The European Union’s Regulation 2024/1689 on artificial intelligence (AI) approaches its 2025 implementation date. With the new regulation, discussions surrounding AI’s role in human resource management are intensifying, particularly concerning its implications for employee compensation. The regulation, first introduced by the European Parliament and Council, aims to create a framework for artificial intelligence that ensures safety and transparency, especially in high-risk areas such as recruitment, biometric data handling, and performance evaluation.

The automation of human resource management is neither new nor novel, as companies have been using different software for payroll management for over thirty years. Today, some companies are beginning to use artificial intelligence in what is known as people analytics, an HR term that encompasses managing compensation and bonuses, performance reviews, employee training courses, etc. A recent study by Spanish Technology and Human Resources Business Factorial highlights that AI is helping HR teams filter candidates more efficiently, potentially reducing hiring costs by almost a third and saving up to 14 hours per week. The company claims hiring processes can be “sped up by up to 35%”.

AI hiring is not quite there (yet)

Despite the promising capabilities of AI, many organisations remain hesitant to fully embrace its integration into HR practices. According to a report from Spanish HR company SD Worx, only 42% of the companies they polled are currently exploring AI for human resource management, with only 36% investing in its implementation. Companies prefer to focus on employee well-being (40%), work flexibility (34%), and enhancing the overall employee experience (27%), while integrating AI is seen as a lower priority at 8.2%.

Concerns about the implications of AI in salaries are further underscored by SD Worx’s findings that only 24% of companies in Spain are utilising generative AI in payroll processes (compared to 22% in Europe). Most AI applications in Europe focus on compliance with regulations and real-time payroll processing rather than directly influencing compensation decisions.

In Europe, companies use artificial intelligence to follow law changes (39%), validate data (34%), and manage employees (33%). However, a recent report also highlighted that only 1 in 10 businesses have fully integrated AI operations. In the same vein, a study by SHRM Foundation found that 1 in 4 organisations in the US currently use AI to support HR-related activities, with the largest organisations having higher rates of AI implementation.

Putting limits to AI in HR

Susana Marcos, CEO of the HR company headquartered in India Peoplematters, spoke last week at the VIII Meeting on Employee Compensation Tendencies in Madrid and admitted that AI “helps to improve efficiency in HR”. Aiding with identifying candidates, reviewing their performance and with employee compensation. Nevertheless, she issues a warning:

“The new law is putting limits. These are high risk systems, and, at the end of the day, a person needs to make the decisions”. Marcos compares AI to a black box, “it is an opaque machine, we don’t know what it is learning”. Therefore, she suggests that the final decision must be human-made: “Removing the human from the process is a dire mistake”.