What is an employee referral program?

An employee referral program is a method of finding job candidates. In this process, employers encourage their current employees to suggest people they know for job openings, such as friends, family members, or people from their professional network. While programs like this can have different forms, business owners typically offer bonuses if they hire a person at an employee’s recommendation. Referral programs can be great ways for employers to hire talented staff and motivate their current team members.

How to create an effective employee referral program

With the right research and planning, you can form a program that helps you immensely in the hiring process. Here’s how to create an effective employee referral program in five steps:

1. Collaborate with management

Before implementing an employee referral program, be sure to get approval from senior management. Even if you’re a top executive in your firm, it’s helpful to collaborate with other leaders in determining if this is the right step for your business. Consider your hiring goals and budget to see whether a project like this is necessary and financially feasible. If you’re meeting with management, prepare a brief beforehand about your plan for the project, including what resources it could need and what value it provides.

2. Develop a simple referral system

Draft an outline of the structure and details of your referral system, including rules for how it works. You can later finalize this draft and convey it to your teams. It’s important your instructions are simple and clear because making your system as easy as possible can inspire more employees to use it. Consider what rewards you want to offer to motivate people to take part in the program.

The format of your referral system can vary based on your type of company and preferences. You may choose to use employee referral software, create an online form or email template, or merely collect resumes in a drop box in your office. If you’re uncertain about how to make yours, you can research and emulate how successful companies implement their employee referral programs.

3. Create SMART goals for the program

Setting SMART goals for any project can lead to better outcomes. Develop goals for your referral program that are specific, measurable, attainable, relevant and time-based. You should also track the success of your program by measuring important aspects of it, such as:

• The number of referrals employees make
• The number of referrals hired
• The number of referrals who stayed at the company for more than a year
• The quality of recommended candidates
• The most effective methods for recruiting and hiring people
• The satisfaction of managers and employees with the program

It’s also a good idea to take notes on how the program goes so you can improve it over time. Be sure to get employee and manager feedback about its effectiveness so you can make the necessary improvements. For example, you may need to make the instructions clearer or make the referral process simpler. Having a mindset of continual improvement can help you perfect your program as much as possible.

4. Provide a range of incentives for your employees

A critical part of an effective referral program is incentives. Typically, if an employer hires a referred candidate and the new hire stays at the company for a certain period, the employee who suggested them gets a cash bonus. Rewards like this are a symbol of appreciation and thanks for the employee’s efforts. Here are some other ideas for program incentives:

• Gift cards
• Extra vacation days
• Special prizes like tickets to a local event
• Free dinner and drinks at a high-end restaurant
• Donations to a charity of the employee’s choice

You may benefit from using an incentive structure that rewards different levels of prizes for different positions. You could also implement contests between teams for which refers the most candidates, fostering collaboration and employee satisfaction. To decide on your incentives, think about what compensation can motivate your employees. You can even offer surveys to ask them what they might want as a referral reward. In addition, if you hire someone an employee recommends, you can acknowledge their contribution by posting about them in the company newsletter or social media sites.

5. Communicate your program with your employees

After you’ve fully planned your program, it’s essential to communicate it to your employees so they can take part in it. If you’re telling them about it for the first time, consider hosting a launch party where you disseminate the details and encourage your team members to try it. You can also publish a document with its guidelines on your internal company website and send it through your internal communication system, whether that’s email or another messaging software. Post it in high-traffic office areas like break rooms, and mention it in your onboarding process for new hires, too.

The primary parts of a program are typically the instructions for how to refer someone and the incentives for doing so. Be sure your directions are concise and informative and feature the contact information of whom employees can go to with questions. In addition, every time you have a job opening, send it to your team members and remind them of the referral program. You should feature a link to the job description and company website so they can show it to their friends and colleagues to tell them about the job.

Benefits of having an employee referral program

If you want to find additional team members and expand your business without putting too much stress on your hiring managers, consider an employee referral program. Here are some benefits of the project:

Hire skilled employees

Employee referral programs help employers hire high-quality new employees. This is because your current employees may know many smart and talented people who are qualified for the role. Some of your team members may have excellent ideas for candidates, whether it’s people they met in school, previous jobs, or other places. As your well-performing employees may have friends with similar educational backgrounds, abilities, characteristics, and enthusiasm for your company’s industry, their suggestions can be great for the type of candidates you’re seeking.

