Advantages & Disadvantages of Using Employee Referrals for Recruiting Staff

A more comprehensive guide to using employee referrals for recruiting staff is available.

Advantages of Using Employee Referrals

• Access to passive candidates: If an employee knows someone who will be great in the role, they will mention it to them regardless of whether that person is currently looking for new opportunities.
• Specialist knowledge: Employees may have unique industry knowledge and know people from suppliers, past companies or specialist training courses. It is more challenging to gain these insights elsewhere.
• Pre-screening: When employees make personal recommendations, applicants are pre-screened to a degree, making recruitment slightly faster.
• Improved cultural fit: Referred employees may be a better cultural fit, leading to improved employee retention and performance (LinkedIn, 2015).
• Cost-effective: The only financial cost incurred is a referral reward, and even then, these are usually only paid on a successful introduction. Additionally, you may make indirect savings as it is an efficient recruitment process.
• Improved acceptance rates: Applicants are 2.6% - 6.6% more likely to accept a job offer if referred (Glassdoor, 2015).
• Retention of existing employees: Employees who successfully refer new staff will likely stay longer (LinkedIn, 2015). This is probably because they are actively helping build the business, and the more familiar faces they see, the happier they are. They may also feel more obligated to stay because they would let their friends down by moving on.
• Retention of the new staff: Similarly, a report by Deloitte (2020) suggests that employees who join by being referred are more likely to be retained, primarily because they simply enjoy working with like-minded individuals.
• Brand awareness: An employer’s brand is strengthened whenever someone recommends a potential colleague. This is authentic, social-proof that your company is a desirable place to work.

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Disadvantages of Using Employee Referrals

• Painfully slow: It often continues to get slower because of diminishing returns over time as employees’ networks do not keep growing. Even incentives become less appealing, so it can be a good idea to relaunch employee referral schemes occasionally to freshen them up.
• Non-confidential: They may not be suitable for confidential roles.
• Requires an actual network: Many connections have become more like acquaintances than close contacts, so it is difficult to make a genuine recommendation.
• Diversity limitations: There may be a lack of diversity because people tend to know others like themselves. Diversity can be a genuine problem, with Huang (2024) reporting that of 100 referrals, 44% will be white men, 22% will be white women, 18% will be men of colour, and 16% will be women of colour. Consequently, employee referrals should be one of many applicant attraction sources.
• Potential time-wasting: Employers may feel obliged to interview referred candidates to avoid offending them and the person who referred them, even when it is obvious they are unsuitable. This wastes everyone’s time and gets hopes up unnecessarily. Consequently, I recommend employers first hold Telephone Interviews so at least applicants have some personal attention, but irrelevant candidates will not take up too much time. (Telephone Interviews are explained in chapter 10.)
• Fast response required: Employers must respond quickly and prioritise referred applicants. A referrer has probably raised an applicant’s expectations, so a lack of responsiveness builds up bad feelings, and the employee probably will not refer anyone else in the future.
• Political unrest with dismissals: When firing a referred employee you might also lose the referrer due to their strong loyalty. Losing multiple employees is a particular problem if referring family members. I consistently saw this when recruiting for a large employer based in small communities in Wales; almost entire families would come and go because of (misplaced) loyalty.