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Pros & Cons: Recruiting Agencies vs. Employee Referral Programs

Culture is king when it comes to recruiting for growth. This article looks at the pros and cons of recruiting through agencies and through employee referral programs. The result may surprise you – it’s evident that employee referral programs better help maintain a company’s culture while still supporting long-term talent acquisition strategies.

When somebody mentions employment challenges, almost everyone can empathize with that tenacious job seeker who is searching for his or her dream job at a great company. Only talent acquisition teams know how difficult it is for companies to attract and retain top talent in high-growth industries. Recruiting agencies and employee referral programs are two ways for companies to source skilled workers for mission-critical positions. Recruiting agencies search the market to match the right employees for jobs that their business clients offer. An employee referral program uses referrals from a company’s existing network to deliver fast, targeted talent acquisition. Here are the pros and cons of each recruiting method.

Pros and Cons of Recruiting Through Agencies

Pro: Deep Industry Expertise

Recruiting agencies do more than just sharing the talent acquisition burden with a company’s internal HR team. They attract high-performing workers in specific fields because they are often branded as top headhunters in certain industries or sectors. After getting employees to apply for jobs, recruiters pre-screen candidates for their clients based upon the job seeker’s skills, credentials, and experience for a given position. Since they specialize in matching qualified candidates to jobs in industries such as financial services, information technology, or hospitality, they know the right questions to ask the candidates during interviews. These recruiters also keep aware of trends in the industries that they serve. This allows them to distinguish between candidates who are active in their chosen career fields and those who are just resting on past laurels.

Pro: Access Talent From a Variety of Sources

The best-recruiting agencies don’t rely on walk-in candidates who send their resumes via the recruiting agency website. They cast a wide net and search for candidates on job boards, on LinkedIn, and at networking events. If a recruiting agency specializes in tech recruiting, its agents likely have recruiter accounts with these job board websites specializing in tech recruiting.

LinkedIn is a favorite resource for recruiting agencies. The site allows recruiters to search for candidates based upon stated skill sets, academic credentials, and university names. LinkedIn also allows members to post technical certificates that they’ve earned. These certificates give recruiting agents confidence to move forward with candidates in the hiring process by scheduling them for skills tests.

Trade shows, professional association conferences, and job fairs are target-rich environments for recruiting agencies. While a small company can afford to send its HR representatives to a few of these events each year, top recruiting agencies send their representatives to as many networking events as possible to claim top talent for their group of business clients.

Pro: Lower Risk

The goal of recruiting agencies is to fill job openings with the most qualified candidates on the market. When an agency recommends a candidate for an interview with a company’s recruiting team, the company can be confident that the candidate is fully qualified for the job. Hiring new employees costs companies thousands of dollars. A recruiting agency helps to ensure that a company’s hiring investment is well placed in cases when a significant amount of importance is placed on the qualifications required.

Con: Expensive

While recruiting agencies do the heavy lifting when it comes to finding workers, companies pay a high price for these services. According to statistics that Thumbtack published, it’s not uncommon for a recruiting agency to charge 20 percent of a new hire’s annual salary as a finder’s fee.

Con: Candidates May Not Fit Company Culture

Top recruiting agencies do their best to source candidates who can do the job and fit their clients’ company culture. However, many times, recruiting agencies miss the mark even when they aim to understand their clients’ mission and vision. While recruiting agents can cultivate meaningful relationships with their business clients, it’s hard for them to delve into the values that drive top candidates. It’s easy for a tech recruiting agency to recommend a candidate who can write efficient code quickly but doesn’t fit in its casual, collaborative work environment.

Con: Legal Issues

Recruiting can be a land mine of legal challenges, and companies that try to sidestep anti-discrimination laws by using recruiting agencies can be in for a surprise. Recruiting agencies that inadvertently or purposefully break laws can get their clients into legal trouble if a candidate decides to sue. Business clients would have to prove that their organizations knew nothing about the unlawful practices of their recruiting agency partners, and that is sometimes hard to do.

Pros and Cons of Creating Employee Referral Programs

Pro: Promotes Brand

Smart business leaders like to make their recruiting budgets work overtime by highlighting their corporate brands during recruiting campaigns. They know that top candidates look for companies that align with their personal values. When companies implement employee referral programs, employees become brand ambassadors for the company. They attract high-quality candidates, and the candidates trust them when they sing the praises of their companies.

When it comes to employee referral programs, it’s hard to beat Arvato’s approach. They made referrals their main pillar of recruiting using a digital employee referral program – they now have x10 the volume of referrals than before. 80% of these referrals receive the highest quality rating, and every job they publish has the potential to 1,400,000 contacts.

Pro: Faster Hiring and Onboarding of High-Quality Candidates

While recruiters are notoriously hard working and efficient, they usually can’t top employee referral candidates for quick hiring and onboarding. It comes down to trust. Candidates trust their friends, and they’re likely to accept a job offer quickly if a friend recommends the company. Recruiting agencies that haven’t cultivated relationships with these types of candidates won’t be able to inspire the same level of trust.

Pro: More Affordable Recruiting

It’s great when a company’s existing workforce derives monetary benefits for referring qualified candidates. It’s even better when those monetary benefits cost less than recruiting agency fees. A recruiting agency that finds a new hire who earns a starting annual salary of $80,000 can make up to a $16,000 commission for finding that one employee. Employee incentives for referrals can cost significantly less than agency fees if the company’s incentive program is well thought through.

Con: HR Issues

Whether it’s a miscommunication or a deliberate snafu, HR issues happen frequently in large companies. When a company finds itself at odds with one of its employees, it may have a tougher time handling the situation if the employee has helped to staff half of the company. Having solid referral program guidelines and policies in place helps to cut down on miscommunication that lead to lower company morale. 

Con: Biased Recommendations

Employees know that their reputation is on the line when they refer friends to high-profile positions. While referred candidates are likely well qualified, they may not be the highest performers among competing job seekers. The trade-off is that they will probably fit the company’s culture and get the job done without lowering morale company-wide. Firstbird offers some tips for making employee referral programs successful.

Con: Not a One-Stop-Shop for Recruiting

Employee referral programs do a good job of supplying TA teams with a stream of pre-screened, high-quality candidates. However, while a great referral program should be your main channel for hiring, it shouldn’t be your only channel. Always use a variety of recruiting channels to build an efficient recruiting mix. 

Which is Best for Long Term Talent Acquisition?

If a company is happy with its current team members and its culture and simply wants to expand its operations, creating an employee referral program is the recruiting solution that delivers long-term results. Employee referral programs extend HR’s reach to qualified candidates who are more likely to fit the company culture. This improves a company’s time-to-hire metrics as well as its retention rates, while costing significantly less than an agency. While building a solid employee referral program won’t happen overnight, Firstbird has powerful software tools that help companies plan, develop, promote, and maintain successful employee referral programs.

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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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