Employee Referral Program

What is an employee referral program?

An employee referral program is a recruiting strategy in which employers encourage current employees to refer qualified candidates for jobs at their companies. Often but not always, the referring employee receives a financial bonus or some other type of incentive.

Why is an employee referral program helpful?

Research has shown that referred employees often turn out to be the best employees. They take the shortest time to hire and have the lowest turnover rates, for example.

On average, referred employees are hired in 29 days from date of application to onboarding, according to data from LinkedIn. This compares to 39 days for employees hired through job boards and 55 days for those hired through career sites.

Employees hired through referrals also report the highest job satisfaction, and they stay longer at organizations. In fact, 47 percent — or nearly half – remain for more than three years.

What’s in it for companies? 

The benefits of employee referrals make a positive impact on companies directly at the bottom line. Because referred employees have a shorter time to hire, the cost to hire is lower.

Their lower turnover rates bring reductions in replacement costs, too, because employees who stay on board don’t need to be replaced. Replacement costs are steep. Each voluntary employee departure costs about one-third of that worker’s annual earnings, according to the Work Institute. This figure includes lost productivity together with expenses such as recruiter fees and temporary replacement workers.

What’s in it for employees? 

Employees who successfully refer job applicants get a sense of achievement and feel like they have done something useful for their organizations. Research also indicates that they tend to be much more engaged than other employees.

For job seekers, referral programs save time on getting hired. The chances of getting hired are much higher, too. Employee referrals have the highest applicant to hire conversion rate of any hiring source. Only 7 percent apply through referral programs, but referral programs account for 40 percent of all hires, according to LinkedIn.

Also, because referred workers have learned about your company through current employees, they can often enjoy the satisfaction of coming up to speed quickly because they’re already familiar with the hiring process and company culture.

Who is in charge and what is their role? 

Typically, employee referral programs are managed by HR departments, with support from hiring managers and sometimes from marketing departments and C-level execs. With that said, many HR pros are generally quite open to ideas from other managers and employees about how to improve the effectiveness of these programs.

Despite the advantages of employee referrals to companies and workers alike, only 55 percent of employees have made any referrals to their current employers, according to one study.

SoftwareAdvice.com, the organization which conducted the study, conjectured that one reason for tepid adoption by employees could be that some HR departments haven’t been that successful in getting the word out about the programs.  Here are a few suggestions for promoting employee referral programs.

Host recruitment events

One way to highlight employee referral programs is to host real world or virtual events. Salesforce.com, for example, has regularly held networking events where recruiters can get to know job candidates and their referring employees in a relaxed social setting.

Urge job candidates to take the initiative

Theoretically, conversion rates for referred employees could be even higher if more job candidates knew about referral programs. Accenture has helped that to happen, drawing attention to its referral programs and making it simple for candidates to initiate referrals by adding a “Get Referred” button to its job postings.

Educate new hires about the referral process

Whether or not the new hire is coming to you through a referral program, discuss the program with them during the onboarding process. This will set the stage right away for future employee referrals.

What’s the reward?

Only about half of companies, or 51 percent, offer money as a reward, according to respondents in SoftwareAdvisor.com’s survey. Other industry reports point to commonly offered rewards such as time off from work, gift cards, vacations to exotic destinations, tickets to sports events, free dinners, and luxe items like motorbikes and even automobiles.

Most financial bonuses amount to between about $500 to $2,500, although rewards can be either considerably higher or much lower than that. Google, for example, has offered bonuses of $4,000. Some employers have been known to pay even more for particularly hard to fill positions.

Are there different tiers based on certain criteria?

Some organizations use a tiered approach, in which financial rewards vary based on the skills or experience the job opening requires. For instance, a company might pay out only $200 for an entry-level referral but $2,000 for a managerial-level referral.

In a variation on tiered rewards, the reward is tied specifically to the salary level of the job opening. On an across-the-board basis, the employer pays a reward equivalent to two weeks or one month of the new hire’s salary, for instance.

If greater diversity is a concern for your organization, you might want to follow Intel’s lead in offering double bonuses for referrals to women and nonwhites.

Employers also differ as to when they pay out the reward. Some opt to award a referral basis only if the new employee remains at the company for a specified length of time, such as three months. In some other programs, the reward is segmented based on the new hire’s longevity. So, if the new person remains with the company for three weeks, the referring employee receives 30 percent of the total reward, and if they remain for seven weeks the reward payout amounts to 70 percent, for example.

How to motivate people to get involved

The best way to motivate employees to take part in employee referral programs is to give them recognition. Be certain they realize that you appreciate their efforts. Public recognition, whether an award or public praise from higher ups, can be very significant. Dell, for example, recognizes successful referrers in team meetings as well as on Dell Talent Community, its internal social media network.

Another approach is to provide recognition by ‘gamifying’ the employee referral program. Set up a leaderboard displaying employee scores based on their referral activities, whether that’s one point for tweeting a job opening to 500 points for successfully referring a new company VP. You might also want to provide raffle tickets in conjunction with this plan, with one ticket presented per point, for example. Everyone who participates in the referral program will then get at least a chance to win a coveted grand prize: two weeks of extra vacation, for instance, or a one-week trip to Hawaii.

Best practices for employee referral systems

Keep referral tracking updated.

Employees who have referred job candidates to positions usually want to stay on top of the status of the referrals they’ve made and the rewards they expect to receive. They can become frustrated if HR departments fail to provide them with this information or to keep it up-to-date.

Tell employees about job openings ASAP

Share information about open positions within the organization as soon as these jobs become available. Designate a time during virtual or physical department meetings for recruitment announcements. Also post the openings internally and request referrals from employees.

Encourage employees to share job postings on social media

Many employees in your organization have hundreds if not thousands of contacts on social media such as Twitter, Facebook, LinkedIn, Instagram, and more. To broaden your hiring pool, invite workers to share job posts on their social channels.

Provide job descriptions

When employees hear about a new job opening, they might not understand the job requirements, especially if asked to refer people with different skillsets who will work in different departments. In sending emails requesting referrals, be sure to include links to job descriptions. Be ready and willing to explain the job requirements if asked.

Quality of the referral counts

While any referral can be useful, recent research indicates much better outcomes in situations where the candidate and referring employee have known each other for at least one year. Consequently, you’ll find it helpful to ask referrers if they’ve worked with the candidate in the past, how they know each other, and for how long they have known each other.

Which talent acquisition product is usually used for tracking a referral program?

Employee referral programs are typically tracked in an applicant tracking systems (ATS). When employees log into their dedicated portals in the ATS, they can view where candidates they’ve referred stand in the hiring process in real time. They can also see the reward they’re getting and whether it’s been paid.

Beyond that, ATSs often include other capabilities you can take advantage of in your employee referral program. Many ATSs can track accrued points and financial rewards used in gamification systems. In addition, an administrator can enable participating employees to share the company’s job posts through all their social media accounts in just a single click.

iCIMS’ Applicant Tracking System

To see how iCIMS’ ATS can track your employee referral program, together with your other employee recruitment and retention efforts, learn about the iCIMS applicant tracking system.

Learn more about how iCIMS' Talent Cloud can help you attract, engage, hire, and advance the best talent.