The Ultimate Guide to
Effective Employee Referral Programs

Have you and your recruitment team ever felt like you simply cannot find the right people to grow your company? You’re not alone. The growing skills gap is a legitimate phenomenon that illuminates the marketplace’s need for skilled employees. In the US alone, 46% of organizations report an increasing skills gap among their workforce.

If you want to hire and retain the best talent, you have to go further than job boards when promoting openings in your company. There’s a better and much more cost-effective way of ensuring you secure high-quality candidates.

That’s through employee referral programs.

What Do Employee Referral Programs Do?

An employee referral program is a recruitment method that encourages current employees to introduce suitable candidates for job openings.

Current employees can reach out to their friends, family, and colleagues in the industry and inform them about the excellent opportunities available in your company. When the referrals they submitted get onboarded, they are typically rewarded after their referrals get regularized.

Ultimately, employee referral programs aim to help you find quality candidates for internal job openings through your current employees. After all, if you have a rockstar employee, it’s very likely they know someone who’s just as skilled, competent, and hardworking as they are. By setting up a structured employee referral program in your HR recruitment software, you basically turn your own employees into effective recruiters. You no longer have to rely on job boards alone.

Pro tip: Don’t have your own HR recruitment software yet? Check out the amazing features of Skillfuel, an all-in-one recruitment management program.

How to Set Up an Effective Referral Program:
A Step by Step Guide

A structured employee referral program is a recruiter’s best friend. When they work well, the burden of hiring no longer falls solely on organic talent acquisition. But of course, an effective employee referral program doesn’t magically appear out of thin ear. You have to build it yourself. Here’s a six-step guide to building an employee referral program:

The first step to creating a successful employee referral program is to have a clear vision of what it should achieve or accomplish. Most times, it’s not just about getting more referred candidates. Some companies use referrals to increase diversity in their workplace. Others leverage the benefits of employee referral programs to increase competent employees in specific areas, such as sales.

Have your team decide on a specific goal. For instance, maybe right now 10% of the people in your Content Department are referrals. As a goal, you can get that up to 20%.

Now, that you’ve got your goal, the next step is to actually create the program itself. The rule of thumb is that the less work an employee must do to submit a referral, the better. So the best case scenario would be that the employee just has to provide the hiring team with a name and contact details, and the hiring team takes over from there.

Pro tip: Once you manage to get the name and contact details, it’s best to have a recruitment management software that lets you track referrals easily. There are plenty of free recruitment software that allows you to do this.

All right, you’ve set up a referral program. Now, it’s time to let employees know about it.

There are two major things you need to tell your employees about the referral program:

  • What you’re looking for in referred candidates
  • What employees can expect when they send referrals

The first one is important because you want your employees to go beyond the job descriptions. It’s a good avenue to talk about what your company values in a candidate: skills, integrity, personality, and work ethic. This also ensures your employees only submit high-quality referrals. If they consistently give you people who don’t meet your standards, it’ll create frustration for them and more work for you.

The second one is also critical because you don’t want your employees to be left hanging. For instance, if you only plan to interview referrals you deem qualified enough, communicate this to your employees. When they know ahead of time, they won’t be discouraged if they refer a friend or a family member and that candidate never hears back from your hiring team.

A major reason some employees don’t refer candidates is because they don’t know about the job openings in your company. So, once you’ve built your program and you’ve trained your HR team on how to leverage it, it’s time to put your marketing hat on and keep employees in the know of the open positions.

You can either send out weekly emails with a constantly updated list of all job openings or mention them during townhall meetings. You can even print out notices and post them on the office bulletin board. There are plenty of ways to get the word out but at the end of the day — what matters is that your employees are aware so they can also inform their network.

people having a meeting

Your employee referral program’s set up, people know about your job openings, and the referrals are streaming in — congratulations! Now it’s time to show your appreciation to employees who refer high-quality candidates.

The most common way that companies do this is through cash incentives and a sincere thank you either through email or in-person. You can also give a shout-out to employees who referred new hires through townhall meetings or an email blast. Some companies also provide incentives through experiential gifts — like a day trip to the spa or a hotel staycation.

No matter what you do, showing your gratitude is important. An employee who refers a candidate and gets a reward is likely to refer again, and it will encourage or inspire others to follow suit.

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Always a critical part in any recruitment process: measuring your efforts. While all of these depend on your goal, some good metrics to track include:

  • Overall percentage of referred hires
  • Percentage of referrals who hear from you
  • Percentage of qualified referrals (those deemed qualified for an interview)
  • Employees’ participation rate in the referral program

If these statistics are poor, adjust your employee referral program. You can correct mistakes over time.

