The Mellow State of Work Report: Predictions for HR Leaders in 2025

Taking care of employees' mental health, incorporating AI, and focus on engagement – according to experts, these will be among companies’ top priorities in 2025. We at Mellow have analyzed dozens of studies and publications and identified top-10 trends that HR should keep an eye on.

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Trend 1: From AI experimentation to AI strategies

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GenAI has rapidly penetrated a range of professions and industries, changing the way we work. About 75% of knowledge workers now use AI on the job, but 78% do so on their own initiative, without proper guidance and policies.

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According to a Microsoft survey, 79% of top managers believe they need to incorporate AI more intensively to maintain competitiveness. At the same time, 60% of respondents said their organizations don’t have clear policies on using AI. This is a real problem: it could potentially lead to biased decision-making, security vulnerabilities, misuse of technology, and privacy or intellectual property violations.

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Experiments have shown that AI boosts productivity. For example, consultants at Boston Consulting Group worked faster and improved the quality of their work by 40% when using ChatGPT.

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As always, increasing productivity will remain a focus for businesses in 2025, and HR teams can do their part by helping companies adapt to AI. They should collaborate with leadership to create an environment that encourages safe experimentation with AI, develop guidelines for doing so, and offer comprehensive training. This will boost employees’ skills while reassuring them that instead of replacing them, AI will be a powerful new tool in their toolbox.

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Trend 2: Skill mismatches

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According to the WEF, 44% of skills will be disrupted by 2027, and 61% of employees will require additional training within the same timeframe. This is a big problem: 70% of company leaders believe it will significantly affect business performance.

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To overcome the skill gap, it’s essential to rethink how talent is managed and adopt a skill-based strategy. 

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AI and automation will help create inventories and taxonomies of skills, then develop internal mobility via skill-based internal marketplaces. (Right now, only 26% of companies are using such marketplaces.) In 2025, HR should explore solutions for skill-based mobility to maximize workforce potential. However, technology should support, not dictate, the strategy – so HR needs to establish a skill-based framework before introducing any solutions.

Manager and leader development needs attention, too. According to a Gartner survey, 70% of HR executives believe current training programs don’t prepare managers for the future, and 75% say their companies’ managers are overburdened and need new skills to cope with the demands. To overcome critical talent gaps, we need to rethink our approach to leadership development.

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Trend 3: AI in HR

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According to Gartner, 55% of HR leaders feel the technology they use isn’t keeping pace with business needs, and 51% can't measure the ROI on their technology investments. Just a third are exploring potential GenAI use cases, and only 12% of HR departments have started using AI (compared to 34% of marketing departments). This suggests that HR is missing opportunities to become more productive and innovative.

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The reason HR is delaying the adoption of AI is due to a lack of relevant competencies. Despite the fact that 95% of CHROs say digitalization is a priority in HR, only 41% of HR professionals have the skills to carry out a digital transformation.

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HR leaders need to prioritize digital upskilling and integrate AI into HR processes through hands-on training. Otherwise, they run the risk of falling (further) behind.

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Trend 4: Gen Z managers

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Generation Z already occupies about 20% of the workforce and is rapidly moving up the career ladder. Glassdoor predicts that by 2025, one in ten managers will be from this generation.

Zoomers value stability, equality, flexibility, and an inclusive culture. They value emotional intelligence and a sense of fairness. And it so happens that these are exactly the things employees want from their leaders: support, protection against burnout, and a fair work environment.

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That’s one reason we can expect to see more and more Zoomers in leadership positions in the years to come.

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To learn how to make the work environment comfortable for young employees, check out our article 12 Ways to Attract and Retain Gen Z.

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Trend 5: Side hustles

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It’s an age of entrepreneurship and part-time work, and 78% of Americans already have side jobs. Even more are predicted to enter the gig economy next year.

According to a Glassdoor survey, 39% of employees are moonlighting to increase their income, especially among young people: 57% for Generation Z and 48% for millennials.

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Having a side job can improve workers’ career prospects: it’s associated with learning new skills (32%) or improving existing ones (26%), exploring new fields (23%), and gradually leaving one’s current job (16%).

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Side hustles allow employees to diversify their income sources and develop additional skills. This is part of a shift toward a workforce that values independence over stability.

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Upon learning that an employee has a side gig, most companies warn them not to spend time on it during the workday. But businesses should consider the benefits of a more flexible approach that takes employees’ interests into account and shifts the emphasis to results rather than processes.

