What Are Employment Referral Programs?

By Indeed Editorial Team

Updated February 22, 2021 | Published March 20, 2020

Updated February 22, 2021

Published March 20, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

One of the most effective and affordable hiring strategies for growing companies is the employment referral, which uses people's professional networks to find quality talent. Companies use employment referrals to reach out to a wide range of professionals looking for a job, building a professional relationship from a mutual acquaintance.

In this article, we explain employment referral policies and provide tips for creating an employee referral program in the workplace.

Read more: How To Ask for Referrals

What is employment referral?

Employment referral is a method for finding potential new employees through recommendations from current employees. Anyone can refer an applicant to a job by informing them of a job opening or sharing an applicant's resume with a hiring manager. Employers rely on referrals to learn about quality candidates who have already been vetted by a trusted employee.

Most companies have an official employee referral policy or programs to encourage their employees to bring in quality talent. Companies with employment referral programs have a structured procedure for existing employees to connect people in their professional network with open positions at their company.

Employers often give rewards to their existing employees who recommend successful applicants as a way to reward them for the time and effort the company saved on the job search. To receive a referral reward or bonus, employees first must communicate with their manager and fill out forms to keep a clear record of the applicants they referred.

Why are employment referrals important?

Employment referral programs help qualified applicants find jobs at companies where they would likely fit in well with the culture. Equally as important to an employer, referrals tap into a field of qualified applicants by using the expertise and judgment of a company's own employees.

Generally speaking, many job applicants submit their resumes in response to a job posting with only a basic understanding of a potential employer. Whereas people who receive a referral learn more about the company through the employee who recommended them. When you have been referred to a job, it most likely indicates that the hiring manager will consider your application more seriously than that of someone who simply replied to a job posting.

Referrals help employers move more efficiently through the hiring process, allowing them to fill roles quickly by reducing the amount of time and effort needed to post a job and screen candidates. This helps companies save money by using a reliable and efficient hiring strategy based on networking instead of advertising.

Employment referrals benefit employees as well. Some programs give monetary rewards to the employee who recommended a new hire, while others give referral bonuses to the new employee as well.

If you're an existing employee at a workplace with an employment referral program, you can have some influence over who gets hired to work on your team by recommending your best professional contacts. Suggesting a strong candidate who performs well in their new position also reflects positively on your judgment and leadership capabilities.

Tips for implementing an employment referral program

When used properly, employment referral programs can be a great hiring tool. If your workplace could benefit from an employee referral program, make sure that you strategize beforehand on how the referral system will work. Use these tips to set up a successful employment referral program on your team:

Create hiring goals

Before deciding on the details of your employment referral program, consider your hiring priorities. Recruitment strategies should align with company goals in order to attract and retain the best candidates. For example, a company whose priority is speeding up the hiring process would have a different referral program than a company that has an extensive hiring process with a long search period for the right candidate.

Set a timeline

Consider at what point in the hiring process you want to ask for referrals and how often positions should accept referrals. Some companies use other recruiting strategies like posting on job boards before asking for referrals, while others may use referrals as the first hiring strategy before spending resources on job advertising.

Likewise, popular companies with strong name recognition and a high number of applicants may only seek out referrals for positions that are difficult to fill. Other businesses have open referrals for every role. Regardless of which timeline works best for your company, set a plan and follow through.

Use incentives

Reward successful referrals with an incentive, such as a cash bonus, a gift or even an extra day of paid time off. Offering a reward gives employees a personal stake in seeking out the best candidates and convincing them to apply. You can also encourage them to recommend serious applicants by setting specific requirements in order for them to receive the incentive, such as recommending a certain number of applicants or requiring the new hire to stay with the company for a certain amount of time.

Related: 10 Marketing Strategies to Grow Your Business

Communicate your policy

Make sure that all employees are familiar with the new referral policy. Communicate that you are looking for referrals and trust them to recommend quality candidates. Include instructions on how they should refer someone for a role, as well as how to find out which positions are currently open. Employees should understand the job description of open positions in order to refer the best applicants, so this information should be easily accessible.

Keep a record

After establishing an employment referral program, track its effectiveness by keeping a record of referrals and new hires. Keeping a record is especially important if you give out incentives so that you know when to give out rewards and to whom. Analyze the data you collect to determine whether the referral program is worthwhile or if you need to make improvements. Some useful pieces of data to study are:

  • Referrals per department

  • Number of hired referrals versus total number of referrals

  • Retention rate for referred employees

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