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Essential Recruitment Guide: Employee Referral Programs

An employee referral program involves engaging employees to get the best people to fill a company’s job openings. It’s an excellent way of hiring that results in quality candidates within a short time and is very cost-effective. We’ve put together an essential recruitment guide to employee referral programs, read on to find out everything there is to know!

In recruitment, the corona pandemic has caused various changes. One significant change is the need for new recruitment methods to fill various skill gaps within the organization. Job adverts and recruitment agencies can no longer offer the desired candidates. On top of this, companies shifted budgets away from recruitment into other departments. Recruiters are therefore looking for cost-effective ways to keep their business going and find those specific talents needed.

Essential in recruitment is to get the right people for the job. An employee referral program allows talent acquisition teams to invite existing employees to refer candidates from their personal networks for open positions in the organization. These referred candidates bring all the necessary qualifications, are usually a great cultural fit for the company, and have already got some insights into the position and the organization itself. Knowing what to expect in the job, referred candidates stay longer within the company after they are hired. This makes employee referrals a fast and cost-effective way to hire, and a referral program and essential tool in recruitment that every company should use.

How Employee Referral Programs Work

With an employee referrals program, the company’s employees share vacancies in the organization with their personal network and introduce interested candidates to the position. Here, employees help the talent acquisition team to reach passive candidates, those who are not actively looking for a new position. As a way to motivate them, organizations usually reward employees for a successful referral. The types of rewards and at which time employees receive it can vary from company to company. If you would like to know more about how organizations reward their employees, check out our Employee Referral Benchmark Study, where we asked 143 organizations about their use of employee referrals. In general, an employee referral program should be entrenched within the company culture for everyone to participate. With a successful employee referral program, the long term benefits far outweigh the costs of running the program.

What to Consider Before Implementing an Employee Referral Program

A good referral program helps an organization hire top-notch employees who are a great fit for the company. Therefore it’s vital to consider a few elements when designing it.

Determine the goal

When it comes to the essentials of recruitment, the first step is to have a clear vision of what a business needs and intends to accomplish with their hiring. This will create awareness and mutual understanding for everyone in the team. In various sessions, stakeholders are introduced to the program’s vision and develop strategies that will yield success.

Some of the objectives can include;

  • Lowering recruitment costs
  • Boosting the quality of hires
  • Reducing the hiring time
  • Getting candidates with specific skills
  • Increasing diversity in the company

Ease of use

One of the most important factors to consider when developing a referral program is its ease of use. It should be simple to comprehend for employees with easy navigation tools and training sessions provided.

Leverage technology

Technology can help make the referral program more efficient by streamlining and automating processes, communication, and reward options. It also makes the procedure more manageable for management, talent acquisition or human resources teams, employees, and the referrals themselves, reducing missed referral opportunities and significantly increasing the referral hire rate.

Make jobs shareable over social networks

It’s wise to make it easier for employees to share job openings via email and social media. With just a few clicks via links on the job post, they will be able to reach out to many people and encourage more participation.

Measure performance

Very important for a referral program is to make sure that the job links and referrals submitted to the HR department are trackable. This will help recognize and appreciate the employee that submitted the referral and measure the impact the program has on the company by tracking leads, cost savings, revenue engagement, and more.

Enable auto-posting or matching of vacant roles

Sharing job opportunities regularly helps to keep employees more engaged. A digital referral tool will do this automatically, by matching and notifying employees on their smartphones about new jobs in their location and department. A good employee referral tool should also frequently send information to employees on the status of their referrals. This will keep employees up-to-date with the status of their referrals. 

How to Build a Good Employee Referral Program

To get a rewarding employee referral program, there are several aspects to consider.

Choose the right software

Startups and very small businesses often start with a manual referral program with simple email submission and Excel spreadsheets for record-keeping. However, as the company grows, it gets more difficult to manage all referrals, and most importantly regularly update employees about the status of their referrals. This lack of transparency may demotivate employees to refer candidates. Therefore, it’s essential to automate the submission process to ensure timely communication and transparency for both employees and referrals.

employee referral software considerations

Training employees

After deciding on the specifics of the referral program, it is very important to educate employees on how it works. They should understand what type of candidate the organization is looking for to be able to refer high-quality candidates. Getting management involved in this process will naturally make them ambassadors for the referral program within the company. Also, employees should know what to expect after referring a friend or family member – it’s a good idea to outline to them exactly what will happen after submitting a referral. 

Deciding when to ask for referrals

Before introducing the referral program to employees, stakeholders need to determine in which situations to use employee referrals. This can be for every open job opportunity, specific roles, or hard-to-fill positions. Depending on their hiring needs, this will look different for every company. A look at the recruiting history can act as a guide in this process. However, trying out new things from time to time can open up new opportunities. When done right, an employee referral tool can reduce the time-to-hire and cost-per-hire. 

