Sourcing and recruiting candidates is one of the many challenging tasks recruitment teams face but the truth is – recruiters don’t have to do it alone. After all, you have an entire team of employees who have personal and professional networks they can tap into and refer to. Have great people in your organization? Chances are, they know someone who’s just as competent, maybe even better.
However, if you want to encourage your employees to refer their friends, family members, or ex-colleagues, you’ll need to give them a little push or an incentive to get employee referrals to come flooding in.
That’s where employee referral bonuses come in.
In this article, we discuss what exactly employee referral businesses are, why you need one, and how to create an effective referral bonus program that everyone can benefit from.
What are employee referral bonuses?
Sometimes called recruiting bonuses, employee referral bonuses are incentives that motivate or even inspire employees to recruit candidates from within their personal or professional networks. It is often part of a comprehensive employee referral program.
The referral bonus is often given once the candidate is hired and remains with the company until the regularization period. The bonus is typically offered to employees who refer candidates for permanent, full-time roles as opposed to part-time, project-based, or intern positions.
Some companies do not consider referred candidates who were once part of the company as eligible for the employee referral bonus. This is to prevent employees from taking advantage of the company’s established talent pool to cash in on a bonus.
Often, members of the HR team and the executive board are excluded from receiving employee referral bonuses as it’s already their job to fill in the roles. Executives also have an expansive network, giving them an unfair advantage over other employees.
Why do you need an employee referral bonus program?
Employee referrals have been proven to positively impact the hiring efforts of recruitment teams. For instance, according to HR Technologist, referred candidates are 55% faster to hire compared to applicants sourced through job listing sites. Employee referrals are also a great way to improve the quality of your candidate pool since employees will rarely refer incompetent candidates. After all, that’s a blow on their pride and reputation within the company.
An employee referral program is basically a win-win for both the company and its employees. Referral bonuses will improve employee satisfaction and motivate them to refer people, knowing there’s an incentive waiting for their efforts.
Plus, an employee referral bonus program is a cost-efficient way to hire people. With referral bonuses only costing $1,000-$5,000 on average, you can reduce your cost-per-hire (average cost per hire in the US is estimated at $4,000) and spend less on recruiting candidates from job boards.
Popular types of employee referral bonuses
Now that you know what employee referral bonuses are and the value they bring to recruitment teams, here are ten examples of referral bonuses that many companies use today. Go through each one of them to see which one will work best for your organization.
Cash referral bonus
Majority of referral bonuses are money-based. However, just because it’s the most common one doesn’t mean it’s the most effective method. In fact, research shows that 35% of employees refer candidates to help their friends find a job. Only 6% stated that they do it to earn money.
Still, this is a surefire way to encourage employees to refer people from their network. With a cash reward waiting for them, it just makes referring all the sweeter and more fulfilling.
Tiered referral bonus
Rather than giving an employee the full referral bonus after their referral is onboarded, some recruiters break down the bonus and distribute the money in increments at succeeding stages in the recruitment process or after specific milestones are met.
For instance, you can give 20% of the bonus if their referral is interviewed over the phone, another 30% if their referral is called in for an in-person interview, and then the remaining 50% when the referral is hired and stays with the company for at least 90 working days.
Altruistic referral bonus
As mentioned earlier, cash incentives aren’t always the most effective motivator. However, if part of the referral bonus (or even all of it) is donated to a charity or non-profit organization of the employee’s choice, they may feel more inclined to submit referrals and support the causes they’re passionate about.
After all, if some people make referrals to help their friends find jobs or to help the company’s growth and success, they’ll be compelled to refer if it means they can help a cause they care about.
Recognition referral bonus
Contrary to popular belief, a referral bonus program doesn’t have to cost anything at all. Sometimes, simply recognizing and thanking your employees in a company-wide setting or format is enough. For instance, you can send an email blast each time someone makes a successful referral or have the head of the company give the employee public praise during a company-wide meeting.
In a raffle referral bonus program, you collect the names of each employee that referred a candidate over the course of a month or a quarter. The specific course of time is up to you. For each additional candidate referred, the employee’s name is entered again. Then, you can set up a monthly or quarterly raffle and select two to three winners to get a bonus. This type of referral bonus is a great option if you’re a smaller company or you don’t have the budget to build a referral bonus program that incentivizes each referral.
Vacation referral bonus
This can either be an all-expense-paid trip planned by the HR team or a cash lump sum that’s consumable for transportation, accommodation, and activities/experiences. It doesn’t have to be anything as expensive as an out-of-country trip. You can keep it local and even something as simple as a hotel staycation or a fancy buffet dinner is enough to show your gratitude.
Rather than giving out monetary incentives, you can choose to give out a valuable prize as a referral bonus. Make sure to choose something that most people in your company would want. For example, a new cellphone, a set of noise-canceling headphones, or a smartwatch would be motivational for most employees.
Diversity Referral Bonus
While not always intentional, an employee referral program can lead to companies hiring people from similar backgrounds, interests, and privileges. Diversity gives companies access to an extensive range of talent, not just the talent that belongs to a particular ethnicity, world-view, or other restricting definition. It also helps provide deeper insight into the needs and motivations of a wider client or customer base, not just a small portion of it.
Companies can leverage their employee referral bonus program to bring in diverse candidates. For instance, you can offer a 10% in recruiting bonus for every referral hired from a minority background.
Additional benefit referral bonus
Some companies boost their current employee perks and benefits as a referral bonus. You can do this by offering more PTO days, free lunches paid by the company over a period of time, or additional financial assistance towards their education stipend.
One useful incentive is for the HR team and employees to come up with a referral bonus together. This way, employees can decide how they would like to be rewarded for their efforts. This will also make employees more motivated since they will get exactly what they want. While you may need to set some limitations, employees will generally be happier if they have a say in what the incentive is going to be.
Don’t forget to promote your employee referral bonus program
It’s one thing to come up with great referral bonus ideas, it’s another to actually carry out a successful employee referral bonus program. The thing is, employee referral bonuses and programs are not as intuitive as many people think. There are people who have never worked for a company that offers referral bonuses, and even if they have, programs vary for each company.
The first time you roll out the program, make sure to break down exactly what you’re looking for when it comes to referrals. After all, you don’t want to sift through resumes of under-qualified sent in by employees trying to cash in on a referral bonus. That’s a waste of everyone’s time. Create clear documentation for employees to reference and make sure they understand the criteria for receiving the incentives so they don’t end up frustrated or disappointed if their referral doesn’t make the cut.
Additionally, remind your employees regularly of your referral bonus program, especially if you plan on hiring a lot of new people. If you’ve increased the cash value for a hard-to-hire role, made any changes to the program, or plan to offer an additional bonus for the employee who makes the most referrals, ensure that everyone in the organization knows. This way, you can fill in roles faster and there’s an equal chance for everyone to earn the bonus.
Having an employee referral tracking software is also an effective way to manage employee referral incentives. You can express your gratitude to employees with dynamic rewards and gain insight into the top referrers. This allows transparency for everyone in the team, making sure everyone’s kept in the loop. You can also send automatic weekly reminders so recruiters can follow up on the most important referrals.
Employee referral bonuses are a great way to motivate employees to recommend qualified job-seekers within their networks and help your team connect with top talent. Don’t let a competitive and oversaturated job market slow you down. Start building a solid employee referral bonus program today and reduce your time-to-hire and cost-per-hire in no time.