Your employees have a practical understanding of how jobs at your company work and what duties team members need. So, they can find candidates who are fit for the job’s responsibilities. They can also advertise your job openings to people who may not otherwise see them. If you have the right incentives and stakes, your employees may put a lot of effort into finding candidates with strong work ethics and dedication. For these reasons, referrals often perform better and stay with the business longer than normal hires.

Hire trustworthy employees

An employee referral program allows you to hire people whom your current employees trust. Their referrals are often friends and family members, people with whom they have personal relationships and spend quality time. Your employees’ referrals already have interpersonal skills and professional networks, so it’s more likely they can fit in with your company culture. They may also share your current employee’s passion for a company’s purpose, principles, and goals. For example, if your company emphasizes environmental sustainability, your team members may have friends who care about the same cause.

Improve employee retention

As referrals are often perfect matches for job descriptions and companies, they are usually likely to stay at a company longer than regular employees. This also has partly to do with the fact that they already know someone at the company, so they may feel more comfortable working there. In addition, your present employees who make suggestions may feel a sense of achievement when you hire their recommendations, so it’s likely they will want to work at the company longer, too.

Reward your current employees

Referral programs can be a way to reward your current employees. Providing them with encouragement, positive feedback, and prizes can increase their motivation to be productive. Allowing them to work with their friends can also foster an enjoyable work environment and more efficient collaboration between teams.

Make the hiring process easier

Getting aid from your employees can reduce the burden on your recruiters and hiring managers. This can save time, effort, and resources. Your present employees can provide the resumes, cover letters, and application forms of their suggestions. Hiring managers can then focus less on finding candidates and more on screening and interviewing them. In addition, it’s likely an employee’s referral will have more familiarity with the company because of their connection with it. This means employers can have an easier onboarding process. Referrals already have a friend in the company who can help them learn about their role.

Hire people quickly

If you’re in urgent need of new or more employees, you can implement a referral program to help you scale your staff and hire people quickly. The more people working on recruiting candidates, the larger your pool of choices can be and the less time the process can take. You can also reduce the time you may have to spend on eliminating options, as your employees will probably recommend promising candidates.

Increase business revenue

By using a referral program, you can reduce the expenses related to recruitment. You can also hire skilled, trustworthy employees who work efficiently and create high-quality products, helping your business generate revenue. In addition, the positive environment that referral programs can cause may attract and maintain more customers.

Improve your company reputation

Instituting a referral program means your employees can advertise your company for you. They can tell their friends and colleagues about your company’s benefits and enjoyable culture. Their marketing techniques can assist you in gaining the best talent for your job openings.

Examples of employee referral programs

The details of a referral program can vary based on your business and industry. Here are some examples that may help you write your own:

Example 1

“Here at our business, we have an employee referral program in which all employees can take part. If the candidate you suggest stays for at least six months, you can get a $250 cash bonus. If you know anyone who would be a perfect fit for our open positions, ask them to apply!”

Example 2

“Our employee recommendation program allows you to get a gift card to a local restaurant for finding excellent job candidates. If you know anybody who would want to apply for our open marketing position, please let us know by filling out this email template. Here is the link to the job requirements. Let us know if you have any questions.”

Example 3

“Do you know of anyone who wants to work for our company? If you know any excellent job candidates for our Accountant position, message your manager with your suggestion. Include your candidate’s resume and cover letter, and if we hire them you can win a $500 cash prize.”

Frequently asked questions about employee referral programs

How effective are employee referral programs?

With the right structure, employee referral programs can be very effective. Having a powerful incentive can encourage employees to find skilled candidates for a role. This method can also be more cost-effective than regular recruitment strategies.

What do employee referral programs cost?

Employee referral programs are typically cheaper than finding candidates in other ways. The major cost of these programs is the financial or non-financial reward you offer. However, this is often less expensive than the effort and time to recruit candidates online or in person.

What percentage of hires should be employee referrals?

For some jobs, it’s important to implement in-person recruitment. However, about one-third of your hires can be referrals. Referral programs can also be great for jobs that don’t require complex screening processes.