New skills training and AI investments top the list of companies’ expected workforce investments.
Key takeaways
A lack of qualified workers continues to be a top concern of middle market business executives.
52% of respondents anticipate moderate to significant hiring needs in the next 12 months.
While the U.S. labor market has continued to cool, more than half of middle market executives still anticipate moderate to significant hiring needs over the next year, according to findings from a recent RSM US LLP survey. Many of those planning to hire cited a lack of available qualified workers, labor costs and geographic competition as top hurdles they face in staffing open positions. These challenges have moderated significantly over the last several years, though.
The findings from the RSM US Middle Market Business Index survey—fielded in the fourth quarter of 2025—come as artificial intelligence continues to make waves throughout the economy. The results show that new skills training and AI investments top the list of expected workforce investments for middle market firms of all sizes. AI investments are highest among firms with higher revenue, but firms with lower revenue are also now prioritizing spending on both AI and cybersecurity.
The survey gathered responses from 405 senior executives at U.S. middle market companies, polled by RSM US LLP and The Harris Poll from Oct. 1 to Oct. 22, 2025.
Some of the key high-level data points:
- 52% of respondents said that they still anticipate moderate to significant hiring needs over the next 12 months.
- That figure is comparable to 55% in the fourth quarter of 2023, when RSM last conducted the workforce survey.
- The need is greater among respondents from firms with revenue of $50 million to $1 billion (62%) than with revenue of $10 million to less than $50 million (38%).
- However, the number of larger firms anticipating significant hiring needs dropped from 23% in 2023 to 14% in 2025.
"The labor market has slowed down materially compared to previous years, and that slowdown is not the same for everybody,” says Tuan Nguyen, an economist at RSM. “We are seeing that K-shaped economy evolving even more; you have bigger firms still in good shape, but smaller firms struggling a little bit more.”
The labor market has slowed down materially, and that slowdown is not the same for everybody. We are seeing that K-shaped economy evolving even more; you have bigger firms still in good shape, but smaller firms struggling a little bit more.
Tuan Nguyen, Economist, RSM US LLP
In charts throughout this report, some numbers may not sum to 100% due to rounding. Others may exceed 100% due to allowing for multiple mentions/responses.
Overall, 10% of firms said they expect to do no hiring in the next 12 months—similar to results from the fourth quarter of 2023. In the 2025 survey, 4% of respondents said they expect to reduce their workforce. Among firms that anticipate at least moderate hiring needs, 84% expect staffing open positions to be at least somewhat challenging, a sharp increase from the fourth quarter of 2023 (66%).
Among respondents who said staffing open positions will be extremely, very, or somewhat challenging, the top three investments planned or under consideration in the next 12 months to respond to staffing challenges were:
New skills training for existing employees
62%
Investing in AI
61%
Preparing for AI
59%
The dual focus on technology and skills reflects a shift in what companies are looking for in employees.
“Companies are no longer searching for people who can just do things,” says Ana Minter, an RSM principal who specializes in process improvement, automation and AI. “They are searching for people who can transform how things are done.”
Turnover also remains a pressing issue: 79% of firms said they expect employee turnover will be at least somewhat challenging over the next 12 months, an increase from 64% in the fourth quarter of 2023.
Companies are no longer searching for people who can just do things. They are searching for people who can transform how things are done.
Ana Minter, Principal, RSM US LLP
More robust human capital management systems—especially those with embedded AI tools—can be foundational to companies navigating labor hurdles. But companies also need a holistic understanding of how their overall dynamic with workers has changed in recent years.
“The employer-employee contract has changed quite a bit in terms of what employees expect of their employers' values and cultural alignment,” says Chris Mueller, managing director of a human capital management practice at RSM. Transparency about corporate culture and priorities can help on that front when recruiting and retaining talent.
“As employers deal with all of these challenges, the ability to more precisely manage the workforce is becoming a bigger priority, and the tools to do that are becoming better,” he says.
As employers deal with all of these challenges, the ability to more precisely manage the workforce is becoming a bigger priority, and the tools to do that are becoming better.
