The state of HR and payroll in Europe: The top 10 challenges for 2026

Workplaces across Europe are facing several overlapping challenges, with organisations across the continent feeling mounting pressure to address weak points while budgets and resources diminish.  

Talent shortages, rising costs, current and expected regulatory changes and the dominance of AI are reshaping workforces and ways of working.  

With all of these wider problems encroaching on European businesses at once, the question is what specific challenges are most prevalent for HR now. What risks do HR leaders worry about the most?

Using data and insight from the 2026 HR & Payroll Pulse report, this article breaks down the top 10 pressures HR faces, how these trends are impacting companies and workers, and what may be stopping HR leaders from having the strategic influence to address these challenges. 

The top HR challenges in Europe in 2026 remain similar to what SD Worx has seen in previous years. Employee well-being is a persistent issue, while workforce planning, skill gaps, and conflict resolutions are becoming more critical. 

Among the nearly 6,000 HR and organisational leaders across 16 countries surveyed, 26.8% placed employee well-being in their top 5 most urgent issues. The second most-urgent challenge remained employee retention and turnover.  

Overall employee experience remains an essential topic for workers, despite the small drop in urgency overall.  

Retention and turnover, acquisition and recruitment, experience and engagement, flexible working, and compensation & benefits are all still crucial for European organisations, though their urgency has dropped since 2025.  

Some challenges are clearly rising in importance for companies, though remain less vital than topics like well-being and payment and reward structures. In 2025, 12.4% of companies placed automating HR processes and digital transformation in their top five challenges, with that share rising to 13.6% in 2026.  

Applying AI in HR (10.8% to 11.6%) and data-driven HR decision-making in HR (9.5% to 9.9%) also rose in importance, reinforcing the growing pressure on people professionals to onboard automation and data into their processes.  

Workforce planning is also a more central topic. Around 1 in 2 organisations call it a high or critical priority now.  

This slate of challenges, which will impact payroll, reward, workforce planning, and AI adoption and implementation may seem insurmountable, but they present potential opportunities for HR leaders to build stronger foundations and make work more predictable, fair and transparent.  

 

Shy of one in five organisations sees transparency as an urgent issue. This query covered internal communications and transparency more generally, but it points to a more specific issue facing payroll leaders.  

Our Pulse research shows that payroll is being seen more and more as a core business function. 1 in 3 employees still get inaccurate payslips and information, and another 17% experience delays. 

Payroll transparency is becoming a key issue for many in HR, especially with increasingly legislative and compliance scrutiny. Workers expect more than a timely paycheck now. They want to know that their salary and rewards package are fair and correct, while also having access to potential changes and the thought processes behind them.  

This trend lines up with the fact that employee experience and engagement and compensation & benefits continue to be urgent issues for companies around the continent.  

Also adding urgency is the fact that the EU Pay Transparency Directive takes effect in early June 2026, while only 34% of employees say they understand what the motion means for their working rights.  

One of the key findings from this year’s Pulse research is the growing importance of HR in Europe. A majority of organisations see HR as strategically valuable, with mounting expectations for HR leaders to take on broader responsibilities over the next ten years.  

However, fewer than 10% of organisations say HR influences strategic decision-making to a very high degree. The majority of HR teams seem to have moderate sway when it comes to strategy.  

Despite this uneven share of influence, 57.2% of organisations say HR leaders are uniquely placed to lead organisational transformation from the top. This could be because more than half of leaders (54.3%) find it increasingly hard to find their footing amidst uncertainty and change. 

Nearly half (47.9%) of organisations say they expect that many organisational leaders will come from HR backgrounds in the next five to ten years, citing AI’s influence on work and talent as a factor in why human-centric professionals may be effective at stewarding companies moving forward.  

As HR directly influences well-being, retention, turnover, and the overall experience of employees, this leadership shift, if realized, could bring more clarity and trust to workplaces across Europe.  

Employees are increasingly asking for more transparency around work and pay expectations and planning, highlighting the growing need for more stable capacity and skills. HR has historically been reactive, bringing on people or training employees when problems arise, but it’s becoming clear that HR has the opportunity to make a real difference.  

The issue now across European workplaces is that many organisations continue to see HR for its support capabilities, rather than its strategic potential. Issues like employee well-being affect entire organisations, but if HR isn’t granted the requisite influence over strategy, then these pressures may persist. 

Our latest Pulse research digs into what stops HR leaders and teams from making a marked impact on organisational strategy. Only 5.7% of organisations say there are no substantial barriers, while 38.7% say that HR is too busy with operations or administration.  

More than a third (37%) point to a lack of alignment between HR and senior leadership, complicating the notion that organisations do, in fact, see HR as a valuable pathway toward more strategic oversight.  

Crucially, around one in three companies say that HR is not included early enough in business planning discussions. Organisations understand the potential of HR, but need to treat HR leaders and teams as critical business infrastructure, rather than internal service providers.  

 

Looking for the full story and the data to back it up? The 2026 HR & Payroll Pulse report explores what pressures to watch out for, what’s behind these challenges, and how to handle these changing workplace dynamics now and in the future.