Employee Referral Programs: The What, How, and Why They Should be in Your Recruitment Strategy

Meghan Peterson | March 2, 2021

82% of employers deemed employee referral programs as their #1 source for ROI.

Hiring the right people is the key to success for any business. In the candidate-driven market we currently live in, finding the right talent can be challenging. Add in the world of remote everything and your search gets more difficult. That is why employee referral programs have become an even more effective method for finding talent. 82% of employers deemed them their #1 source for generating return on investment. So what is an employee referral program, why do you need one, and how do you get started?

What is an Employee Referral Program?

An employee referral program is defined as a structured, internal recruitment method used to identify candidates from existing employees’ social networks. In return, companies offer their employees referral rewards.

So basically, you ask your existing employees to recommend candidates and if they are a fit, you reward them for their help. Your employees know better than anyone else if someone will be a good fit. They know the culture and can recognize if a candidate will work with the company culture and team.

Why Do You Need One?

The recruitment landscape has vastly changed from just a few years ago. The current market is 90% candidate driven – an environment that gives candidates the confidence to reject undesirable job offers. Finding top candidates has become difficult, time-consuming, and expensive. Anything that costs HR professionals less time and money, is a no-brainer, right? These are some ways an employee referral program can help you:

  • Employee Referrals Have the Highest ROI: You need to hire a Marketing Manager. You could spend the money on advertising, website optimization, and give a recruiting company 10-20% of the new hires first year salary. Or, you can hire the awesome candidate that Sarah, your Graphic Designer, recommended and pay her 4-5% as a referral bonus. Obvious choice.
  • Reduce Cost Per Hire: Don’t dish out dollars on job postings, job boards, or recruitment travel. Be like Anna Papalia, CEO of ShiftProfile. She saved her company over $1 million by implementing and using an employee referral program.
  • Reduce Time to Hire: You can save a ton of time on the candidate search process by eliminating posting, searching, and recruiting. Employee referrals can cut your time to hire by 40%. And less time spent on the hiring process means more time for productivity.
  • Improves Quality of Hires: Employees that bring in referrals are more focused on helping a friend, and the company, than they are the reward. And those top notch employees will bring top notch candidates to the table. Studies show the average cost of bad hire is about 30% of the employee’s first-year salary, while the likelihood of a referred candidate getting fired decreases by about 350%!
  • Increase Retention: When an employee is hired via a referral program, their retention rate jumps 25-45%  higher. Your quality of hire is directly linked to retention. And per above, your referrals bring in candidates that are a good fit with strong abilities. If you make the right hires, they are likely to stay long term.
  • Strengthen Your Brand: An employee referral program not only helps you find great talent, but can also boost your brand image. A strong referral program includes clear guidelines and a strong action plan so that when your employees reach out to potential candidates in their network, they know how to speak to them.

How to Get Started With Your Own Employee Referral Program

Now that you know why you need an employee referral program, the next step is designing and implementing one. Let’s start with an example of how the employee referral process works:

Chart showing the steps of a usual employee referral program.

With that process in mind, we have put together some steps and tips below to get you started:

  1. Preparation and Planning. You can’t put a successful employee referral program together overnight. So get your team together and focus on the following questions – forming answers to these questions will allow you to shape your program:
    • How often do you need to hire and for which positions?
    • Do you have any open positions that have been a struggle to fill?
    • What are your requirements for roles you need to fill?
    • What is your company culture like?
    • What is the goal of your employee referral program? Decrease time spent on hiring? Broaden your applicant pool? And what are the metrics for each goal?
  2. Define Rules and Procedures. Decide whether you will use software specifically designed for an employee referral program or if you will create the processes yourself. Create a policy that lays out all the specifics, like how an employee can make a recommendation, what is the reward, when the employee will be rewarded, and how you will handle conflicts. For example, we recommend making the referral process more personal through the use of on demand interviews. This allows your employees to give background information on their referral, as well as gives the candidates an opportunity to communicate their fit for the role beyond their resume.
  3. Promote the Program. When you are all set to roll out the program, it is time to promote it and communicate it to your employees. Create a memo, and then call an all team meeting to get everyone on board. Be sure to publicly praise and reward your employees to encourage participation.
  4. Create Incentives. Get creative here. Think about what your employees would want and don’t hesitate to think out-of-the-box. Here are a few creative ideas:
    • Money. But the right amount. Most everyone appreciates a few extra bucks!
    • Extra personal days or flex time. 
    • Entertainment…Concert tickets, restaurant gift certificates, etc. Don’t underestimate the power of fun.
    • A spa gift card or gym membership.
    • Make it a team competition – the team that wins gets an upgraded reward.
    • Maybe even survey your employees to get their opinion on rewards they would want!

Wrap Up: Recruitment Strategy and Employee Referral Programs

An employee referral program should not replace all your hiring procedures or strategy, it should enhance them. A strong program will become part of your company’s culture. It can help you create a highly effective team of top talent employees who mesh well with your company culture, all while saving you a lot of time and money. If you use tools you already have, like on demand interviews or personality assessments, the employee referral program can be as seamless and consistent as your existing external process.

The benefits are vast, so get out there today and begin to put together the ultimate employee referral program. Afterall, you only have something to gain with this one! Need a little extra convincing on the value of an employee referral program? Learn more about what really happens when you hire the wrong candidates. Are you convinced and want to talk to an interviewing expert about how to set this up today? Reach our Client Success team here.

About The Author

Meghan Peterson is the VP of Revenue at interviewstream. She combines her experience in sales, recruiting, and tech to support customers of all sizes in her role. If you’d like to pick her brain about her advice here or simply start a conversation, feel free to give Meg a shout at mpeterson@interviewstream.com.

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