Top HR Challenges and Trends in the Public Sector

1. Technological advancements

Government HR managers already rely on cloud applications to hire and onboard employees faster, help manage healthcare costs, analyze how to achieve the most with taxpayer-funded budgets, and manage a variety of other processes. Now, machine learning and generative AI capabilities built into cloud-based human capital management (HCM) applications are building on these benefits. These tools can help HR professionals identify skills gaps and the best recruits, write job descriptions and classifications, assist with drafting performance reviews, produce personalized career development plans, and give employees automated answers to benefits, payroll, and other questions. AI algorithms can help perform these tasks more efficiently than legacy on-premises and cloud systems.

Most state and local HR departments are just beginning to explore AI’s potential. According to a 2024 study by consulting firm NEOGOV, 76% of government agencies aren’t using AI yet to improve recruitment and 78% still lack documented AI policies and procedures. As adoption increases, though, HR organizations will need to protect the privacy and security of workers’ personal information—just as governments protect constituent information.

2. Recruitment and retention

Between February 2020 and January 2023—a period dominated by the pandemic—450,000 people left US state and local government jobs, per data compiled by the Federal Reserve of St. Louis. Thankfully, public sector employment rebounded in 2023, with governments hiring 581,000 people, according to the American Federation of State, County, and Municipal Employees.

While this rebound is promising, factors such as lengthy hiring processes, lower salary scales relative to private-sector employers, and limited chances for advancement can make it tough to recruit and retain government employees. Only 9% of agencies offer mobile employment apps, which is perhaps one reason why 93% of public sector HR managers have had to repost jobs due to insufficient response, based on a 2024 study by Mission Square Research.

AI and other advanced technologies make it easier for government HR managers to customize career sites, advertise new jobs, use job matching to connect a person’s skills with open positions, and make job offers faster. The City of Memphis, for example, moved its police hiring online, no longer slowing down the process with in-person applications. To help strengthen retention, automation can speed up onboarding, clarify career paths, and outline training needed to move up the ranks.

3. Aging workforce

When COVID-19 hit, many Baby Boomers retired earlier than planned, either due to job loss or their own health concerns. That trend only accelerated a growing skills gap. Ventura County in California estimates that half of its 10,000 workers will be at retirement age within the next few years. In response to these recent departures and impending retirements, managers are now scrambling to fill open positions with younger workers who are less experienced but often more tech-savvy.

To avoid a shortage of expertise, governments are seeking to improve succession planning by creating pipelines of skilled workers to fill leadership positions. The State of California, for instance, uses an automated system that predicts when younger workers will be ready for leadership roles. In the years ahead, AI will be able to help forecast such talent and management gaps, protecting institutional knowledge and business continuity.

4. Training and development

To develop tomorrow’s leaders, governments must provide continuous learning opportunities, training and retraining workers in all phases of their careers. To illustrate this, the State of Rhode Island not only runs its own learning management system—offering training in cybersecurity, professional writing, collaborative customer service, and many other topics—but it also partners with external providers such as edX, an education platform founded by Harvard and MIT that offers a wealth of professional development and academic courses, many of them free.

In the years ahead, AI will be able to shape training and development, creating customized learning paths that offer targeted, relevant content that could include specialized modules for areas such as police and fire departments. Today, with AI-driven tools, HR can more easily monitor employee progress, identify room for improvement, and recommend the best ways for workers to upskill.

5. Performance management

As more tasks become more automated, governments are exploring new ways to assess worker performance. For example, under a “shared value” approach, managers evaluate how human qualities such as empathy and creativity add value to both the organization and the community it serves. While such intangible qualities are harder to measure than productivity and efficiency, studies show they can make a difference. According to Deloitte’s 2024 Public Sector Human Capital Trends Report, organizations that use shared value to measure performance—Travis County, Texas, is a notable example—are more likely to achieve positive outcomes ranging from innovative customer service to higher agency morale.

No matter their approach, government HR departments will soon rely on AI tools to automate goal tracking, feedback gathering, and reporting, saving time for managers and workers alike. HR teams will look for HCM applications that support “softer” performance measures, captured in written summaries, as well as conventional productivity metrics. Automation will also support performance check-ins throughout the year, a process often hampered by slow manual methods.