Chris Mueller, Managing Director, RSM US LLP
Staffing challenges—and solutions to adapt
A lack of qualified workers continues to be a top concern of middle market business executives, the survey shows. Amid inflationary pressures, respondents identified compensation levels and employee benefits as major issues as well. Companies continue to juggle recruiting and retention efforts with how employee expectations have evolved in recent years around pay, remote work and other benefits.
When it comes to salary expectations, there is often a gap between what businesses can offer and what the market expects.
“The cost of talent is increasing all the way around, and companies are struggling to keep up while maintaining business continuity,” says Deanna Balkcom, a director in RSM’s human capital management practice.
Indeed, current and expected pay increases have moderated since 2023, particularly for larger firms, according to the survey findings. Average pay increases dropped from 5.2% in 2023 to 4.6% in 2025 amid elevated inflation.
Working with a third party to conduct a competitive analysis of employee and executive compensation and benefits packages is one way that organizations can determine how they might adjust to keep up with the market. That analysis can also help companies figure out which benefits employees actually value and take advantage of.
“We know a lot of workers’ buying power has decreased with inflation, so if it's cost prohibitive to pay them more to overcome that, what else is being added to retain them?” says Anne Bushman, an RSM partner and national leader of the firm’s compensation and benefits advisory team. “It requires looking at the full package of what makes someone want to work somewhere. It’s not just an attraction issue; it’s a retention issue.”
Compensation, while a major issue, is hardly the only one employers are navigating; respondents who expect staffing open positions to be at least somewhat challenging said the top three factors that pose challenges are:
- A lack of available qualified workers
- The cost of hiring (recruiting, selection, etc.)
- Competition for employees with other employers in their geographic area
Written survey responses from executives zeroed in on some of those challenges:
- “The industry competition is fierce, and the cost of attracting and retaining high-quality talents is high,” noted a respondent in the wholesale trade industry.
- “Finding and retaining specialized tech talent with competitive compensation expectations” was cited by a respondent in the professional, scientific and technical services industry.
All of these factors make workforce planning even more critical as organizations factor in advanced technologies.
“Job descriptions today look very different than even two years ago,” says Marni Rozen, an RSM principal and leader of the firm’s human capital consulting practice. “There is a movement happening now to more intentionally adapt roles and job descriptions for what’s needed in the future, not just what’s needed today.”
Among respondents who said staffing open positions will be extremely, very, or somewhat challenging, the top three workforce challenges in the coming 12 months are:
- Enhancing employee benefits
- Increasing compensation levels
- Increasing overtime levels
Reassessing roles and seeking outside help
In addressing hiring challenges, organizations might want to reassess “must-haves” versus “nice-to-haves" for various roles; understand salary implications for hiring in some localities versus others; and consider potential benefits changes to better reflect employee needs and wants.
“From a benefits perspective, there are so many ways to get creative," says Balkcom. “That might involve exploring different insurance benefits, assessing contribution schemes, focusing some roles on incentive-based compensation, or offering professional development opportunities.”
Another area that employers continue to navigate is remote work, which became a norm for many white-collar workers in 2020:
- About a third of respondents (31%) said they are currently making it mandatory for remote employees to return to the office.
- 25% said they are considering it.
- 44% said they are not doing it or considering it.
“A lot of people do not want to go back into the office, and there’s this tension in the market around that,” says Balkcom. “It’s changing how companies are sourcing talent, which then might create a perceived shortage.”
Outsourcing is one solution companies are turning to as they navigate myriad labor challenges. Respondents who cited outsourcing as one of their organization’s greatest challenges in the next 12 months identified the following top three areas to potentially outsource:
- IT functions
- Customer service
- Payroll
Outsourced IT, finance, payroll and other human resources solutions can help keep your business moving forward.
"You might only have 25 employees, but they might be spread across different states, which adds complexity,” says RSM principal Lorry Twisdale, national leader of the firm’s payroll services practice. That’s especially true for functions such as payroll. “Smaller doesn’t necessarily mean less complicated,” she notes.
