Employee Referrals: What Are They and How Do They Work?

An employee referral is the greatest praise for a company and one of the greatest opportunities in recruiting. HR managers often have a hard time reaching sought-after specialists and executives with just job advertisements. The employees of a company, on the other hand, have valuable networks that usually contain specialist colleagues and enjoy a bonus of trust with them, as they know each other from previous projects. This saves time and money in the search for suitable candidates.
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    What Is an Employee Referral?

    An employee referral is an application that comes about through a contact in the company. The current employees scour their networks and share with their contacts open positions that need to be filled within their own company. In doing so, employees rely on acquaintances from previous projects or former work colleagues with whom they have already worked and of whom they can make a referral for a vacancy with a clear conscience.

    After all, every employee has their own network and can find suitable and qualified candidates more easily than any HR manager. In turn, these addressed candidates know the company’s employees and are aware that they would not make a referral if they were not suitable. This provides a valuable leap of faith that a job advertisement cannot achieve on its own.

    This article talks about employee referrals and how you can make them one of your main recruiting channels.

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    How Does an Employee Referral Work?

    Around 80% of employees are not actively looking for a new job. Classic job advertisements therefore often do not work in the area of specialists and managers. In many cases, companies find no applications are coming in, or the quality of the incoming applications leaves a lot to be desired. That is why HR departments implement an employee referral program. An employee referral program is a structured approach to employee referrals and works in the following steps:

    1. The company invites suitable referrers to the program: they can be all employees, specialists in a certain department, managers or trainees. At Firstbird, we call these referrers Talent Scouts.
    2. The HR department then lets their Talent Scouts know of their open jobs. It’s important to explain to the Talent Scouts whom they are looking for: for example, the preferred candidate’s qualification level, location, soft skills, and experience. This allows you to filter your referrals in advance and avoid spam. Let your Talent Scouts know where the job posting can be shared: LinkedIn, Facebook, WhatsApp or by contacting the person directly (a direct referral).
    3. If a referral is successful, make sure that the Talent Scout receives a reward. Employee referral technology can help you with this. This is software that supports your Talent Scouts, their referrals and makes it easier to distribute rewards. The tech can publish vacancies internally, which employees can then share via a personal link. If someone applies via this link, the application will be credited to the employee and they can be asked to provide personal feedback about the applicant.
    4. If this applicant is hired, the employee referral program assures the gift of a bonus or other individual rewards. Good employee referral technology should also reward the Talent Scouts for smaller activities and participation in the referral program. Furthermore, the use of a program can reduce administrative effort and make the processing of an application more transparent.

    What Types of Employee Referrals Are There?

    When it comes to employee referrals, there are many ways and types employees approach their contacts and networks with open jobs. When you have an employee referral program in place, it is important the TA or HR team advises the company in their approach. So, how to introduce a referral program to your team? Some examples could be:

    1. Sharing personalised job links with employees (the applicant’s path and via whom the referral came can be traced via the link).
    2. Direct addressing your employees with an in-depth briefing on which profile you are looking for, and asking them to directly refer suitable candidates for the position.
    3. You specifically seek out Talent Scouts in the company and ask them to actively look for specialist colleagues.

    Your referrers now know who you are looking for and can search their network in a targeted manner. The passive job market is very attractive and easy to reach with this recruiting channel. Technology allows you to see who referred a suitable candidate to you.

    It is best to support your Talent Scouts in an organized manner. Appoint a central contact person for the topic in the HR department, otherwise every employee will turn to their favourite colleague from HR and responsibility will become blurred. In this way, you also bundle the expertise in the HR department and allow your employee referral program to become very successful.

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    How Can An Employee Referral Program Benefit Your Company?

