Employee Referral: A Complete Guide

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Employee referral program

Employee Referral has quickly become one of the most effective ways to find the best talent. Through structured incentives, current employees are asked to dive into their own network to source talent. 

What is Employee Referral?

By definition, employee referral is a structured program that companies and organizations use to find talented people by asking their existing employees to recommend candidates from their existing networks.

In most institutions, these employee referral programs are incentivised with money being offered for every placement from a referral. These employee referral rewards can be anything from money to extra days holiday. 

Why is Employee Referral So Important? 

In short, it’s now harder than ever to source, recruit and retain top talent. 

In this new, candidate-driven market, those in recruiting capacities have started to look inwards towards their own employees to find better talent. 

This is yet another example of recruiters becoming more like marketers. And what’s marketing 101? The customer buying cycle. 

lifecycles

Long before a candidate becomes ‘active’ they’re passively engaging with you and your brand whether you have a strategy in place to engage with or not. 

And, just like the happy customer might write a positive review of the product, a happy candidate will talk about your company positively and refer people from within their network. 

Throw in an incentive and you’ve got yourself a recipe for inbound high quality talent.

employee referral stats

Employee Referral Stats

If you’re not sold on employee referral, these stats should help. 

  • The average employee will have 150 contacts on social media networks – 100 employees means around 15,000 contacts (and possible candidates).
  • Employee referrals have the highest applicant to hire conversion rate – only 7% apply but this accounts for 40% of all hires.
  • Applicants hired from a referral begin their position quicker than applicants found via job boards and career sites (after 29 days compared with 39 days via job boards and 55 via career sites).
  • Referral hires have greater job satisfaction and stay longer at companies – 46% stay over 1 year, 45% over 2 years and 47% over 3 years.
  • Salespersons are the most hired position from employee referrals.
  • 67% of employers and recruiters said the recruiting process was shorter, and 51% said it was less expensive to recruit via referrals.

Source

employee referral benefits

Employee Referral Benefits 

Employee referral programs are a scalable way to connect with talent you would otherwise have to spend precious time connect with.

Here are a few of the more tangible benefits of introducing an employee referral program.

Improve the Quality of the Hire

Think of employee referral as fishing. Only, instead of casting the net yourself, you’re handing it to someone who knows the waters well. 

Naturally this means you’ll get a better quality of candidate. 

Get Candidates With A Better Culture Fit

When you’re finding talent through a referral program you’re using your current employees as conduits. 

As they’re going through their network they’re analysing their referrals. Subconsciously they’ll be thinking about their own experiences with the company and whether the person they plan on referring would be a good culture fit. 

You’ve got that extra level of qualification that will do wonders for the culture fit quality of that candidate. 

The current employee can also give the referred candidate a culture crash course to help that candidate make a decision themselves on whether they think the company is a good fit for them. 


Read next: How to Promote your Company Culture in 2019


Boost Employee Retention Rates

A study by SHRM predicts that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a programmer making $90,000 a year (the average developer salary in the US), that’s $45,000 to $67,500 in recruiting and training expenses alone.

So, it’s well within your best interests to be working on your employee retention and, although there are no silver bullets, employee referral can contribute towards boosting retention rates. 

More than half (56%) of employee referrals who were surveyed for this social recruiting study said they’ve been in their current role for more than five years.


Read next: 10 Reasons Top Talent Quits


Reduce Time to Hire

Saving time through more efficient processes is a big priority for most businesses. In today’s fast-paced world, no one has time to waste. And that includes time spent on recruiting and hiring.

The good news is that hiring referred candidates can shave days off your time to hire. According to research from Glassdoor, hiring times have been steadily increasing over the last few years, and job interview processes in the United States now take an average of 23 days.

Hiring referred candidates can speed up the process by eliminating extra screening steps and allowing HR professionals to breeze through steps that may otherwise require closer investigation and negotiation (such as application and resume analysis).

Keep Your Current Employees Engaged

A referral program is a great incentive for current employees to give something back, contribute to the health of the company and get a bit of a reward in return. 

  1. Current employees feel trusted and valued since they are participating in the company’s future and growth (and often receive a financial boost through an employee referral bonus). Plus, if their referral gets the job, they’re not only joined by their friend, but they’re also left with a sense of pride and accomplishment. 
  2. Referred employees feel more engaged from day one since they already know at least one person at the company. And they are often easier to assimilate into the culture since they have a built-in buddy or mentor to turn to for guidance.

Read next: How to keep Flight Risk Employees Grounded


Employee Referral Disadvantages 

Employee referral schemes aren’t for everyone. Here are a few reasons why:

Bad Referrals Reflect Badly 

Some of your employees might be hesitant to refer someone because they might think a poor referral would reflect badly on themselves as professionals. 