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Trend 6: A growing emphasis on well-being

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Globally, 15% of people of working age have mental health issues. Gen Z (40%) and millennials (35%) are the most affected, reporting persistent stress and anxiety, and nearly half experience burnout. An SHRM study found that about half of workers reported emotional exhaustion at work. More than half say they feel pressure to prioritize their employer over their own well-being.

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The world economy loses an estimated $1 trillion a year due to depression and anxiety

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Comfortable working conditions – a flexible schedule, remote or hybrid options, and a supportive team – can help manage these issues, but a third of managers are unaware of guidance for supporting employees.

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Small changes in interactions can go a long way toward creating a psychologically safe workplace where people can admit mistakes, express opinions, and ask questions without fear of judgment. Instead of criticizing employees when issues arise, managers should thank them for being honest, identify what went wrong, and discuss ways to prevent similar problems. This not only supports employees, but also encourages creativity, openness, and willingness to experiment, which is the foundation for team growth and success.

You can also periodically hold hack weeks, where teams work together to solve one big problem. There will be a lot of trial and error, but employees will feel free to be creative and get rid of their fear of making mistakes.

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Trend 7: The hybrid/remote train will keep on chugging

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In 2024, many large companies announced RTOs. For instance, Amazon is requiring its employees to be in the office five days a week as of January 2, 2025. Still, remote work hasn’t gone anywhere: 43% of workers performed at least some functions online in 2024, and 68% of U.S. companies offered flexible workplaces.

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The remote format allows organizations to save money (as much as 40–50%) on rent, office equipment, and electricity. Plus, the company gets access to talent from all over the world. And remote employees are arguably more productive and feel happier than their office colleagues.

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If your company is remote-capable, don't rush to bring your employees back to the office – try to adapt your processes so that they’re convenient for everyone.

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Trend 8: Engagement now in focus

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According to Gallup, only 31% of employees in the U.S. are engaged in the workplace in 2024, the lowest level since 2014.

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Gallup has been conducting engagement surveys for decades, and they show that engaged employees achieve better results. Companies that successfully engage their teams see meaningful results: an 18% increase in productivity, a 23% increase in profitability, and a 78% decrease in absenteeism. At the same time, unengaged employees cost the global economy $8.8 trillion dollars, or 9% of global GDP.

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According to a recent survey, employees in 2024 show low engagement because they don't understand what employers expect from them, don't feel cared for, and don't feel encouraged to develop.

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To increase engagement, managers need to provide the team with clear roles and opportunities for growth. They also need to get better at creating strong employee-organization relationships and engaging and inspiring employees. According to Gallup, managers account for 70% of variance in team engagement.

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Trend 9: The rise of the new-collar

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In high-tech fields (data, cybersecurity, AI), there are more jobs for “new-collar” workers – those who don’t have college degrees.The Bureau of Labor Statistics predicts that by 2030, 60% of new jobs will be new-collar occupations.

IBM, Cleveland Clinic, and Bank of America are already focusing on skills rather than diplomas, but broader change will probably be slow. According to Accenture, 60% of companies refuse suitable candidates if they don’t have higher education.

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Ultimately, these inflexible policies harm the company: it has to waste time searching for a “certified” candidate. Emphasizing skills first and foremost opens up access to more talent.

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When hiring new-collar applicants, companies need to take special care to provide them with tools, suitable schedules, internship and mentoring programs, and development opportunities. In determining pay for new-collars, evaluate their contributions to the business, not their credentials.

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For a real leg up over competitors, business can start working with local schools to attract promising candidates at an early stage.

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Trend 10: ESG will remain a priority

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In 2025, more and more companies will hire chief sustainability officers (CSOs) to analyze their businesses’ environmental impact.

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Companies are already modifying their work processes to meet key ESG standards and reduce waste in production. According to PWC, for 66% of companies, efficient use of resources is a top priority. It not only helps save the planet, but also increases the companies’ competitiveness, stimulates innovation, and reduces liability for carbon taxes.

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To implement ESG principles, companies often need to change their entire production process. But despite the effort involved, this is a widespread trend: three out of four companies recycle and reuse materials in production. The European Parliament forecasts that the sustainable transition could increase GDP in Europe by 0.5% and create 700,000 jobs by 2030.

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There you have it: 10 trends to watch out for in 2025. To keep up to date with other HR developments, read Mellow's blog.