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5 reasons why employee referrals are highly effective

July 26, 2018

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5 reasons why employee referrals are highly effective

4 min read

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.

Here’s why:

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.  
  • Offer a mix of monetary and non-monetary incentives for successful 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.

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Kate Smedley is a freelance copywriter specializing in HR, HR Tech and recruitment, with 18 years of previous experience as a recruiter. Kate also works with employers to identify problems in hiring processes, offering full support and advice throughout the recruitment cycle.
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