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Ultimate guide to employee referral programs: tips, benefits and examples

A candidate driven market demands a pro-active approach to sourcing talent. Research from Deloitte found that just over half of organizations cite employee referrals as their number one source of high-quality candidates.

For businesses struggling to attract and retain qualified candidates with critical skills, an employee referral program could be the solution to your talent crisis.

In this article, we’ll dig into what employee referral programs are, how they benefit organizations, share some insights into how to create your own, and explain why you need one now. 

What is an employee referral program?

Employee referral programs leverage internal resources and networks to find new job candidates. They ask existing employees or external partners to recommend their contacts for job openings as they become available, and provide some sort of incentive in return. 

Employee referral programs differ from one-off referrals by creating a structured program that actively encourages recommendations. This is typically accomplished by internal communication strategies, rewards, and support and guidance from the recruiting team.

The goal of employee referral programs is to make inbound referrals a more sustainable and more reliable source of candidates. Done right, these programs are one of the most productive and effective recruiting strategies available to hiring teams. 

There are many benefits to implementing a sustainable employee referral system, which we’ll dig into more in the next section. But don’t just take our word for it: there is a wealth of employee referral statistics that demonstrate the value of these programs. We’ve included some below as well. 

Benefits of employee referral programs

As mentioned, employee referral programs are one of the most productive methods for finding talent. 

In recent years, competition for highly skilled talent has been at an all-time high. As a result, organizations have had to rely on more non-traditional sourcing techniques to land the best candidates. Leveraging internal networks has become one such technique that drives greater results, and provides more immediate access to high-quality talent. 

Candidates (especially the highly skilled ones) have more options than ever, a wealth of networking and job research tools at their disposal, and an ability to work remotely for companies around the world. Each of these variables puts stress on traditional sourcing techniques, making employee referral programs a must-have tactic for most hiring teams. 

The primary benefit, and importance, of employee referral systems lies in their ability to leverage existing resources to zero in on candidates who are most likely to be a good cultural fit and make a positive impact on the organization. They empower your employees to become recruiters and reward them for identifying and convincing their contacts that your company is desirable. 

A systematic approach to referral programs – one that uses internal communications best practices, tracking, and refinement – can have direct benefits to common key hiring metrics. 

This is especially true of the following key performance indicators (KPIs): 

  • Time to hire. Employee referrals eliminate or greatly reduce the time spent sourcing new applicants. They allow recruiters to start their candidate search much further down the funnel, eliminating time-consuming outreach activities. Employee referrals typically take 29 days to become new hires, compared to 39 days for job boards and 55 days for career sites.
  • Cost per hire. As a result of this ability to reduce active sourcing, recruiters spend less money on platforms like job boards and advertising. Referred candidates have also been pre-screened by existing employees, meaning less time and resources are required to establish fit. 82% of employers report that referrals offer the highest ROI as a result and save about $3,000 in recruiting costs per hire.
  • Quality of hire. Referrals come from existing employees who have a deep understanding of your culture and the types of people you’re looking to hire. They will, therefore, recommend people who will thrive in this environment. Fit is a major factor in the quality of hire, meaning referrals are an essential tool for ensuring success.
  • Employee retention rate. Quality of hire, as mentioned above, leads to better employee retention. If you’ve made the right hiring choice based on fit and ability to perform, new hires will likely stay for the long term. Referrals help to make these two variables much more consistent and reliable than sourcing anonymous hires from job boards.

In addition to streamlining hiring efficiency, employee referral systems are a fantastic technique for engaging with passive candidates and building a high-quality talent pipeline. Even if an ideal candidate is not actively looking to make a move, having a conversation about your company with an employee can plant the seed in their head, which may lead to a quality hire down the line.

Lastly, employee referral programs help to strengthen your employer brand. As employees become ambassadors for your company, they will spread authentic, social-proofed messaging about your culture and workplace. This, in turn, creates a powerful message to the industry that you are a desirable place to work, and worth considering when job seekers are looking for a new opportunity. 

Now that we’ve established why you should have an employee referral system, we’d like to share some tips for creating one.

Tips for creating an employee referral program

When creating your own employee referral programs, it’s important to understand how they typically work. Let’s take a step back to look at a common employee referral process that is likely familiar to most recruiters. 

The employee referral workflow

  1. A job opening becomes available. 
  2. An ideal candidate is established, based on job requirements and cultural fit.
  3. The recruitment team sends out a call to action for referrals to this specific job opening. If the program is more established, employees will see the new opening on the internal job board. 
  4. Employees search their networks for qualified candidates and approach them with information about the opportunity and company. 
  5. If interested, the candidate sends their resume to the employee contact who then forwards it to the recruiter and hiring manager. The candidate then bypasses the early stages of the hiring funnel. 
  6. Once submitted, the recruiter records the recommendation in their employee referral software of choice, and the employee is given credit. 
  7. The recruiter and hiring manager screens the referred candidate as normal, usually starting in the phone or in-person interview phase. 
  8. If the candidate is successful, an employee referral bonus or reward is given to the candidate. 