    Some positions can be filled quickly and easily. Temporary jobs, apprenticeships, or activities that require a wide range of qualifications belong to this. In the area of specialists and managers, however, the air gets thin. While you are posting job advertisements online, potential candidates may not be searching for a new job at all. You will then miss each other. You can use referrals to work around this problem. Direct referrals bring you the following advantages:

    1. A leap of faith. It means that nobody makes a referral for their own employer if they do not have a clear conscience.
    2. While other applicants cannot assess whether the working atmosphere is right for them, referrals can check this with Talent Scouts. Addressing specialists who are not actively looking for jobs but are open to good referrals saves time in the search for the right applicant, as your Talent Scouts can target candidates in a structured way.
    3. You save money on expensive job portals, as referrals usually lead to the position being filled more quickly – even the bonus payment for successful placement is often cheaper.
    4. Employees recruited by referral often stay longer in the company because the cultural fit is consistent and a potential reason for termination does not apply.
    5. HR departments save time looking to fill jobs because their colleagues from the specialist departments can now help them and recruiting does not have to be exclusive.

    You can and should continue to post classic job advertisements. Applicants must be able to see on the careers page that the position is really available – that creates trust. However, you do not have to distribute them widely on the internet in expensive ways as you have done before. Instead, you can use a much more targeted approach through your employees.

    An employee recruited via referrals not only saves recruiting costs, but is also more likely to be the right person. They already know at least one person working in the company and your employees know how they work. You do not have to worry about a possible notice of termination because the new employee does not feel comfortable in their new job.

    Risks When Using Employee Referrals

    Of course, there are also potential pitfalls and risks when referring employees. However, these can be minimized if you are prepared for them. Before you start an employee referral program, you should be aware of the following risks:

    • Employees smell the financial reward and spam the job advertisement across social networks – this does not leave your company with a positive image. A good employee referral technology will be able to prevent this.
    • You don’t have an organised process, e.g. not using software and the employees have to contact you with every referral by email or via the office grapevine
    • Your employees do not receive any feedback about the status of the referral for a long time, which means they have no incentive to actively search
    • Employees are not given precise details about the requirements of the position and refer candidates who are not suitable
    • Bonuses for successful placement are not attractive and lead to no referrals being made
    • In the context of unofficial communication, information about the application process could be passed on to the referrer that they should not have received at all – and the topic can become a data protection incident.
    • Well-designed and well-thought-out technology solves most of these problems. With this, you can see where an application comes from, what its status looks like and when you have to pay out a bonus. The referrer also sees this, but without receiving any information about the application process that they are not allowed to receive.

    But success also depends on you. Explain to your referrers exactly which profile you are looking for, who is eligible and who is not. In this way, you avoid everyone being randomly contacted and your company appears as if it couldn’t find suitable applicants in any other way.

    This Is How To Find the Right Talent Scouts in Your Company

    The successful Talent Scout is the one in whose network the suitable candidate is located. If you want to fill a position in a specialist department with clearly defined skills, the networks of existing colleagues will be your best chance. Trainee positions, on the other hand, can be interesting across departments because everyone can have suitable candidates among their circle of friends and in their own family.

    An employee referral program will allow employees to decide for themselves whether or not they can refer a candidate. Or you can approach certain employees directly and ask them to share the position within their network. An example of this is targeted notifications of new job openings in certain locations or departments.

    This 10-step guide explains how you can successfully use and develop an employee recruitment program.

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    Bonuses for New Employees – How Should They Be Designed?

    Rewards are the main incentive for employee referrals. Some Talent Scouts may distribute open jobs out of self-interest, as they want a certain individual as a new colleague. But that happens on an individual basis, and the motivation behind it is different. In order to motivate those employees who do not seek contacts of their own accord, bonuses must be attractive and fairly distributed.

    There are many ways in which you can approach rewards for your employee referral program, and for each company, it looks different. For example, bonuses for a successful hire could be a:

    • Percentage of the salary of the successful placement
    • Lump sum for the successful placement
    • Staggered bonus: 50% upon recruitment, 50% after having passed the trial period

    However, there is much more than just a reward for successful hires to think about. A good employee referral program will have a properly structured reward strategy; one that rewards Talent Scouts for their participation and smaller activities and not just successful hires. Rewarding for smaller activities is crucial for the long-term motivation of Talent Scouts, which is the determining factor for the long-term success of your referral program.

    If you are interested in knowing more about rewards and how to create a proper reward strategy for your employee referral program, you can read more in our Guide to Rewards.

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