6. Employee engagement and morale

Job satisfaction and work-life balance have always been important to maintaining worker morale and retaining employees. These factors are even more vital today as the numbers of Millennial and Gen Z employees, whose values and priorities often differ from those of Boomers, expand at state and local governments.

For example, HR managers have seen that Gen Zers particularly prioritize diversity and inclusion (see challenge 7), along with personal fulfillment and a sense of purpose. But having watched their parents struggle during the Great Recession of 2008, and having to pay back sizable student loans and other debts themselves, they also value substantial salaries, bonuses, and retirement benefits. Governments are taking notice, emphasizing their public mission, strengthening diversity efforts, and offering courses in financial literacy—especially debt management. They also engage Gen Zers and Millennials via their tools of choice, such as mobile apps, social media, and video content.

7. Diversity and inclusion

Promoting diversity, equity, and inclusion (DEI) in the public sector has become trickier, partly due to a wave of new state laws that constrain or prohibit it. Alabama, for example, now forbids state agencies, local boards of education, and public schools and colleges from maintaining a DEI office or sponsoring any program that advocates so-called “divisive” concepts. Additionally, the US Supreme Court’s ruling in Muldrow v. City of St. Louis, Missouri, which lowered the standard of evidence for job discrimination, may have actually made it easier to prove that DEI programs discriminate against some groups.

Even so, state and local governments must report the racial and gender breakdown of their workforce as mandated by the Civil Rights Act of 1964 and the Equal Employment Opportunity (EEO) Act of 1972. AI and other cloud-based technologies can simplify the task of collecting and analyzing data to help HR teams understand their organizations’ EEO risks. Additionally, in 2021, the Equal Employment Opportunity Commission launched the Artificial Intelligence and Algorithmic Fairness Initiative to prevent organizations from using software to discriminate in hiring or disempower workers.

8. Budget constraints

Government HR organizations on tight budgets must allocate spending carefully across hiring and retention, training and career development, employee engagement initiatives, and other programs and initiatives. With federal pandemic relief funds drying up after this year, state and local HR managers are helping their organizations identify new sources of revenue, such as federal and other grants. Some are expanding their grant-writing teams to get every dollar they can.

Governments also depend on cloud HCM and ERP applications—which will increasingly take advantage of AI capabilities—to derive the most value from their budgets and their workforces. When these applications are integrated, HR enjoys a broader view that can improve overall budget management. For instance, they can gain the ability to allocate the cost of certain positions to grants and other funding sources. The right technologies can also let governments automate HR tasks such as payroll and overtime calculations, timecard approvals, and management of cost-of-living adjustments.

9. Regulatory and compliance issues

Government HR departments must help their organizations comply with changing laws and regulations on equal employment opportunities, data privacy practices, diversity and inclusion programs, labor practices, civil service protections, and much more. For example, 11 states now have data privacy laws and 5 more are following suit in 2024, including Florida and Texas. A host of new laws will change the way state and local HR managers handle worker safety, healthcare and retirement plans, overtime, and cybersecurity. Additionally, many HR teams deal with a unionized workforce, which presents additional challenges. They help negotiate collective bargaining agreements and address union grievances, while maintaining productive relationships with union leadership.

Cloud applications can help with regulatory compliance. For instance, the State of Colorado has introduced new family medical leave insurance that all employers, including the state itself and local governments, must implement. A dynamic HCM platform can simplify this task by accelerating data collection, reporting, and analysis. Another example: To smoothly absorb changes to the Fair Labor Standards Act, HR teams need the ability to add reporting flags that show when salaries dip below new federal standards.

10. Change management

Public sector HR teams are managing myriad changes all at once. Among them are the transition to remote or hybrid work, building a multigenerational workforce, the disappearance of federal pandemic relief funds, and new legal guidelines for diversity and inclusion programs. Change management gets more complicated when voters elect new leaders, who often appoint their own executives to manage key agencies such as health services and police and fire departments.

To reduce resistance to change, HR managers need to engage employees by asking them to suggest workplace improvements, pilot new initiatives, provide feedback, and carry out refinements. HR teams are already managing changes wrought by AI, working with IT and legal departments to outline dos and don’ts. The City of Boston’s AI policy states: “Generative AI is a tool. We are responsible for the outcomes of our tools…Technology enables our work; it does not excuse our judgment nor our accountability.”