This is a simple example of how a healthy employee referral system might work. This same workflow can be repeated for all appropriate job openings. 

Key considerations

While it may seem like creating an employee referral program is a golden ticket to better hires, there are some key considerations to take into account before you begin, including:

  • Employee referrals must work alongside your existing recruiting strategy. A referral program is not designed to replace all of your other hiring activities. And, it should not be implemented in isolation from the rest of your strategy. Make sure that all of your hiring tactics are working toward the same goal, and lean on the activities that yield the best results.
  • Choose when to ask for referrals. Internal communication is a critical component of employee referral programs. Give clear direction to your employees about how and when to refer to employees. It’s also possible, and likely, that not all job openings will be good candidates for referrals. In these cases, you might want to make some roles open to referrals and stick to active sourcing for others.
  • Make sure it aligns with your hiring goals. You likely have specific hiring quotas or metrics that need to be hit each year or quarter. This might include metrics around diversity recruiting or the volume of new hires. In these cases, it’s important to review the efficacy of your existing employee referral program – and other hiring tactics – to see if it jives with your goals. If it doesn’t, then it might be time for a more hybrid recruitment approach, or an overhaul of your referral program.
  • Regularly review your employee referral system. Employee referral programs are not a set it and forget it hiring tactic. Like all strategies, they require regular auditing and refinement to stay effective. Review your referral KPIs monthly, quarterly, or yearly to ensure that your strategy is still valid. If something starts to slip, then that’s a good time to refine your tactics.

Now that we’ve established a typical employee referral workflow and some key considerations to be aware of let’s dig into some specific components you’ll need to cover when creating your own system.

Key components

In general, the key components of an employee referral system are: 

  • Communications
  • Rewards
  • Metrics
  • Refinement

Let’s dig into each. 

Communications

Communicating the existence of goals for, and process for your employee referral program to your employees should be your top priority. Without this internal comms strategy, your program will likely fail before it begins. 

There are two types of communication strategies to consider:

  • Ongoing communication, which establishes a regular cadence for employee outreach. In these cases, recruiters will send out monthly, or quarterly reminders about the employee referral program with information about how it works, what the rewards are, and which positions are included. This helps to keep the program top of mind and generates sustained effort from employees. 
  • Callouts for specific positions, which can be any time a high-priority position becomes available. These comms will usually describe the role and ideal candidate, and remind employees of how they can submit referrals.

Experiment with different types of internal communications to see which resonates most with your employees. Don’t be afraid to ask for feedback or guidance to make the process better.

Lastly, ensure that your communications are inclusive as possible to all employees. Ask all employees for referrals, regardless of their seniority. 

Rewards

To motivate your employees to give referrals, you’ll need to provide an incentive. Rewards can come in many different forms, but typically an employee referral bonus is the most effective. The monetary incentive will always be your biggest catalyst for generating a reliable pipeline of referral candidates.

Other employee referral reward ideas include: 

  • Vacation days
  • Tickets to shows or events
  • Food and drink gift cards
  • Trips or vacations
  • Social recognition

In general, the more enticing the reward, the better results you’ll get from an employee referral system. By showing appreciation to your employees, you also contribute to a culture of reciprocity and create a general sense of loyalty to the company. 

Metrics

Launching a new employee referral program without first establish what success looks like is something of a fool’s errand. The same can be said for virtually any recruitment tactic. 

Therefore, it’s important to establish what your goals are from the employee referral program and what the associated metric for each goal is. This might include:

  • Number of total referrals
  • Number of hired referrals
  • Number of referrals per role or department
  • Retention rate from referred employees
  • Performance metrics for referred employees

Tracking these metrics will give you clear insights into how well your employee referral system is really working in the long term. It will also help you with the last step: refinement. 

Refinement

By taking a page out of the agile recruitment playbook and actively reviewing and refining your employee referral system, you’ll be able to improve your core metrics incrementally. 

Establish a regular review cadence for your referral program. Analyze your KPIs versus your quarterly of yearly goals, and identify areas of possible improvement. This activity will help to ensure that your results don’t stagnate over time and that you continually adapt to internal and external changes as they arise. 

As mentioned at the start of this article, employee referral systems are a powerful tactic for maximizing results while reducing resource usage. Your employees are your best resource and will help move the company forward when called upon. You just have to ask! 

