What is an employee referral program?

An employee referral program is a recruiting strategy that helps you find qualified candidates. Employers typically offer incentives to current employees who recommend new employees for open roles. If the referred candidate is hired and remains with the company for a certain amount of time, the employee who made the referral receives an award of some sort.

Employee referral programs can do wonders for a business looking to expand without putting an extra  burden on their recruiters and hiring managers. In fact, an Indeed survey found that 66% of companies use referral programs to find applicants. Internal referrals were also cited as the third most popular way to fill open roles (after online job sites and companies’ career sections on their websites).

Benefits of an employee referral program

When you use your own staff to find new workers, they tend to recommend people with the same attributes that they themselves have. Additionally, a friend or professional acquaintance of a current employee is much more likely to fit in with a company’s culture because the current employee is already a good fit.

According to one study, the average cost-per-hire is nearly $4,700. An employee referral program cuts this cost significantly, even after considering the cost of designing and implementing the program.

There are other reasons why you should consider implementing an employee referral program as part of your recruitment strategy. An employee referral program:

• Improves the quality of new hires: Current employees have unique qualifications to identify and recommend great candidates. They already understand the company’s mission, values and culture, and they know people with the talents required for the job.
• Increases employee retention: Because employees who come in via an internal referral often match the role and company culture better than a cold hire, they are more likely to stay. Not only that, but when an employee refers a candidate, they feel a sense of accomplishment when their recommended candidate is hired. These factors help reduce employee turnover rates.
• Saves time and money on hiring: Referrals speed up the hiring, saving resources. You get potential candidate information quickly, which decreases costs associated with job postings. Candidate selection is faster, and referred candidates are often already familiar with the company. 
• Increases your company’s reputation: Many job seekers spend time researching company reviews before applying to jobs. With an employee referral program in place, current employees become brand ambassadors for you, eagerly recommending your company to their professional network. 

How employee referral programs work

A referral program works by motivating current employees to help find potential new employees, usually through a referral bonus or reward. A referral bonus is a payment that employers give employees as a gesture after the person they referred is hired and has remained at the company for a certain amount of time. Referral bonuses typically range between $1,000-5,000.

Of course, the cost of a referral bonus is just a portion of what’s necessary to cover the program itself. You’ll still have to implement it within your company culture and launch it in a way that motivates employees to take advantage of it. Additionally, maintaining the program incurs costs as well.

Related: How to Motivate Your Employees

How to create an employee referral program

Here are a few ways to create quality employee referral programs that work:

1. Get management on board

Before you can move forward with any kind of internal employee referral program, get approval from management. Not only will you need them to understand the program’s value, but you need them to encourage employees to participate. 

Additionally, you can use management as a resource to set hiring goals and allocate the necessary resources. Approval from management isn’t enough, though, if your budget doesn’t cover the program costs, so it’s important to fully understand how the program operates within budgetary limitations.

2. Create an easy referral process

The program should be straightforward. Referral rules and rewards should be easy to understand and apply so an employee doesn’t feel like making a referral would be extra work. There are a few options you can use to keep this process simple: 

• Use an online employee referral platform
• Create a simple online form (with a tool such as Google Forms)
• Put a physical resume mailbox in your HR department
• Create an email template that employees can easily use to refer qualified candidates
• Send an email to current employees every time there is a new job posting, encouraging them to refer someone for the open role

Related: The One Question to Get More Out of Employee Referrals

3. Set goals

While your ultimate goal is to get more qualified candidates for open positions, identify some specific, measurable goals for a new employee referral program. Some examples of goals you could set are:

• Get 25% more qualified candidates for open positions
• Reduce the time to hire by 10 days
• Reduce employee turnover by 50% during Q1

4. Offer a mix of incentives

An employee referral program always needs to offer some sort of incentive, be it a financial incentive, non-financial incentive or combination.

In addition to cash bonuses, employee referral program incentive ideas include paid vacation days, an increase in personal days, fun prizes such as a desirable consumer electronic like an iPad or a high-value gift certificate for dinner at a local restaurant, or a donation to a charity of the employee’s choice.

Here are some other employee referral program ideas to consider:

• Hold contests: Having referral contests between teams and giving out prizes can help build excitement and encourage teamwork. Recognize top referrers to improve employee work satisfaction and help establish referral culture.
• Consider more than money: Poll your employees and ask them what type of incentives would motivate them to refer candidates. The more excited they are about referring, the more likely they are to do it.
• Customize based on location: Do some research about the area to customize your referral program. Think about special businesses or services only available in your area that employees would like.

5. Announce the program and provide instructions

Publicize your incentive structure within your internal company network and highlight the most desirable rewards. Be sure to include clear instructions so that everyone knows how they can make referrals. It’s also a good idea to post the information in areas where employees congregate, such as a break room.

Consider including details about your employee referral program in your new hire onboarding process.

6. Recognize employees for referring candidates

If an employee refers a candidate who you end up hiring, recognize them for making an impact at your company. To recognize them, try:

• Writing up the employee who made the referral in the company newsletter
• Posting about them on the company’s social media sites
• Announcing their contribution on the company’s internal website or other communication channels

7. Integrate referrals into your company culture

Your referral program shouldn’t be something that feels like an add-on. Integrating it that way makes the program feel like a more natural part of the company rather than a recruiting tool designed to boost hires and save money.

Here are some ways to incorporate your referral program into your company culture:

• Have an official launch to create enthusiasm around the program. Organize a party or announce the program at a company-wide meeting. Give employees the most important details and focus on motivating them to participate.
• Boost employee engagement by promoting the referral program. Consider running a couple campaigns a year to brand the program internally. Come up with a memorable tagline and other marketing tactics to enhance employee involvement.
• Host quarterly recruitment happy hours. This can be a great way to meet potential candidates in an informal setting. Have your employees invite their referrals and serve food and beverages.

8. Track the success of your referral program

To identify whether your program is working at your company (or identify areas of improvement), it’s important to track your results. You should be evaluating referrals based on quantity and quality. For example, think about:

• The total number of referrals that were made
• The number of referrals who were hired
• Whether you filled more positions with referrals or through other recruiting methods
• How long the candidates have stayed with the company
• How managers and employees feel about the program