Employee Referral Schemes: The Secret Weapon in Your Hiring Arsenal?

What is an employee referral?

An employee referral is hiring and recruitment methods that asks employees of a company to recommend others within their network to apply for jobs. The CV or contact details are given directly to the employer. If the recommended candidate is employed, the referrer may be given a referral reward such as money or prizes.

Employee referrals tap into a human desire to share things we like with people we care about. As they saying goes, “It’s now what you know, but who you know that matters.”

Additionally, it gives employees a sense of responsibility and involvement, which can lead to a sense of achievement.

What is an employee referral program?

It is a more structured way to organise how your company requests and receives employee referrals. The goal of an employee referral program is to make it a more sustainable and reliable source of applicants.

Even if you don’t have a formal program, your colleagues can still refer potentially good candidates, but it tends to be more ad hoc and less effective.

Like other channels, they have advantages and disadvantages.

Advantages of employee referrals

  • You usually get passive candidates: people who are successfully employed elsewhere and so are hard to find because they aren’t necessarily considering a new job unless told about one.
  • By asking current employees to broadcast information about vacancies on their social media channels, you can reach a wide audience.
  • If you offer remote working, employees can refer people from a larger and more diverse background.
  • For a hard-to-fill position, employees may have unique industry knowledge and know people from suppliers and past companies. You are unlikely to gain these insights elsewhere.
  • When employees make personal recommendations, applicants essentially come pre-screened as qualified candidates, making recruitment slightly faster.
  • Referred employees may be a better cultural fit, which means improved retention and performance (LinkedIn, 2015).
  • They’re cost effective. The only financial cost you may incur is a referral reward, and even then these are only paid on a successful introduction. Additionally you may make savings as it is an efficient process. (But please don’t try to cut back on advertising the job or using other sources because employee referrals should not be used in isolation).
  • Applicants are 2.6% - 6.6% more likely to accept a job offer if they have been referred (Glassdoor, 2015).
  • The people who successfully referrer new employees are likely to stay longer (LinkedIn, 2015). This is probably because they’re 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’d be letting their friends down by moving on.
  • Similarly a report by Deloitte (2020) suggests employees who join by being referred are more likely retained. This could be because your employees have valuable insights to share (unlike job adverts and recruitment agencies). Equally it could be they simply enjoy working with likeminded individuals.
  • Your employer brand is being strengthen every time someone recommends you. This authentic, social-proof is a powerful message your company is a desirable place to work and work considering.

Disadvantages of employee referrals

  • They may not be suitable for confidential roles.
  • Getting referrals can be a painfully slow recruitment method with diminishing returns over time as people’s networks don’t keep growing. Even incentives become less appealing, which is why it is can be a good idea to relaunch employee referral programmes from time to time to freshen them up.
  • Many connections have become more like acquaintances than close contacts, so it is difficult to make a genuine recommendation.
  • There may be a lack of diversity because people tend to know others like themselves. This can be a genuine problem with Forbes (2018) reporting 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. To avoid this, employee referrals should be one of many applicant attraction sources.
  • You may feel obliged to interview referred applicants so as not to offend them, even when it’s obvious they’re unsuitable. This wastes everyone’s time and gets hopes up unnecessarily. Consequently I recommend you still hold Telephone Interviews so at least applicants have some personal attention, but irrelevant applicants won’t take up too much time.
  • You must respond quickly and treat referred applicants as a priority. A referrer has probably raised the applicant’s expectations, so if you aren’t responsive, it builds up bad feelings and they probably won’t refer anyone else in the future.
  • Dismissing someone who was recommended can lead to losing the referrer because of strong loyalty between them. This is a particular problem if you allow employees to refer family members.