One survey respondent, a chief financial officer of an industrial goods distributor with about 30 employees, said he has reaped benefits from the decision several years ago to outsource some payroll and benefits functions to a professional employment organization.
“Their platform is more manageable for me and my employees,” he said. “It freed me up from managing HR issues that I'd rather not have to manage, and it's just more cost-effective.”
Some companies expecting hiring challenges in the near term also face difficulties in sourcing talent abroad. Among respondents who anticipate hiring will be at least somewhat challenging in the coming year, 21% said increasing existing operations outside the United States is one of their greatest workforce challenges. Contributing factors may include time zone differences and the need for country-specific knowledge.
A new labor landscape: Technology investment and the role of AI
Technology investments will be critical in helping companies stay competitive as they grapple with labor challenges, but such investments will need to be strategic, have clear use cases and include an employee training component to get the maximum return. And when it comes to AI tools, businesses need foundational systems and data processes in place to take full advantage of the technology.
Over the next two years, respondents say their firms will increase spending in the following areas to enhance worker productivity:
Artificial intelligence
74%
Communications
62%
Cybersecurity
71%
Cloud
63%
A human capital management system
44%
AI investments are highest among larger firms, but smaller firms are also now prioritizing spending on both AI and cybersecurity. Alongside that prioritization, companies will need to equip teams with the skills to harness technology to its fullest potential.
“The nation’s workforce development programs should align with tools like AI and automation as these technologies continue to transform the face of the modern workplace," says Stephanie Ferguson Melhorn, executive director of workforce and international labor policy at the U.S. Chamber of Commerce, which is a partner in the survey research. "That means pairing innovation with skills training and credentialing opportunities so employees can shape how these technologies serve them through their expertise, insights, and experiences. That also means engaging with educators to ensure students are building the right competencies and tech skills early on. By doing so, we can unlock new growth and build a 21st-century workforce that delivers for communities across America while leading on the global stage.”
The primary reason cited for AI investments was to increase employee efficiency or productivity rather than replace labor outright. The picture is a bit different for entry-level roles specifically, though; 45% of survey respondents said they were using AI to some extent or a great extent in place of hiring entry-level staff.
The growing focus on AI presents a structural challenge that will likely remain for the long term, says Nguyen, as organizations balance how and where to integrate the technology.
“Companies need to fill positions with people who can be better at their role with AI adoption,” he says. “This is a new landscape for the labor market that everybody is trying to figure out.”
Organizations also need to evaluate how the changes AI is bringing to entry-level roles may affect workforce capabilities in the long run. As demand grows for talent that can supervise AI processes, governance for AI and data overall will be paramount.
“Without a strong data governance foundation, you’ll just get messier results faster,” says John Huyette, RSM’s national leader for AI risk consulting services.
Shifts reflected in the survey will also require companies to rethink what work looks like for new hires and understand the implications for employees’ future learning. For example:
- Asked about specific workforce challenges their organization faces, one respondent in the health care and social assistance sector noted “not enough reskilling programs to help current employees adjust to new technologies.”
- A respondent in wholesale trade said: “Employee retirements are increasing significantly and quickly leaving us with knowledge gaps.”
The human element to guide AI tools and related decisions will become increasingly important as companies ramp up adoption of the technology, says Minter.
“If you don't retain and cultivate human critical thinking skills and wisdom within your organization, I think there is a long-term talent development problem coming,” she says.
Build trust in your organization’s AI adoption through a governance-first approach.
Perspectives on holistic AI integration diverged between executives in smaller organizations ($10 million to less than $50 million in revenue) and those in larger ones ($50 million to $1 billion in revenue). The survey provided respondents with the following profiles of business owners and asked which one is closest to their own perspective:
- Smith actively integrates AI into business operations (e.g., content generation, customer segmentation, predictive analytics). Smith believes AI can handle repetitive tasks better and faster than just adding staff and sees hiring as necessary only for roles requiring creativity, empathy or strategic thinking. Smith invests in upskilling current employees to work alongside AI tools.
