The dawn of artificial intelligence (AI) being put to use by SMEs is upon us. As these tools begin to offer more help and functionality to teams in all departments, AI brings many benefits for human resource (HR) teams; but some remain skeptical. Capterra surveyed 1,000+ employees in SMEs regarding the applications and concerns regarding the use of AI in HR in Canada.

the use of AI in HR in Canada

Artificial intelligence (AI) is the ability to replicate human intelligence with technology. Although it has helped carry out a wide variety of business tasks faster and more automatically (think ChatGPT or Bard for writing emails), it’s not without its controversies. 

When it comes to the use of AI in HR tools specifically, some think it can lead to biased decision-making in recruitment or dismissal procedures. Due to the lingering doubts about AI, the government of Canada has put forth a set of guidelines to help keep their own use of such tools ethical. 

To get a better understanding of the way AI is being used in HR departments in Canada, as well how to address concerns and provide advice on the adoption of this technology, Capterra surveyed 1,002 employees of small to midsize enterprises (SMEs) who’ve worked in the same company for at least a year. For a full methodology, scroll to the bottom of this article.

What does the use of AI in HR look like?

Artificial intelligence is defined as a type of software that engages in human-like activities (such as learning, planning, and problem-solving). The use of AI in HR helps the talent department find and shortlist skilled candidates, assist in performance evaluations, recommend personalized learning programs, and evaluate employee sentiment for retention purposes, amongst other uses. 

This can help boost the productivity of an HR department, as AI can analyze large amounts of complex employee data and suggest paths of improvement in very little time. However, leaving the work up to AI tools may make some employees uneasy when it comes to making hiring, promotion, or even layoff decisions. 

Tip for HR departments: For HR team members to look into company-wide employee data and strategize based on those insights, that information must first be collected and stored, likely using cloud storage. Be sure to protect your business from data leaks or cyber attacks with cybersecurity tools like endpoint security and authentication software. If this type of technology goes over your head, not to worry; check out our guide to understanding SaaS security.

One in five SMEs in Canada are already using AI in HR

So, is the use of AI in HR widespread yet? 20% of surveyed employees say their HR department is already using it. While nearly two out of three (63%) employees say their company is not using AI in any HR capacity, 17% said they weren’t sure, which means AI’s usage could be higher than reported.

Many HR tools make use of AI to some extent, though not all employees may be aware of this. The following chart shows the software most commonly used by SMEs employing AI in their HR departments, some of which may incorporate AI into their functionality.

types of software used in HR

Amongst companies using AI for HR functions, general HR software is the most commonly used tool but also software for employee engagement, performance appraisals, and HR analytics. In these key areas, using AI-powered software helps HR employees access centralized feedback and data; when powered by AI, suggestions for improving employee retention, distributing raises and awards, and streamlining workforce planning are made by the tool itself.

While the use of these tools is likely straightforward for those in HR, their functions may not be as clear for the rest of the team. Two-thirds (66%) of employees whose companies use AI in HR say they’re aware of how their company is using AI technology, but another third (34%) say they’re either unaware or unsure of how these tools are being used.

The lack of transparency may be a point of contention, as the government of Canada states in its own guiding principles on the use of AI that transparency and meaningful explanations are of utmost importance. Taking this guidance into account, SMEs seem to be communicating about their use of AI in HR in a variety of ways. Only 6% of employees in workplaces using this tech say they haven’t been informed about it.

Among the employees whose companies use AI for HR functions:

  • 35% were sent written email communications about it and can easily find the information again
  • 31% have been trained on the matter or have signed consent agreements
  • 18% participated in discussions on this topic in their workplace
  • 11% say it was verbally communicated to them
Tip for HR departments: If your company decides to explore AI technology, the best way to avoid controversy is to communicate transparently every step of the way. Whether internal communication boards, company-wide newsletters, training sessions or update meetings work best for your company communication, the most important aspect is to keep employees informed on how the technology works and what it’s being used for.

Over two-thirds of employees are uncomfortable letting AI handle layoffs

Some workers may raise ethical concerns about the use of AI for certain functions of HR, particularly layoffs or employee dismissals. When asked how comfortable they’d feel if AI tools were used to determine who to lay off, 30% said they’d feel “very” uncomfortable and another 39% would feel “somewhat” uncomfortable. 

Of those uncomfortable with this use of AI in the workplace, the majority found it unethical to make that kind of decision (letting go of an employee) via AI. Other responses showed these workers thought humans were more apt for this type of decision-making, and that they lacked trust in AI’s ability to judge employee performance accurately.

What is bias in artificial intelligence (AI)? Due to AI’s capability to evaluate swaths of data and make decisions using its own algorithm, some employees are worried about bias. In fact, over half (55%) say that the use of AI technology to make human resource decisions is ethically wrong. This strong reaction shows that some employees may lack transparency or understanding of AI’s decision-making processes. 

