The benefits of an employee referral program


Collectively speaking, through social media and professional links your employees have a far larger network than your company could possibly hope to have alone. Utilising this network when it comes to recruitment can provide access to a larger pool of potential employees.

People tend to make social connections with others who are reasonably similar to themselves in terms of education, intelligence and overall personality traits. If you have an intelligent worker who fits culturally within the company chances are they know someone who will do the same.

An employee referral program (ERP) is a method of internal recruitment that identifies potential candidates from current employees social connections. This typically involves the employer providing rewards to the employees who refer qualified candidates to their organisation.

Research found that 88% of employers said that referrals are the #1 best source for above-average applicants. (Source: Dr. John Sullivan research)

Despite this, external sources, whether job boards, recruitment agencies or job fairs, produce the majority of interviews (62%). Compared to internal sources such as in-house recruiters and employee referrals (38%). (SHRM)

Although employee referrals may be the preferred method for finding better (on average) candidates, it is still an underutilised process compared to external sources of recruitment.

While external recruitment solutions should never be eliminated, introducing an employee referral program to your workplace will increase the potential talent offering for future roles.

The benefits of an Employee Referral Program:

  1. Speed to hire – Job description writing, ad posting, resume collection, and candidate screenings aren’t as necessary or as extensive when the applicants come from referrals. Instead of sifting through potentially hundreds of resumes, your candidate list is reduced dramatically. This reduces the amount of steps required to hire a new employee (Smartrecruiters).
  2. Cost reduction – If you compare the steps that have been reduced and the costs that have been saved through a referral vs. the cost of providing an employee incentive reward, chances are the company will have saved money on the overall recruitment process.
  3. Candidate quality – With their reputation on the line, employees will typically only refer candidates they believe to already be a good fit and who will do a good job for the organisation.
  4. Promote workplace culture and moral – Allowing your employees to feel responsible for the recruitment and direction of the company produces a sense of ownership and loyalty within the individual. Promoting your organisation as a preferable place to work among their social network will promote your company as a desirable destination for future candidates. An employee referral program provides a voice in the company and empowerment to all those who participate.

How to establish a successful employee referral program (LinkedIn):

  1. Create a user-friendly process – The referring employee needs to know what, when and how to submit an employee referral application. If the system isn’t user friendly, it won’t be adopted by the majority of the organisation.
  2. Train your staff – Not only should they be trained on the employee referral process itself, but on what is to come next and what type of employee the company is looking for.
  3. Make sure your rewards/bonuses are well organised – It is important to remain consistent with the rewards that are offered for employee referrals. Financial rewards often work just as well as non-financial ones. Here are some reward examples:
    • Tiered Reward System – The employee who submitted the referral receives a portion of the award for each stage of the interview process. For example, If the candidate is offered an interview then the employee who referred them receives 1/3rd of the total bonus, if they are hired then they receive 2/3rds and if they stay at their job for 6 months they receive the final portion.
    • Monetary Bonus – offering cash, or cash like prizes for referring successful candidates.
    • Days in Lieu – Work-life balance is a key motivator for many employees, providing paid time off as an incentive can be effective.
    • Recognition – In an effort to secure more employee referrals, Google increased their monetary bonus offered for referrals from $2,000 to $4,000. Surprisingly, it had the opposite effect, employee referrals stagnated.

Google discovered employees cared less about monetary bonuses and more about having an impact on the direction of the company. A simple thank you and showing gratitude for their loyalty may actually be the most beneficial strategy depending on the company. Measure the success – Everything in business should have some sort of ROI focus towards it, an employee referral program is no different. Whether through time-commitment or monetary bonuses, your company is using resources to establish this program. You can measure the success of the program through a few key metrics:

  • Quality of hires coming from referrals
  • Number of referrals
  • Workforce participation rate in the program
  • Overall percent of interviews coming from referrals An employee referral program is not the silver-bullet to your recruitment needs and should be used in conjunction with external recruitment. If the program is your sole method of recruitment then this can potentially lead to a homogenous workplace lacking in diversity. When all the referrals are coming from one location it limits potential opportunities.

There is no one size fits all to establishing or running your employee referral program. Each business is different, with a different culture and different needs. It is important to recognise your own workplace culture and what you want to gain from having an employee referral program.