- Jones believes in the value of hands-on experience and mentorship. Jones sees AI as a buzzword with little relevance to day-to-day operations and prioritizes community employment and long-term staff retention versus just investing in technology instead of people. Jones is also concerned that automation and AI could erode company culture and craftsmanship. Jones invests in apprenticeship programs and local partnerships with technical schools.
Almost half of all respondents (49%) said they are “exactly” or “somewhat” like Smith, as did 62% of firms with revenue of $50 million to $1 billion (compared to 33% of firms in the lower revenue range). Conversely, more firms in the lower range said they were like Jones (57%), and fewer firms from the cohort with greater revenue identified with that profile (30%).
"The healthiest posture is probably a mix between those two mindsets,” says Huyette. “You still need the people; AI isn't going to replace that."
It’s also important for businesses to implement AI strategically, to address a specific business problem.
“Often, companies have this fear of missing out because of what they are hearing in the news about how AI is going to fundamentally change work,” says Robbie Beyer, national leader of RSM’s data science and AI practice for data and digital services. “They essentially are looking for a hammer to hit every single nail across the organization. But AI is not the right solution for everything and there may be better, more cost-effective options available.”
Indeed, technology investment priorities go beyond AI, the survey results show. Investments in other areas such as human capital management systems will also play a key role in companies’ bids to stay competitive in the current job market.
- 44% of executives said they plan to somewhat or significantly increase their human capital management system spending over the next two years to enhance productivity.
- That figure was significantly higher for organizations with $50 million to $1 billion in revenue (58%) compared to those with $10 million to less than $50 million in revenue (27%).
A human resources technology system effectively acts as the nucleus of most functions employees perform on a daily basis. Companies need to prioritize modern human capital management systems that can better distribute work across stakeholders, provide more granular analytics and have better forecasting capabilities, says Mueller. Starting with a better system will also make it easier to add other AI-enabled capabilities to it in the future. Investments in those technologies will be especially important for middle market organizations that face tough competition, he adds.
No matter how much you invest in technology or AI, if you don't have the skeletal system in place—around your operating model, processes, data and controls—problems won’t get fixed. A lot of work needs to be done for AI to be effective.
Marni Rozen, Principal, RSM US LLP
Optimizing your organization’s human capital management system can unlock longer-term value for the business.
From more tech-enabled human capital management systems to AI capabilities, businesses of all sizes will need to ensure they have the data foundations in place to truly support those technologies.
“No matter how much you invest in technology or AI, if you don't have the skeletal system in place—around your operating model, processes, data and controls—problems won’t get fixed,” says Rozen. “There is a lot of work that needs to be done for AI to be effective.”
The regulatory landscape
Workforce regulations are another factor organizations continue to navigate as they search for top talent. By a slim margin, more respondents said that the impact of workforce-related regulation on their business has been positive (40%) compared to those who said it was neutral (39%) or negative (21%). A higher percentage of firms in the $50 million to $1 billion revenue range say workforce-related regulation has been positive (48%) compared to smaller firms (32%).
Regulations are also affecting various talent efforts, respondents said. Fifty-two percent said workforce regulations are affecting their ability to hire new employees to some extent or a great extent, with a greater share of larger companies reporting this impact (59%) compared to smaller companies (43%). Meanwhile, 56% of respondents said workforce regulations are affecting their ability to offer competitive pay to some extent or a great extent, and 49% identified regulations as an issue for retaining employees.
Respondents said the top areas of regulation that impact management of their workforce to at least some extent are:
- Employee benefits (health care, retirement)
- Health and safety (OSHA, etc.)
- Paid leave / sick leave
When it comes to employee benefits, which top the list of areas affected by regulation, organizations should assess whether their offerings might make them eligible for certain tax credits that can lead to cost savings.
“That's part of taking a holistic view” of the interplay between offerings to employees and potential tax benefits, says Bushman. This approach can help organizations uncover opportunities for tax savings and potentially reinvest that money in their workforce.
Developing compensation and benefits plans to attract and retain talent comes with plenty of tax implications.
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