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

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Employee Referrals

The employee referral is the greatest praise to the 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 in the company, on the other hand, have good contacts to 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.

An employee referral is an application that comes about through a contact in the company. The existing employees scour their own networks and make their contacts aware of positions to be filled. In doing so, they rely on acquaintances from previous projects or former work colleagues with whom they have already worked and whom they can recommend with a clear conscience. After all, every employee has their own network and can find suitable specialists more easily than any HR manager. In turn, the specialists addressed know the company's employees and know 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. You can find out how to receive an application by referral on this page.
Employee network
Around 80 percent of employees are not even looking for a job. Classic job advertisements therefore often do not work in the area of specialists and managers. There are no applications and the quality of the incoming applications leaves a lot to be desired. That is why HR departments rely on an employee recruitment program. This is a structured approach to employee referral and works in the following steps: Find suitable referrers in the company: they can be all specialists in a department, managers or trainees. The suitable referral depends on the advertised position. Explain to the referrers who they are looking for: Qualification, location, soft skills, experience. This allows you to filter your referrers in advance and avoid spam. Let your referrers know where the job posting can be shared: XING, LinkedIn, Facebook, WhatsApp or by addressing them directly. If the placement is successful, devise a reward. An employee referral program can help you with this. This is software that supports the referral by your employees and makes it easier to distribute rewards. They 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 about the applicant. If this applicant is hired, the employee referral program regulates the distribution of a bonus or other individual rewards. Furthermore, the use of a program can reduce the administrative effort and make the processing of an application more transparent.
Referrals for your company are sure to happen without you even realising it. The colleagues in the departments with vacancies have an interest in this position being filled with a competent new colleague. That is why they often actively approach contacts that they consider to be a suitable occupation on their own initiative. You can use this effect for yourself and also call on those employees who have not yet actively done it, but who have an interesting network. If you do not have a referral program yet, applicants can contact you in the following ways: Share job postings by your employees on their professional and personal profiles direct contact by your specialists and managers It would work in a similar way if there were a coordinated program behind it. Then the following options come into question: Share a personalised link to the job via suitable referrers (the applicant's path can be traced via the link) Direct addressing of contacts by your employees after an in-depth briefing on which profile you are looking for You specifically seek out referrers 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. Because although most interesting parties are not actively looking for jobs, they would be open to offers. The passive job market is very attractive and easy to reach with this recruiting channel. You can also more easily see who recommended a suitable candidate to you. It is best to support your referrers in a targeted 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.
Love more, hate less
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 is getting 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: Leap of faith: nobody makes a referral for their own employer if they do not have a clear conscience. While neutral applicants cannot assess whether the working atmosphere is right, applicants can check this with referrals. Addressing specialists who are not actively looking for jobs but are open to good offers referrals save time in the search for the right applicant, as your referrers target candidates in a targeted manner 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 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 You save time looking for a job because your colleagues from the specialist department take care of this referrals as a new way of recruiting do not have to be exclusive. You can and should of course continue to post the classic job advertisement. Applicants must be able to see on their 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 in this way not only saves recruiting costs, but is also more likely to be the right person. They already know at least one of their colleagues and your employees know how they works. 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 pitfalls and risks when recommending employees. However, these can be minimized if you are prepared for them. Before you start working in the specialist department, you should be aware of the following risks:

Employees smell the financial reward and spam the job advertisement – this does not leave your company with a positive image

You don’t have an organised process, e.g. through software – the employees have to contact you with every referral by e-mail 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 recommend 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 – the topic becomes a data protection incident

A well-designed and well thought-out process solves most of these problems. An employee referral program makes it particularly easy for you. 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 they find the right referrer in the company

The right referrer is the one in whose network the suitable candidate is located. The choice of referrer therefore depends on the advertised position. If you want to fill a position in the specialist department with clearly defined skills, the networks of existing colleagues are particularly relevant. 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.

You can either use the Employee Referral Program to ensure that your employees decide for themselves whether or not you can recommend a position in a meaningful way. Or you can approach individual employees directly and ask them to share the position within their network. You can also consider the latter as a second recruiting step if the applications received so far have not been satisfactory and you have not yet achieved what you wanted.

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

Bonuses for new employees – how should they be designed?

Financial rewards are the main incentive for employee referrals. Some specialist colleagues distribute job advertisements out of self-interest, as they want a certain individual as a new colleague. But that happens uncontrolled, 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. 

A management position is of course better rewarded than a position without personnel and management responsibility, as a manager is also more difficult to find. Nevertheless, you should not penny pinch when it comes to this, because the bonus for the successful referral saves you the expensive and lengthy posting of the position on portals on which suitable candidates are not looking anyway. This is how bonuses for a successful referral can be designed:

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

The type and amount of bonuses are similar to those of a headhunter. With the percentage, you have the advantage that, depending on the requirements of the position, the bonus is automatically higher and there is a greater incentive. However, your employees may be able to imagine more under a fixed sum. Using the euro symbol instead of the percent also has a psychological effect. To protect yourself, you should pay out bonuses in stages. Only when it is clear that the new employee will remain in the long term and are still considered suitable after the probationary period will the full payout be made. This means that your employees are more likely to filter for people they can imagine working for the company in the long term.

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However, money is not everything. Non-cash rewards often generate long-lasting appreciation. You can also find inspiration for the right amount or type of bonus for your company in the Firstbird benchmark study.

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