Communicating the referral program

To get the best results out of an employee referral program, proper communication with employees is essential. It helps employees respond accordingly to make better contributions towards a better recruitment process. 

things to know employee referrals

Once employees know the benefits and why they should participate in the program, the talent acquisition team needs to engage them deeper into the process. Employees need to learn the following:

How to submit referrals

When introducing the referral program, employees need to be shown how to refer a candidate. By choosing a simple and easy-to-use tool, employees will be more likely to participate. The introduction to employees should be as basic as possible and ensure that everyone understands how to submit a referral. A complicated and long referral process could discourage employees resulting in lower referral numbers. 

The role of the ideal candidate

Whenever there is a vacant position, the published job advert should explain to employees what is expected from candidates. Including a job title, the tasks related to the position, the team, and the expected skillset and knowledge for a specific role can help here.

Transparency is a must

To ensure transparency, the talent acquisition team gives feedback on referrals as soon as possible. If a candidate is suitable for the position, the referer should understand the next steps of the hiring process and when to expect to hear back from the talent acquisition team. If a candidate does not fit the requirements, the organization should still notify the employee about the unsuccessful referral. It’s vital to also communicate negative outcomes to employees, and if possible, give them feedback and guidance on their referrals to help improve the referral program in the long run.

The Key to Employee Referral Program Success

It’s one thing for an employee referral program to take off in the beginning when all the employees are motivated and enthusiastic. But the crunch time comes after the launch because it’s vital to make sure that employees maintain their motivation and keep employee referrals in mind as this will dictate long term success. 

Evaluating and Adjusting When Necessary

It’s essential to revisit the referral program to evaluate success or failure regularly. Companies can do so by tracking various HR metrics:

Turnover rates of referred candidates versus other channels

In most companies, referred employees have longer retention rates. However, this may not apply to all organizations, departments, or positions. Therefore, businesses need to compare between employees hired via the program and those sourced through other channels. This allows stakeholders to see the return on investment, and in most cases will present a positive business case that will justify adding more budget and rewards to the employee referral program. 

Employees’ participation rate in the program

The equation is simple, the more employees actively refer candidates and share open jobs, the higher the reach will be and the better the results will be. If only a small percentage of employees are actively using the tool, businesses should invest more in internal marketing strategies for the program. This can involve looking at how the tool is used, surveying employee happiness, and monitoring the types of rewards on offer and internal communication. 

The rate of qualified referrals

The number of candidates who qualify for an interview via the referral program is expected to be high. If a company is experiencing a high volume of less competent applicants, providing employees with feedback about their referrals could have a positive impact on the quality of applications. Here, the company can set clear standards and expectations on what they are looking for. An employee referral tool with a built-in feedback feature allows easy communication with employees in this regard.  

The quality of referred hires

Most organizations recognize that referrals offer better-quality employees compared to other channels. To understand if this is the case in any given company, the focus should be on the employee’s performance instead of conventional recruiting metrics such as cost-per-hire. Regular performance reviews can be a good starting point for this. 

Motivating and Rewarding Employees

Setting up a referral program means that a company’s recruitment is shared among all employees, regardless of their role. However, the responsibility and duty of recruiting remains with the talent acquisition department. 

To ensure employees don’t forget about sharing open positions and referring candidates the referral program has to be communicated in a fun, uncomplicated, and motivating manner. The digital tool matters, rewards matter, and appreciation matters. Coming up with ways to reward employees is a smart motivational technique. It is crucial to reward employees for their participation and smaller activities (for example, sharing jobs with their networks) rather than just rewarding for successful hires. Moreover, rewards and bonuses do not have to be a costly initiative. A digital tool that enables gamification and points for small activities, combined with non-monetary rewards is a far better motivator than simply transferring a cash bonus into an employee’s bank account for a successful hire.

monetary and non-monetary rewards

Most organizations register a vast improvement of referrals by implementing a sound reward strategy for employees. Non-monetary rewards, such as the ones listed above, are also much more tangible and far more spoken about in the company than just monetary rewards. This provides a secondary benefit because when talking about it, employees keep the referral program in mind. Additionally, employees will naturally refer their network whenever there is a vacant position. To prevent any confusion for employees, it is important to ensure that all employees are familiar with the reward policy terms and conditions. 

Integrating it into Company Culture

When launching a referral program, it should not be presented as an add-on for the company. By integrating it into other processes to make it feel like a natural part of the organization it will become part of the company culture. Onboarding the management team before the official launch can make them internal ambassadors in the company. Launching internal department challenges on a monthly or quarterly basis keeps things fun and competitive. Telling some referral success stories of the year at the annual Christmas party  can help employees to see how the tool allows them to contribute to the company and help shape their teams in the hiring process.

Benefits of an Employee Referral Program

A referral program is an essential part of recruitment in any company, and it comes along with several benefits.

It Saves on Money and Recruiting time

The costs of running a referral program are not equal to other recruiting methods. With a successful employee referral program in place, a business may realize that they do not need to use alternative hiring channels such as job boards or recruiting agencies and headhunters. It may seem counterintuitive as incentive and reward budgets are necessary for the beginning. However, filling a vacant position through employee referrals is much faster because the quality of applications is much higher in comparison to other recruiting channels. Therefore, recruiters spend less time and money on recruitment, job postings, and more.

