Career Development

Employee Referral Programs: Components and Benefits

February 22, 2021

Employee referral programs are great options for any business regardless of the hiring budget. By using an employee referral program, a hiring manager can interview trustworthy candidates. A company can also review its employee referral programs to improve its effectiveness in the future.

In this article, we discuss what an employee referral program is, explain its most common program components and list benefits associated with the implementation of these programs.

What is an employee referral program?

An employee referral program, or ERP, is a structured program in which employers ask their employees for candidate recommendations. Employee referrals are internal methods used to find the best talent among current employees' professional networks. Employers encourage referral recommendations through incentives such as bonuses, time off and more. In most cases, employees receive these incentives if their recommendation works for the business for at least 90 days.

Related: How To Include a Referral in Your Cover Letter

How do employee referral programs work?

Many employers and hiring teams begin their ERPs by outlining what they need in new hires. This includes aspects such as skill level, experience, character and education level. Then, they communicate the program to employees and discuss their hiring needs, including the timeline and hiring process.

Employees contact professionals in their network that fit the employer's outlined requirements and ask for their resumes and cover letters. Employees submit any resumes or cover letters they gathered, and hiring managers proceed with the interview process after reviewing all the applications. Employees who submit referrals usually act as a reference for the candidate, helping employers gain insight into their work ethic and experience.

Related: How Hiring Managers Review Resumes

Common components of employee referral programs

The following are some common elements you can expect in an employee referral program:

  • Incentives or rewards
  • Advertisement and communication
  • Performance measurement
  • Feedback generation

Incentives or rewards

For greater participation in referral programs, many employers offer incentives. This encourages current employees to explore their networks and find the best quality candidates for the open position. Money-based incentives are the most common since they appeal to nearly all employees. Some companies could offer additional paid time off instead of a cash bonus. Employers who want to implement an ERP can take a poll to see what kind of rewards employees for more engagement.

Related: How To Ask for Referrals

Advertisement and communication

Employers need to communicate the ERP to employees as soon as they can. This gives the hiring team greater access across many different channels because employees have more time to explore their network. It's helpful to make a formal announcement that reaches all employees.

For example, an employer could make a formal announcement during a meeting and send a follow-up email with all the details. They could also add application and hiring deadlines to the company calendar so employees can follow the timeline.

Performance measurement

Businesses record and analyze metrics related to their ERP objectives to improve future efforts. During the planning phase, they outline specific criteria they require and make changes to future ERPs based on the success of the latest program.

Metrics they often account for include the percentage of candidates sourced from each channel, the percentage of new hires sourced through the ERP, changes in hiring frequency and changes in the hiring budget.

Feedback generation

Feedback is also a necessary component because it shows the company the overall performance of the current ERP. Employers should gather both internal and external feedback from current employees and new candidates. The feedback businesses gather from these individuals offers deeper insights and details than data alone.

Benefits of referral programs for employees

The following list outlines several benefits that come from employee referral programs for candidates, employees and employers:

  • Increased hiring frequency
  • Access to better candidates
  • Better performance for the assigned budget
  • Brand ambassadorships
  • Reduced turnover
  • Increased employer satisfaction

Increased hiring frequency

Leveraging an entire employee network grants access to both active and passive candidates, diversifying the talent pool and increasing hiring frequency. This is especially crucial in industries with competitive job markets. Gaining candidates at a faster rate through ERPs also reduces the need for certain steps in the recruitment process, such as reviewing hundreds of resumes and screening candidates.

Access to better candidates

In industries where specialized skills are in high demand, such as information technology, employee referrals are often more effective in attracting the right talent. These programs allow recruiters to explore greater networks of vetted professionals with unique skills. Employers and recruiters could also see a greater number of high-quality applicants in comparison to traditional recruitment methods.

Better performance for the assigned budget

Companies sometimes invest large amounts of money into the hiring process to ensure they get quality candidates. This places greater importance on hiring the right person for the job to make the investment worthwhile. Employee referrals reduce the need for job advertising, external recruiters and other related areas, reducing the overall hiring budget.

Brand ambassadorships

Employee referral programs create opportunities for potentially free brand ambassadorships. As employees explore their available networks, they sell the company on its value proposition, informing candidates on how the company can satisfy their employment needs. Value propositions often have increased credibility coming from those individuals who already work for the company.

Reduced turnover

Sourcing candidates through an employee referral program reduces turnover because current employees recommend candidates they know are good fits for open positions. Current employees usually know how their referrals will fit into the company culture, which is one of the most important aspects of reducing turnover. Increased tenure also positively impacts the hiring budget with less need to fill positions over a long period.

Increased employer satisfaction

Because employee referral programs attract qualified candidates whose goals align with the company, employee satisfaction also increases with time. Those employees who fit well into a specific company culture are often connected with others who thrive in the same or similar cultures.

This increases the new hire's happiness along with the employer's relationship with them. When employers, supervisors and teammates work well together, engagement, productivity and overall satisfaction increase.


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