Keep employees informed by preparing a guide or FAQ on how exactly the use of AI in your company works. Seeking to understand the inner workings of these tools before their implementation can help your software-buying team evaluate products for their ease of use and availability of employee training materials to potentially boost employee trust in the tool via transparency.

ethical issues of ai in human resources

Not all employees would feel uneasy about such technology, though. Almost a third (31%) would be comfortable to some degree with their HR department using AI to make layoff decisions. When asked why, most respondents (39%) said that AI is unbiased, as it can’t take personal preferences into account. 

Among other reasons some employees were comfortable with AI making layoff decisions:

  • 34% think it can avoid decisions based on a manager's personal issues with employees
  • 31% believe AI relies on actual performance-based data to make decisions
  • 28% think the decisions made by AI are more accurate

Despite all the weighing in on the use of AI for layoff decisions, its use for such functions is scarce. Only 8% of surveyed employees report their company using AI to decide who to lay off. However, another 14% were unsure if it was being used at all, which shows more communication on the topic may be needed.

Tip for HR departments: Open communication lines are key for maintaining a comfortable, trusting workplace. Not only can it help familiarize employees with HR processes, but feedback from employees can also be a great resource for reporting on the investment and trust levels in certain processes. For HR teams looking to connect and collaborate with the team, check out employee engagement tools.

AI-made decisions in HR could impact employee work habits

One possible side effect of AI-driven decisions in HR could be undue stress on employees who may worry about job security. Almost two-thirds of surveyed employees (65%) said stress levels at work could rise if their company made layoff decisions using AI.

the use of ai in hr for layoffs may cause employee stress

Another possible consequence of the use of AI in this type of decision-making is a change to the work habits of employees, as they may fear their performance is being measured or evaluated in new ways. Over a third of employees (35%) said if they knew that layoffs would be more data-driven they would change their behaviour on the job.

The changes that workers might make in this instance may not be negative. In fact, most employees who’d change their work habits (39%) say they’d start developing new skills if AI were to be put in charge of layoff decisions. This could help employees and SMEs alike reap the benefits of upskilling, a noted trend in HR for 2023.

Tip for HR departments: Other actions that employees who’d change their work styles if AI decided layoffs say they’d take included focusing more on key performance indicators (KPIs) (reported by 36%) and getting involved in more projects (21%). Although they’re beneficial ambitions, they differ enough from each other to signal some slight confusion about how exactly AI evaluates employees. Keep objectives and development plans as clear and accessible as possible by using performance management platforms.

Employees find training to be the most trustworthy use of AI in HR

Different uses of AI technology for HR functions inspire different trust levels. Employees seem to have varied levels of comfort with AI for certain functions. For example, most respondents (65%) were comfortable to some extent with the use of AI for workplace training. Another half (51%) would be “very” or “somewhat” comfortable with their company using AI for monitoring employees in their day-to-day work.

employee trust levels with uses of AI in HR functions

Nearly half of employees (48%) were also comfortable letting AI work on recruiting tasks, like finding or shortlisting candidates. Layoffs, however, solicited a much lower comfort level when it comes to the use of AI; only a quarter of employees (25%) felt the technology was trustworthy to some degree to carry out this function; this could be due to the perceived bias some employees associate with AI-based decisions.

With uncertainty still in the air for some applications of AI by the HR department, transparency and employee feedback continue to hold utmost importance. As with all newly adopted technologies, a learning curve is to be expected; perhaps that’s why half of SMEs seeking software cited concerns around the implementation of new tech in our 2022 Small Business Buyer Behaviour Survey.

Takeaways for HR departments implementing AI

Adopting new technologies can be daunting for employees and HR teams alike. Over a third (35%) of surveyed employees said they’d need more information before forming an opinion about the use of AI in human resource decisions. 

When incorporating unfamiliar software into a company’s arsenal, it’s vital to gather as much information as possible to provide to both the users and those affected by the use of such tools.

To sum up our recommendations for the use of AI in HR for SMEs, here are our tips:

  • Define the uses that your business will be applying AI towards, such as employee recognition or hiring. Also, keep guidelines clear on which areas your business will not be using AI to assist in.
  • Evaluate AI-powered HR tools not only for their functionality, but also for clarity on the tool’s decision-making processes, which could help ease employee worries around bias.
  • Train all employees (not just those in HR) on these use cases, and obtain consent where possible to keep your team in the know.
  • Communicate transparently when new use cases are identified or previously established ones go out of use; loading these guidelines into an internal knowledge base can help keep this information accessible and up-to-date.
Looking for human resource (HR) software? Check out our catalogue!


To collect the data for this study, Caperra conducted a survey from May to June 2023. To do this, a sample of 1,002 people were selected. The sample of participants is representative of the population of Canada regarding aspects of gender, and the criteria for selecting participants are as follows:

  • Between 18 and 65 years old
  • Employed part- of full-time in a junior, intermediate, manager or executive position
  • Work in a small to midsize enterprise (SME) with anywhere between 2-250 employees
  • Have been working in the same company for at least one year