Examples of Employee Referral Program Best Practices

A strong employee referral program can reduce time and cost per hire, increase retention rate, and improve the overall quality of hires. Here’s some great employee referral program ideas to help you get started.

Share jobs with your employees

This is a given, but many employers don’t have a consistent method of sharing openings with employees. Each time you have open positions, make sure to let your employees know. Share job descriptions, requirements, and other relevant information so they can refer qualified applicants. This can also help employees share the openings within their network and on their social media accounts.

Incentivize referrals once the hire is made

Some employee referral programs fail because they offer incentives even before the referral gets hired. This is a risky move as some employees might refer candidates just to receive an incentive. To ensure you’re on track with employee referral programs best practices, only incentivize once the referral has been onboarded. This ensures that you get what you pay for.

Send constant updates to referrer

After an employee submits a referral, the hiring team should offer constant updates on the application status of the referral. Often, employees are close to the referrals so they will be personally invested in the progress.

Create referral tiers

This employee referral program best practice means offering successful referrers rewards based on the number of referrals submitted. The more referrals hired, the bigger the incentives. Referral tiers are a great way to increase engagement among successful referrers and can get them to continue referring more candidates.

Use a software to track employee referrals

Out of all the ideas mentioned, this is the easiest and the best way to improve referral rate. Using an employee referral tracking software lets you keep track of referrals, send updates easily, and show referrers where their referrals are in the recruitment process. It basically allows you to reap the benefits of employee referral programs minus the stress and headaches induced by spreadsheets.

Unlock the potential of your company’s network with employee referral tracking software from Skillfuel.

Why Do Employee Referral Programs Work?

According to recent statistics from a Forbes article, referrals are the leading source of superior candidates for 88% of employers. They also generate the best return on investment compared to other hiring sources and referrals are often a better culture fit than those hired through external sources. Retention rates for referrals tend to be much higher too.

Why is it more likely that employee referral programs are effective and successful? Take a look at the major benefits of an employee referral program:

Hire passive talent

When a candidate search is particularly difficult, you may need to connect with passive candidates. Approaching these individuals can be tricky, especially if they’re currently happily employed, but friends and family are often successful when it comes to convincing them to apply. Passive candidates are more receptive to referrals, especially when someone dear to them can vouch for your workplace culture.

As an added bonus, passive candidates tend to be of higher caliber compared to active applicants. As they don’t have a lack of urgency for a new job, it’s unlikely they will lie or stretch the truth about their credentials. They’re also less likely interviewing with other companies, which means less competition for you.

Cut recruiting costs

This is one of the major benefits of employee referral programs. When you slice the time and effort it takes to recruit new employees, you also slice the required dollar amount. Successful employee referral programs can have a positive financial impact if it replaces traditional recruitment methods that are often costly.

Think about it: You cut back on outside recruiter costs since current employees have a better grasp of your company and culture. Even if you offer monetary incentives for successful hires, it’s typically only a fraction for what you might have paid for traditional job advertisements and external recruiter costs. Also, positions tend to fill faster when there are referrals. That means you’re spending less on posting job openings, searching, and recruiting.

Create an engaged workforce

Encouraging current employees to recruit their friends, colleagues, and family members for open positions in your organization is a powerful and effective way to create an engaged workforce.

Current employees feel valued and trusted since they’re participating in the company’s growth and further success (the referral bonus is sweet too!). Plus, if their referral gets hired, they feel a sense of accomplishment and pride.

In turn, referred employees feel more engaged since they’re already close with one person in the company. It will be easier to assimilate into the company culture since they have someone to turn to for guidance.

Increase employee retention

Implementing an effective employee referral program that celebrates the personal connections of your employees is a great way to build glue in a company. According to statistics, retention of referred employees is 45%, which is twice higher compared to the 20% of employees hired through job boards. This is mostly because they have connections within the organization and feel like they truly fit in.

Reap the Benefits of Employee Referral Programs Today

As of all the research showed in this article, employee referral programs are one of the best ways to hire qualified candidates. If you don’t have a strong referral program, you’re missing out on great opportunities and the potential of your employees’ network. You have great people in your company? Well, for sure, they know other great people who can help your company grow.

Like most things in life though, employee referral programs are only as effective as the way they’re executed. By following the six-step guide above and investing in an employee referral tracking software, you’ll discover why employee referral programs work best when it comes to recruitment.

Contact Skillfuel today to learn more about our employee referral tracking software and all-in-one recruitment management platform. We have a free version that’s equipped with an applicant tracking system and a job interview scheduling software. Skillfuel will alleviate the burden of manual recruitment and improve the overall talent within your organization.

woman being interviewed

Hire faster, hire easier.

For more information and inquiries about our recruitment management software, reach out to us and fill up our contact form.

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