5 reasons why referral recruitment strategies pay off

Better retention levels

New hires sourced through employee referral programs improve low retention rates when it comes to new hires. Deloitte’s study compared the following retention rates of candidates from several sources over three years:

  • Employee referral program – 42% retention.
  • Job boards – 32% retention.
  • Career sites – 14% retention.

Your employees possess an in-depth understanding of your workplace practices and the day-to-day demands of your organization. In this sense, they are equipped with better operational insight than many of their HR counterparts.   This insight is often communicated to referred candidates. Candidates sourced through your careers site or job boards often miss out on this valuable insight.

Better retention levels also indicate a better quality of hire – a vital yet often difficult to define, factor for many hiring professionals.

Reduced time to hire

The longer your hiring process the more you risk losing the talent in your pipeline. One study suggests that time to hire for employee referrals is estimated at 29 days, compared to 39 days for applicants hired through job boards and 55 days through your careers page. To ensure an efficient hiring process, prioritize your referred candidates above other applicants by tagging them in your Applicant Tracking System (ATS).

The use of an automated calendar sharing tool can help to speed up the hiring process with referral candidates and help hiring managers to facilitate a rapid hiring process.  HR can use key features like ‘’Find the time” to select interview slots with confidence and confirm scheduled times with both interviewers and candidates with just one click. Real-time updates and 24/7 connectivity are also essential to respond quickly to candidate or internal queries.

A consistent source of pre-qualified candidates

Employee referrals provide your business with access to candidates with hard to source skills. Typically, people will network with people employed in similar jobs to them. Candidates sourced through employee referrals are pre-qualified by your own employees. This makes referral candidates easy to move more quickly through your pipeline compared to candidates sourced through traditional recruitment sources.

Ensuring a stream of pre-qualified candidates also reduces hiring costs. A Glassdoor survey estimates the average cost of hire in the US at $4,000. This figure covers external recruiting costs, pre-hire assessments, sourcing, extensive background checks and potentially the use of agencies. A successful employee referral program can help to reduce these costs drastically.

Higher applicant conversion rate

Candidates sourced through employee referrals enjoy a higher applicant conversion rate. While they represent only 7% of all applicants, they account for 40% of all hires. Recruitment metrics provided by your ATS can enable HR to differentiate between the source which produces the highest candidate volume compared to the source of your most successful hires. The difference is critical to create a smarter hiring process.

Better cultural fit

Better cultural fit leads to higher levels of retention and happier employees. But the majority of hiring teams struggle to succeed in this core area:

  • Almost nine out of ten hiring failures are attributed to cultural fit issues, rather than the candidate’s ability to do the job they are hired for.
  • 89% want to improve their ability to select candidates who are a better cultural fit for their organization.
  • Only one in ten are happy with their current process.

A successful employee referral program can help to achieve this goal as your employees are in the best position to evaluate the suitability of a referral to fit within your business.

Creating an effective employee referral strategy

If you’re thinking about launching your own employee referral program, consider the following steps:

  • Start small and stay focused. Identify the jobs where qualified candidates are hard to attract in your organization.
  • Make it easy to share your job posts through your ATS across social media, via e-mail and networking sites like LinkedIn.  An efficient platform makes it easy and intuitive for your employees to recommend and submit referred candidates. It also offers an easy route for referred candidates to apply to open jobs.
  • Keep it simple. Recruitment business Alexander Mann realized their employee referral system was becoming too complicated and reduced their requirements to just the name, e-mail address and location of the referred candidate.
  • Respond quickly to employee referrals and update the referrer on their referral’s progress.
  • When a referred candidate isn’t suitable, provide feedback on their strengths and weaknesses to your employee to assist in assessing future referrals.
  • Incorporate standardized referral requests during your onboarding process.
  • Automate your hiring process to reduce the administrative burden and help monitor the source of your most successful candidates.

Should you offer an employee referral bonus?

Once you’ve set up your employee referral program and policies, you may want to consider an employee referral bonus. Offering a mix of monetary and non-monetary incentives for successful referrals is customary. Bonuses could include things like a gift card, employee trip, or extra paid vacation.

Make sure that if you choose to go this route, it is consistent in application to avoid employee disappointment. When well implemented, employee referral bonuses can be a powerful tool to incentivize referrals.

Kicking off your program with a few employee referral examples

Putting pen to paper (or fingers to the keyboard!), can be tough with no examples to follow. Don’t worry, there are many who have come before you when it comes to building their own employee referral policies and programs. Below you’ll find a few great employee referral examples:

  1. Salesforce engages employees in healthy competition
  2. Google offers a trip to Hawaii to successful referrers
  3. DigitalOcean gives prize money to charity
  4. Buffer uses a fun portal for referrals

So, what are you waiting for?


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