations capable of creating healthy, coherent, and resilient environments.”
The full report is available from Folks’ website. The company is based in Quebec City and develops HR software for small and medium-sized businesses.
