People Management

What Is an Employee Referral Program?

Creating an employee referral program is a highly effective way to find the right people for your open roles. Referrals streamline hiring by connecting you with candidates highly recommended by your employees. Often, these candidates turn out to be a great fit. Learn how to develop a successful program tailored to your growing business needs.

Takeaways 

  • Employee referral policies can result in higher-quality hires
  • Meaningful program incentives motivate employee participation
  • Be aware of policy drawbacks to avoid potential pitfalls
  • Technology can automate and track the referral process
  • Clear communication will boost your program effectively

What to Know About Employee Referral Programs

An employee referral program is a recruiting strategy that motivates current employees to recommend candidates for open positions within their company. Referrals are a valuable tool for businesses because they come from employees familiar with the company culture and the type of candidate who would be a good fit for the role.  

According to Wizehire’s Small Business Report, this recruitment method is so effective that nearly 50% of small businesses depend on employee referrals when recruiting. Forty-five percent of those respondents combined their recruiting efforts with job boards to extend their reach.

That said, there are more benefits to having a referral program in place. 

A survey by the Society for Human Resource Management (SHRM) found that employee referrals fill job openings a staggering 55% faster than traditional job board hires. This significant reduction in time to fill saves valuable resources and ensures that the right candidate is onboarded quickly, enhancing the overall efficiency of the recruitment process. 

Plus, for every 100 applicants, referrals generate 70% more good hires than non-referrals, according to a study by Harvard Business Review. The upshot is greatly improved employee retention.

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What to Consider Before Building a Program

One primary consideration is crafting a referral program that seamlessly aligns with your organization’s goals and values—the same as you would with your overall talent acquisition strategy.

“For instance, your top objectives may include filling specific positions, improving retention rates, or increasing diversity,” explains Shivani Puri, VP of People Operations at Wizehire. 

Puri advises that a clear structure also leads to success. Details such as rewards and incentives, a process for submitting referrals, and transparency regarding what to expect ensure openness and fairness.

Remember, consistent communication and promotion of the program fuels success rates. Puri adds, “Employees need to know about the program and be reminded about it regularly to encourage participation. Also, don’t forget to ensure that your employee referral program complies with legal requirements and company policies.” 

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How to Build Your Employee Referral Program

Every business has unique characteristics, meaning no two employee referral programs are identical. Your organization’s needs, budget, and incentives will likely vary, but several common goals and objectives for growing businesses will help you create a winning program.

Increase the Quality of Hires

A common goal is to improve the caliber of new hires by tapping into your current employees’ networks. To measure the program’s effectiveness, take note of the percentage of referred candidates who successfully pass the interview process and are hired.

Accelerate Time-to-Fill

When one of your employees refers a candidate for an open position, they act as a recruiter for your company. This approach can help you save time and resources while accelerating your search for the ideal candidate. By involving your employees in the recruitment process, you can skip extra screening steps, reducing the time and effort required to find new applicants.

Reduce Recruitment Costs

The hypothesis that many businesses have proven true is that employee referrals can significantly reduce the associated costs of recruiting. To do the math, establish your average recruiting costs before launching the program and later measure the impact that hired referrals have on those costs.

Enhance Diversity and Inclusion

Tapping into employee referrals can help. Additionally, companies should review job descriptions for bias, provide bias training, and establish fair interview processes. Cultivating an inclusive company culture further ensures all employees feel valued and supported. By prioritizing diversity while complying with the law, organizations can build a workforce that reflects the diversity of society, driving success and innovation.

Write Clear Job Descriptions 

When writing job descriptions, ensure they are detailed and clearly explain the role, responsibilities, and qualifications. This can attract suitable candidates and make it easier for active employees to refer potential candidates. 

Offer Compelling Incentives

One way to encourage employees to participate in a referral program is by offering rewards. Referral bonuses can vary in amount and depend on the job level and difficulty of filling a position. The average referral bonus ranges from $300 to $2,500. A tiered system can be created to offer different payment tiers for employee referrals based on job level, from entry-level to executive roles. 

Payments can also be staggered over time if there are concerns about new employee retention.

Brad Garrett, Lifecycle Marketing Manager at Wizehire, recommends a 12-month referral payback period. “A good way to encourage your employees to refer potential candidates is by offering them three staggered payments for each new hire,” says Garrett. The first payment is received upon hiring the referral. The second payment is received six months after the new hire’s employment. The referrer will receive the final installment if the new hire stays with the company for a year.” 

