Are Small Businesses Ready to Embrace Skills-Based Hiring?

Jeff Connor-Naylor is Director of Business Leaders United for Workforce Partnerships
Sean Murphy is Director of Retail Opportunity at Walmart.org

As businesses across the country grapple with generational retirements, persistent skills shortages, and the rapid pace of technological change, one question looms large: are small and mid-sized businesses (SMBs) equipped to keep up?

SMBs provide nearly half of all jobs in the U.S. economy.[1] They are the backbone of local communities, but without the right tools and support for hiring and workforce development, some risk falling behind. One promising strategy to help them compete and grow? Skills-based hiring.

Advantages of Skills-Based Hiring for the Workforce and Employers

Skills-based hiring, also called skills-first hiring, prioritizes applicants’ skills and competencies, taking into consideration all learning, no matter where it takes place and removes bachelor’s degree requirements, when unnecessary for particular jobs, such as diagnostic technicians and software developers.[2] It also goes beyond hiring by helping current employees build new skills to advance their careers through ongoing training and development.

Skills-based hiring offers a range of benefits:

• For workers: It could open doors to good jobs, provide access to training, and create pathways to advance in their careers.
• For businesses: It could expand the talent pool, enable better job matching, and help assess candidates based on what they can do—not just what degrees they hold. With a focus on upskilling and career advancement, it could also promote workforce retention.

What We Learned from 75 Small Businesses

To better understand how SMBs are navigating hiring and workforce development, Business Leaders United (BLU) interviewed 75 employers in the manufacturing and construction sectors, sharing how they evaluate candidates, validate skills, and value credentials. BLU released a new brief detailing what was learned – Big Insights from Small and Mid-Sized Businesses: What Local Employers Say about Hiring Challenges and How Policy Can Help.

The findings about skills-based hiring were clear: many small businesses are already using elements of this practice—but they need help to go further.

Many SMBs that were interviewed, especially those who consider themselves to be “employers of choice,” already skip degree requirements in job descriptions for entry-level roles. Instead, they’ve mapped out the skills related to each job and developed their own skills assessment tools —like job-specific skills inventories and hands-on exercises—to evaluate candidates.

These leading companies are also deeply invested in upskilling their current workforce, especially when it comes to interpersonal skills and career progression. These employers want to connect their teams to training and credentials that help them grow in their current job or a new position, which they believe is a competitive advantage.

Skills Passports Show Promise — But Trust and Infrastructure Are Key

One emerging skills-based hiring tool that caught employers’ attention is the concept of a “skills passport” or “learning and employment record (LER)”— a portable, verifiable record of a worker’s skills and credentials. SMBs are intrigued and would appreciate help with broadening candidate pools. Skills passports would allow a worker to document the skills they have obtained from previous employment or training programs in one location that could be shared with a business. However, business leaders need to trust and understand how these tools work before including them in their hiring processes.

To get there, we should invest in strong data systems and support businesses. To make skills passports, skills-based hiring, and other innovations work for small businesses, we need:

• Open data standards that provide common language and terminology about skills and training so that companies, training providers, and jobseekers can efficiently exchange information and know how to interpret it.
• Interoperability: Skills information needs to be easily accessible, flowing seamlessly from classrooms to HR systems to employers. No matter where a worker gets a new skill, completes a training program, or receives a credential, that information should be easily accessed by the worker to share with potential employers.
• Public policies that empower SMBs to adopt innovative hiring practices: Building trust in new hiring approaches takes time, especially for SMBs navigating limited capacity and competing priorities. That’s where public investment plays a key role. Targeted support—such as technical assistance and upskilling resources — can help SMBs implement new practices with confidence. Industry sector partnerships, in addition, provide a forum for local businesses to share insights with peers and collaborate with education providers to align training with hiring needs.

The Path Forward

Skills-based hiring is a strategy for building a more agile, resilient workforce. Small and mid-sized businesses are poised to take the next step. But they can’t do it alone.

With the right support from policymakers, training providers, and community partners, SMBs can unlock new talent, build stronger teams, and thrive in the modern economy.

[1] See: “Frequently Asked Questions About Small Business, 2024,” US Small Business Administration Office of Advocacy, last accessed November 21, 2025, https://advocacy.sba.gov/2024/07/23/frequently-asked-questions-about-small-business-2024/

[2] See: “State of the Paper Ceiling: Advancing STARs in the American Workforce,” Opportunity@Work, last accessed November 21, 2025, https://cdn.prod.website-files.com/677c2459dcf44df291d3ed9b/68395b36b2937f23b96d7290_SOPC%202025%20Report_final_052225.pdf