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Employee referral programs are gaining traction among HR professionals, and for good reasons. Recent research highlights how these programs not only improve hiring outcomes but also make the recruitment process smoother and more efficient.
According to Forbes, employee referrals are the “holy grail of hiring.” While referrals only make up 7% of applications, they result in almost 45% of successful hires. The success of employee referral programs is thanks, in part, to your employees’ expansive networks. When you hire top talent, it’s likely they’ll have connections with other high-caliber candidates.
In addition to streamlining the recruitment process, employee referral programs also offer benefits such as increased engagement, improved retention, and stronger employer branding.
Learn how to get a successful employee referral program started with our quick guide and tips.
What is the definition of employee referral?
The definition of employee referral is a hiring and recruitment strategy where employees are asked to submit their recommendations on potential candidates for open roles.
What is an employee referral program?
An employee referral program is a strategic approach to hiring, leveraging the recommendations of employees to find the right candidates for available roles. Going beyond the traditional recruitment channels such as job boards, referral programs ask current employees to submit potential candidates from their professional network. And if the referred candidate is successful, the employee who made the referral typically receives a reward.
At its core, employee referral programs operate on the belief that existing employees are effective at evaluating whether a candidate will be a good cultural fit for an organization. This is because employees understand the company’s work environment and cultural values, making them well-poised to recommend candidates more likely to thrive within the organization.
Why are employee referral programs important?
- Higher quality hires: Research shows that referred candidates often align better with the company’s culture and tend to remain with the organization longer compared to those found through other methods.
- More efficient hiring process: Referral programs can significantly speed up the hiring process compared with traditional recruitment channels. According to Forbes, job boards have an applicant hire rate of just 1.3%, whereas referrals boast a much higher rate of 16.7%.
- Cost savings: An employee referral program helps reduce hiring costs by eliminating expenses associated with job boards, recruiting fees, and agency commissions. For example, if an agency charges a 15% fee of your new hire’s salary, hiring a candidate with a $100,000 salary would cost your organization $15,000 — substantially more than what you’d have to pay in referral bonuses.
Why are employee referral programs important?
Tapping into the networks of your existing workforce can speed up the hiring process while bringing in higher quality candidates that are more loyal to your organization.
Here are some of the key benefits to employee referral programs:
- Applicants are easier to place: Compared with job boards, candidates who come through referrals are 13 times more likely to receive a job offer compared to those applying through job boards.
- Boost in engagement: Referral programs enhance employee engagement by actively involving staff in the hiring process, making them feel more connected to the company’s success and growth.
- Increased retention: Candidates hired through referrals are more likely to stay in the role longer, according to Indeed. This is often because the referring employee is well-versed in the nature of the work at the company, so they’ll be able to refer candidates who are more likely to thrive in the environment.
- Improved cultural fit: Also noteworthy, according to Indeed, is that referred candidates are more likely to be a good cultural fit for the company, as current employees have a deeper understanding of company culture and values.
- Strengthens employer branding: A successful referral program enhances the company’s reputation as an employer, attracting more quality candidates and reinforcing its brand as an attractive place to work.
How much should I pay for an employee referral bonus?
A referral program offers your employees compelling incentives, such as bonuses or rewards, to assist in finding candidates for open positions. As highlighted earlier, employee referral programs not only significantly reduce hiring costs but also provide a range of other valuable benefits, making them a worthwhile investment.
So how much should your employee referral bonus be? According to Indeed, referral bonuses that companies pay out can range from anywhere between $1,000 to $5,000 for every successful hire – usually depending on factors such as the industry you operate in, and the experience level of the role being filled.
It’s common practice to structure referral bonuses in tiers, with part of the reward paid when the candidate is hired and the remainder after they successfully complete their probationary period.
How to create an employee referral program
Setting up a fully-fledged employee referral program can seem daunting. Fortunately, there are some straightforward best practices to guide you. The following are four key steps to get started.
1. Prepare and plan
A quality employee referral program isn’t established overnight – you need to plan and prepare as you would for any significant undertaking. Some questions to ask your leadership team are:
- How often do you need to hire and for which positions?
- Are there open job roles that you’ve often struggled to fill?
- What minimum practical requirements are there for new hires? For example, do they all need to be competent in specific skills, such as webinar tools?
- What is your company culture, and which types of candidates is the best fit?
- What do you hope to achieve with your employee referral program?
- Are you looking to widen your applicant pool for particular roles?
- Do you need to spend less time on hiring?
The answers to these questions can help bring structure to your program and can help with deciding how much time, money, and effort to spend on getting it up and running.
2. Clearly define rules and processes
To create an efficient and effective referral program, it’s essential to have clarity on the rules and processes upfront.
Here’s how to do it:
- Begin by specifying the roles that you have open and the ideal qualifications for candidates.
- Then, outline how employees should go about submitting candidates and any necessary documentation by establishing a referral submission process.
- Detail the timeline for reviewing referrals, the selection process, and be clear on when employees will receive their reward. For example, will it be after they make a referral, once a candidate gets hired, or after they’ve completed their probationary period?
Today, there’s lots of tech to make this more straightforward. As scheduling software automates a calendar, applicant tracking tools streamline referrals.
Such tools often have features and templates designed for referrals. They will give you email templates to send out to your employees and will also have analytics to monitor who recommended which candidates. If you don’t wish to use specialized software, you’ll need to create the processes yourself. Just remember that it’s vital to keep track of referrers and keep them up to date on how applications progress.
3. Promote your employee referral program and recognize participation
Promoting your referral program
With your employee referral program designed, it’s time to promote it to your staff. You need to make everyone aware and highlight the benefits of the program as swiftly and effectively as you can. One idea would be to screen share an example referral during your next company-wide town hall or showcasing successful stories to motivate employees to submit a referral as well.
Recognizing participation
The next vital step is to recognize all participation in the program. The only way your program will succeed is with employee buy-in. Every time an employee submits a referral, publicly recognize and reward their participation. Doing so encourages employees to continue submitting referrals. It’s also worth considering offering a small reward for employees who have submitted a referral, even if their candidate wasn’t hired.
4. Mix up your employee referral incentives
Your referral incentives should be both varied and tailored to what your employees are motivated by.
For example, a tiered points-based system is one approach where you might give out 1,000 points ($10 equivalent) for simply submitting a referral. Then, if the referred candidate moves on to the interview stages, the reward might increase to 2,500 points ($25 equivalent), and so forth. The points are redeemable for items from a user-friendly rewards marketplace, allowing employees to choose a reward that is most meaningful to them.
While some organizations choose to offer cash as a referral bonus, others may prefer a rewards marketplace instead. Gift cards are particularly popular, with nearly three-quarters of companies including them as part of their recognition programs.
For employees motivated by professional development, incentives like workshops, training courses, or conference tickets can be highly effective. Offering a diverse rewards marketplace that includes both growth opportunities and tangible items appeals to a wider range of preferences, making your referral program more engaging for everyone.
Build an engaged workforce with an employee referral program
A well-designed employee referral program streamlines the hiring process and enhances the likelihood of cultural alignment by attracting candidates who resonate with your company values. There’s also the added benefit of cost savings, along with a workforce that is more high performing, engaged, and loyal.
To dive deeper into strategies for attracting top talent and building strong workplace culture, learn the best practices on how to recruit, retain, and develop a skilled workforce from our webinar.
Employee referral program FAQ
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