This staggered reward system not only motivates employees to refer their hard-working friends and colleagues but also rewards them for the retention of new hires.

Average Referral Bonus Range
Entry LevelManagement Executive
$300 to $500$500 to $1,000$1,000 to $2,500

How to Ensure Your Program Is a Success

Ensuring success takes strategic planning and execution. Clear communication and continuous reviewing of hiring metrics drive recruitment efficiency.

Increase Referral Program Participation

To promote your organization’s employee referral policy, communicate the details to employees through key channels such as email, Slack, Microsoft Teams, and the company intranet. Share a comprehensive and user-friendly Standard Operating Procedure (SOP) that clearly outlines the process for submitting referrals. Educating employees about the program’s benefits and how they participate can encourage them to get involved.

Wizehire recruiter Danielle Bloxom emphasizes the importance of ongoing communication. “Keep the program visible on your company’s employee experience platform. Ask hiring managers to announce new positions internally and remind employees about the referral reward program. When an employee successfully refers a candidate who is hired, share the success story to celebrate their achievement and motivate others to participate.”

Looking to make your employee referral program stand out? Here are some creative ideas to try out:

  • Referral rallies: If you’re looking to scale new hires quickly, host a competition where employees can team up and make the most referrals within a specific period.
  • Mentorship matchmaking: Match new hires referred through the program with their referring employee as a mentor, fostering a sense of community and support.
  • Charitable contributions: The employee can donate a portion of the referral bonus to a charity of their choice, adding a philanthropic element to the program.

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Streamline the Process

Use technology to simplify the process, automate referral tracking, and scale your referral program. Make it easy for employees to submit referrals through an intranet or form, which can increase participation, help track referrals, and reduce the time and effort required to manage the program. 

Provide Feedback and Recognition 

Communicate frequently with employees who participate in your referral program to keep them motivated and engaged. Provide regular updates on the progress of the program, acknowledge successful referrals, and recognize top referrers on broader company platforms like company meetings. This helps build a positive culture of recognition and encourages continued participation. 

Track and Measure Results 

Tracking and measuring the outcomes of your employee referral program can help you refine your program and identify areas for improvement. To monitor your progress, establish key metrics, such as referral rate, quality of hires, cost-per-hire, and referral conversion rate.

Pros and Cons of Employee Referral Programs

Employee referral programs are a cost-effective and efficient way for organizations to identify high-quality job candidates. However, while these programs can offer significant benefits, there are also potential drawbacks. Let’s dive into the pros and cons of using an employee referral program and explore how to leverage the program’s benefits while ensuring a fair and inclusive hiring process.

Pros

  • High-quality candidates: Referred candidates are often of higher quality and have a likelihood of success and cultural fit because they come with a personal recommendation from a trusted employee.
  • Reduced time and cost to hire: Referrals require less advertising and screening, reducing the time and expense of filling open positions.  
  • Improved employee retention: Referred employees are likelier to stay with the company longer than hires from other sources because they have a coworker connection. 

Cons

  • Potential for nepotism: Employee referral programs may lead to hiring family and friends, creating tension and concerns about nepotism.
  • Lack of diversity: Referrals can lead to a lack of diversity in the workplace if employees only refer people similar to themselves.
  • Limited talent pool: An over-reliance on employee referrals could limit your company’s exposure to new talent pools. 

Employee referral programs can be an effective way to quickly and affordably identify top-quality job candidates. However, it’s essential to consider the potential downsides of relying solely on referrals. 

The key is to balance using employee referrals as part of a broader recruitment strategy (not as your only source of talent) and ensuring a fair and diverse hiring process by setting up targeted outreach initiatives and diversity training for employees.

Wize Words

An employee referral program is highly effective for finding and hiring the right people. These programs can result in higher-quality hires, reduce the time and cost of filling open positions, require less screening, and improve employee retention. With a thoughtful and strategic approach, an employee referral program can be a powerful tool for building your dream team and fostering a positive and inclusive culture.

Author

  • Lauren Miley

    Proactively seeking opportunities for Wizehire to join the hiring and recruitment conversation publicly, Lauren ensures the brand's consistent presence in relevant industry dialogues. She is pivotal in shaping how Wizehire communicates its mission and values to a global audience.

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The article was reviewed by Deirdre Sullivan

Lauren Miley

Proactively seeking opportunities for Wizehire to join the hiring and recruitment conversation publicly, Lauren ensures the brand's consistent presence in relevant industry dialogues. She is pivotal in shaping how Wizehire communicates its mission and values to a global audience.

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