It Has Higher Employee Retention Rates

Employees who are hired via the referral program tend to have higher job satisfaction levels. They, therefore, stay with the company longer and are more productive. While using only career sites in recruitment leads to an employee retention rate of 33%, using an employee referral program increases the rate to 46%. 

It’s a Form of Employer Branding

Employee referrals are a crucial benefit to the hiring process, but they also contribute to employer branding. By frequently sharing jobs on social media and advocating for the company, employees position the company as a good employer. A good referral tool, therefore, allows employees to share jobs with the company’s branding easily, and add a personal message.  

It Helps find Passive Candidates

Some potential employees may fit a particular job position perfectly, but may not be aware of the open position as they are not actively looking for a new job. Moreover, if they are satisfied in their current position, they may need more persuasion to apply for a new job. It can be tricky for recruiters to convince them, but friends and family may help out. Passive candidates tend to be more receptive to those people who are close to them than to management. Therefore, an employee can easily persuade them to join the company and allow recruiters access to both passive candidates and top talents. 

It Boosts Morale

When a referred candidate is hired, the referring employee experiences a significant morale boost due to the incentives. Therefore, they are motivated to refer more people when there is a vacant position. Rewarding incentives and appreciation is crucial to maintain the motivation of those employees who may be participating in the referral program, but are yet to make a successful hire. 

It’s Easier for Hard-to-fill Roles

For some job positions, a company can quickly get people to fill the vacant position. Alternatively, recruiters can browse through a talent pool to find candidates that fit their desired attributes. However, it may be hard to get the right person for certain roles, especially if you want a specific skill set in a competitive space. In such circumstances, an employee referral program is extremely valuable as employees can use their network to get the right person, and often have better chances of convincing the person to join the company due to their relationship. 

It Can Yield Better Cultural Fits

Recruiters can get the right candidate for the job, but there is always a risk they will not fit into the team. However, when an employee refers a candidate, they are convinced that the applicant is a cultural fit for the company. Moreover, the candidate already has some insights into the company when applying for a position.  Therefore, they are better prepared for both the position and the company. Moreover, they stay in the organization for longer, as they already know in advance what to expect.

What an Employee Referral Program Entails

The use of an employee referral program varies from one company to another, with no one-size-fits-all solution. Aspects such as company setup, size, industry, location, culture, and internal values should be taken into account. And when deciding to introduce an employee referral program, stakeholders need to think about the tool and technology used, the launch and getting employees on board, the reward strategy, and the communication strategy.  Below are some often overlooked points to take into consideration:

Metrics and Measurement

A good tool should easily track the employee referral program statistics such as job views on social networks, the quality of referrals, and the activities of employees. Other metrics such as your cost-per-hire and time-to-hire should also be kept in mind to accurately compare the employee referral program with other recruiting channels. Other measurements can include performance, retention, percentage of new employees hired via referrals, and more.

Consistent Marketing

An excellent program should be formalized and incorporated like other official processes within the company. It is vital for the program’s success to frequently encourage employees to refer candidates. This can be done in various instances. Emails, posters, and flyers are only a few examples. 

Rewards

Employee referral programs usually offer incentives to employees as a reward for referrals who are hired. Saying thank you to other employees, who may not have had any successful hires, is still crucial though. The reward strategy is not similar for all organizations, and before launching a referral program, stakeholders should formulate a reward strategy involving rewarding employees with monetary, non-monetary, and emotional rewards.

Payment

In many cases, organizations chose to reward an employee who successfully provides a hired referral with money. If this is the case, it is advised that employees receive this payment as soon as possible after the hire. If this is not possible, the reward should be paid at least partly to the employee and the remaining part payments and their dates should be communicated clearly. A reward policy outlines terms and conditions for reward payment so there are no open questions or surprises for the employees.  

Conclusion

Employee referral programs are an excellent source of getting the best candidates. They make the hiring process quick and fast for HR departments with significantly fewer costs and reduced time-to-hire. Following this guide should enable companies to introduce a successful employee referral program. However, it is crucial to understand that as every company culture is different, the program needs to be adapted to fit the organization. 

The employee referral tool must be easy to use and understand, to make sure the referral process is clear and easy for every employee. Timely feedback on referrals is important to keep employees motivated for referring. Continually optimizing the program and making the necessary adjustments as the workforce grows ensures a long-lasting success. It is essential to reward employees for their efforts in helping get the best talented and skilled people to join the organization. By keeping these things in mind, an employee referral program can be very successful.

If you would like to know more about our employee referral tool, we are happy to provide you with an individual solution for your company.

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Majella Grawatsch

Originally from Brisbane, Australia, Majella completed her studies with a Bachelor of Business majoring in advertising from Queensland's University of Technology. After a few years of working in the gaming and entertainment industry in the APAC market, she moved to Vienna, Austria and joined the Firstbird team as a copywriter in 2016. She has never looked back, and now works across marketing, partnerships and sales in Firstbird’s international team.

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Employee Referral Benchmark Study

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We collected data from 143 companies, and, in the following study, we provide you with the answers.

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