What is An Employee Referral? How to Design An Effective Policy
Employee referrals are one of the most effective ways to promote your employer brand and attract top talent.
Employee referrals incentivize your current employees to act as recruiters and fierce advocates for your employer brand. This decreases time and cost to hire, boosts employee retention, and showers your employees with rewards that boost company loyalty.
What is an employee referral?
An employee referral is a method for filling open positions by providing incentives to existing employees for encouraging qualified candidates to apply. You open the door for your current employees to identify friends and former colleagues they believe would be an excellent fit for your workplace.
Instead of solely relying on job advertisements through sites like LinkedIn and Glassdoor to find quality candidates, employee referrals enlist people you already trust. Your current employees can also provide referred candidates much more information about your company’s employee experience than any job posting.
Hiring qualified candidates has become increasingly difficult because the power has shifted to the hands of the job seekers. Employee referrals offer a way to make your company stand out because your current employees can advocate for your company culture to their colleagues.
What is an employee referral program?
An employee referral program is the system you use to turn employee referrals into a full-blown recruiting strategy. In most cases, companies will offer their existing employees some kind of incentive for each referred candidate or new employee.
The primary difference between an employee referral and an employee referral program is having a structured guideline for communication, rewards, and support from human resources or the hiring manager.
The structure of an employee referral program streamlines the process of reeling in potential candidates and offers a more sustainable and reliable source of candidates. When executed efficiently, employee referral programs that actively encourage referrals can be one of the most effective means of identifying quality candidates.
Benefits of employee referral programs
Employee referral programs are a win-win-win:
- Employers receive vetted candidates for open roles and promote their employer brand via word of mouth
- Job seekers get insight into a company before applying and receive endorsement from their contact within the organization
- Existing employees receive compensation and have the chance to work with friends and former colleagues
Let’s break down some of the other benefits of employee referral programs.
Close job openings faster
Compared to other hires, referred employees offer the shortest timeline between hiring and onboarding. While many hiring methods take approximately 55 days to find the right person out of a pool of job candidates, referred hires cut that down to 29 days to fill a vacancy.
When your time to hire decreases, your cost per hire will also decrease. Your company can save on job boards, advertisements, and screening candidates. Over 80% of employers state that referrals offer the highest hiring ROI out of any recruitment method and save their companies approximately $3,000 in recruiting costs per hire.
Improve employee retention rate
When you receive recommendations from your current team members, you open the door to higher quality job applicants. Your existing employees understand your company culture and the types of people who would make a great addition to your team.
When the quality of hire improves, employee retention increases. When you have the right people on your team, your crew members will want to keep working as hard as possible. And since you value your employees’ opinions enough to hire people based on their recommendation, their brand loyalty will increase and they’ll want to stick around for the long haul.
Welcome new hires more easily
Before a referred candidate even applies, your current employee will talk to them about the job and company culture. While it’s nice to hear from the CEO or hiring manager of a company, people will trust their friend or colleague, especially when that existing employee works in the trenches and can paint a picture of day-to-day life at the company. Word of mouth is significantly more effective for your employer brand than a job description ever will be.
As you welcome new referred hires, they’ll have an easier time integrating with your current team because they already know the existing employee and can likely trust them as a kind of onboarding buddy. This streamlines onboarding for you and offers a more successful transition period for the whole team.
Delight current employees with referral bonuses
We can’t discuss referral programs without addressing employee referral bonuses. Referral bonuses are a major perk for your employees because they increase loyalty by making your team members feel more appreciated. This feeds back into retention rate because it will encourage all of your employees to stay with your company longer.
We’ll dive into referral incentives more in a bit.
Traps of employee referral programs
We do want to address one potential caveat of employee referral programs. Since you’re relying on your existing employees to identify top talent, there’s a chance that they may offer candidates that are extremely similar to themselves or your other employees.
Diversity is incredibly important for teams, and you want to avoid the trap of reducing diversity because of employee referrals.
Your employee referral strategy should include educating your current employees on exactly what you’re looking for in a potential hire.
Don’t just talk about the job opening. Talk about the skills you need, the gaps in your current assets, and the diversity metrics you’d like to improve. If your employees have a better grasp of the kind of person you’re looking for, they’ll have a better chance of identifying a person that will complement the team while bringing something new to the table.
How to launch an effective employee referral program
A successful employee referral program begins with a template that you can use any time your company has a job opportunity. Your template should flesh out your strategy for referred hires and create a step-by-step process that can be applied to all job openings.
Here are a few things to consider while developing your employee referral program strategy.
Determine employee referral eligibility
First and foremost, you’ll need to determine eligibility for employee referrals:
- When employee referrals will be accepted (ongoing vs. as-needed)
- The level of familiarity an employee needs to have (must have worked with them before, isn’t an immediate family member, etc.)
- The kinds of hires that qualify (full-time vs. part-time, employee vs. independent contractor)
- The number of referrals required to get a bonus
- The number of months the new hire must stay at the company
Decide on referral incentives
As you develop your referral process, you’ll want to clearly outline the referral incentive system. For inspiration, take a look at how some top companies run their employee recruitment process.
You’ll also want to figure out which incentives will entice your team members the most. Would they prefer a cash bonus, gift cards to popular restaurants or stores, or physical gifts? When in doubt, survey your team to understand the kinds of rewards they’ll find most motivating.
Announce your new referral program
Once your employee referral system is ready to go, host a team meeting (or a happy hour) to review your new employee referral program with your team members. Go through the template you built and ensure that it’s easily accessible to your employees.
Record the session and write up a skimmable guide to add to your employee handbook.
Develop a system to track referred candidates
Once you get the ball rolling on your employee recruitment method, you’ll need an efficient way to track referred candidates. You could go the spreadsheet route, but let’s be honest, there are far more efficient ways of tracking referrals.
Roots is an employee referral tool that lives directly in Slack
Our Slack plugin seamlessly keeps referrals at the forefront of all job openings and makes it ridiculously easy for employees to submit a referral. We also let you introduce a bit of friendly competition to your employee referral program with gamification to encourage more employees to get involved.
You don’t have to just take our word for it—let us show you how easy we can make employee referrals. Schedule your Roots demo today.