Likewise, referrals that have ended badly might have repercussions on the relationship between the referrer and the referred. 

Mates Don’t Always Make Good Colleagues

We’ve all got that one friend we just know we wouldn’t be able to work with. At least, we think we do. There will be some people out there, your employees included, who won’t be able to see past their friendship and towards whether they would actually be an asset to the team. 

Obviously, there are not guarantees in an employee referral scheme and you will still have to go through qualification and interviewing, but you do run the risk of creating an awkward atmosphere if you end up rejecting a close friend of an important colleague.

Building an employee referral program

Building an Effective Employee Referral Program

Anyone can build an employee referral program. All you really need is a vacancy and staff working in your company. 

But what distinguishes an effective employee referral program from an ineffective one?

There’s more you can do, as the orchestrator of the program, to really drive your referral program. 

Here are a few ideas:

Ensure Employees Know What They’re Looking For

Employees don’t instantly know what their companies are looking for in candidates. They might have an idea of what “culture fit” means but one employees idea of culture fight might be different to others. And specific job requirements may be less clear, especially if employees are asked to refer people who work in different departments and job functions.

Dispel the mystery. Include links to job descriptions when sending emails asking for referrals. It can also be a good idea to highlight what you’re not looking for. This can get as granular as you want but it’s also very important to remember that, just like recruiting for any vacancy, the chances of you getting the finished product straight off the back is very unlikely.

Following a few basic principles, however, will make your referral program attractive, transparent and, most importantly of all, accessible for your employees. 

Send Weekly Referral Roundup

At the very least you should be sending weekly email roundups of referral opportunities to the floor. 

In this email make sure you’re including:

  • Job Role
  • Requirements
  • Referral Fee
  • Attached Job Spec

The subject line is arguably the most important aspect of your email because it acts as the gatekeeper to your program. Make sure you’re leading with the value proposition which, in 9 out of 10 cases, is the incentive. 

  • Refer A Friend and Make £500
  • Refer a Friend For A Day Off 

Work Referral Into Acceptance Process 

As someone in a hiring capacity, you’ll never be in more control over your employee than at the offer acceptance stage. 

Once the new employee has accepted your offer and you send them the contract to sign, add in an extra document that walks them through the referral program. 

Make sure this document explains the value for them. 

The benefits of targeting employees early is two fold: firstly, they’ll be eager to impress their new company and secondly, they’ll likely be talking to their peers about the new role they’ve just secured.

Make it Easy For Employees to Refer

When you’ve worked hard on making a really attractive offer for your employees and explained it well, the last thing you need is to be let down by a difficult final hurdle. 

You want to make it as easy as possible for your employees to get a name, number and email to you so you can get in touch. 

Open a referral mailbox, or integrate with a CMS and use a specific form for referrals. 

Whatever it is you decide to go with, make sure that you’ve made it clear in your outreaches to employees. A direct call to action like: send referrals to referrals@companyname.com is more than enough. 

Be open and available to Discuss Referral 

Sounds simple but in practice, as super busy professionals, it isn’t always easy to be available. 

If you company has an intranet, or a shared drive, make sure you’re putting in any relevant materials that will be able to walk someone through the program when you aren’t available. 

Keep Employees Updated 

When an employee refers someone they’re essentially doing you a favour.

Keeping those who refer someone regular updates on the progress of their referred candidate is the least you can do. 

This could be as simple as CC’ing the employee into all emails between you and the referred candidate. 

Celebrate Good Referrers

Nothing quite advocates a program like a positive experience made public. 

FOMO (fear of missing out) is massive for a referral program – and you need to be the program’s biggest cheerleader. 

Take the employee who referred a good candidate out for lunch, get a picture and send that out to the floor. This is a great way to push an extra incentive and gain advocacy from across the floor.

Do this effectively and you’ll never see referrals drop. 

Dell uses the Dell Talent Community, its social sourcing tool, to award points to “Top Referrers.” The more frequently employees share jobs in their network and refer candidates, the more points they get, and their names are displayed in Dell’s internal system. Dell also recognizes successful referrers in team meetings, both locally and globally.

Mix Up Your Incentives

If money motivates your employees then go for it. Offer money. But remember that there are other incentives that are just as, if not more, enticing. 

Some of these incentives, like time off and gift vouchers, are less expensive than cash awards. Salesforce.com recently surprised employees who participated in their referral program with baseball tickets. 

If you announce that you are using money as an incentive, opt for a tiered system: it’s the most effective tool to motivate employees to participate in your referral program. Give higher rewards for harder-to-fill positions. Offer a flat amount for each referral and then offer more if referred candidates get interviewed, get hired or stay at your company for at least six months.