<span class="grey-callout"><span class="text-color-purple">Note:</span> I’d like to provide some balance to the advantages and disadvantages I’ve just listed. A lot of the statistics are shared by surveys conducted by Deloitte, LinkedIn, Glassdoor etc. Respondents are generally from very large, well resourced, well-known and already well respected companies. The Deloitte research for example was from companies with a turnover greater than $500 million. Therefore, the results are already biased and few companies can achieve similar results. </span>

Another problem is that those surveyed are often from a global demographic, so it doesn’t usually take into consider cultural nuances.

Most surveys were undertaken before the pandemic. Since there has been a shift in sentiment and priorities, not to mention the labour market fundamentally changing.

Finally the surveys are often from a small sample. Again the Deloitte survey was based on only 560 employees and 71% were male.

So please treat these surveys with some scepticism. If you work for a smaller company, you’ll naturally have less potential to get employee referrals and the results won’t always be similar to corporations.

Rewarding referrals isn’t always required

Often, no incentive is necessary for employee referrals. Studies have shown that people recommend for emotional and altruistic reasons, such as helping a friend or making their organisation a better place to work. Also, incentives can be counterproductive as they may encourage unsuitable referrals for the sake of money.

But you may wish to show appreciate and demonstrate reciprocity. Therefore, if you do offer a referral reward, make it a small gesture. It doesn’t even have to be money. It could be a perk like a small gift or additional holiday allowance. You might also consider giving the bonus to charity because it removes the bribe element. Studies have shown that a bigger-value incentive does not necessarily create a bigger quantity or better quality of applicants.

As mentioned, employee referrals can create diversity issues. To combat this could increase referral bonuses for new hires in underrepresented groups such as Intel did in 2015 (CNN, 2015).

Ultimately the reward should be a balance of saying “thank you” and a motivator that doesn’t compromise on quality of applicants.

I’ve included the top 10 employee referral reward ideas.

Here’s a Step-by-Step Guide to Building an Employee Referral Program That Works:

Step 1: Make your company worth referring

It may sound obvious, but you need to be a great employer to deserve referrals in the first place! This doesn’t just mean having a career page that gives a perception of being a great employer. It means treating your employees with care and appreciation and having career prospects that meet their expectations.

A good question to ask yourself is, “How do I make this such a great place to work that staff want their friends and family to join?” Taking action to do so will not only help you become an employer worthy of referrals, it will also improve staff retention and reduce your need to recruit in the future.

Step 2: Choose when to ask for referrals

Employee referrals are often a good channel to start with because they can be a slow burner, so best to get started sooner than later.

Additionally you’d be really kicking yourself if you had to pay a recruitment agency fee for a candidate that could have been introduce far cheap using employee referrals.

Initially you should send an email or message to employees making them aware of the Employee Referral Program and I’ve included a <a rel="nofollow" href=https://www.starget.co.uk/recruitment-advice/employee-referral-policy-2y>sample email that you can customise</a>.

<span class="navy-callout">I have also created a draft Employee Referral Policy document that you may wish to use.</span>

Step 3: Ask for employee referrals and sharing on social media

Generally it is best to raise awareness of each vacancy in a low-key way. Otherwise, if you’re constantly asking employees for help, they may become fatigued and your requests become ‘noise’. A simple way to do this is via email, a messaging app or your intranet. If you have lots of vacancies, it is often better to send a weekly bulletin so employees aren’t receiving too many messages.

The message should succinctly explain:

  • A brief overview of the job, preferably with a link to a job advert.
  • How employees can submit their referrals
  • Remind them of any referral rewards
  • If you’ve advertised the job online, include a link encouraging employees to share the content on their social media.

I’ve included an employee referral program sample email.

Good referrals can also come from one-to-one conversations with:

  • New starters. Ask, <span class="is-speech">“Who did you previously work with who was really good?”</span>
  • Existing employees. Ask, <span class="is-speech">“Who are the most talented people you know that we should recruit?”</span>

If people struggle to answer, jog their memories by being more specific, for example, by asking them, “Who is the best credit controller you’ve ever worked with?”

To proactively engage employees, you could get them together over complimentary food and drink to tell them about current vacancies and find out who they know. Larger companies have enhanced this using gamification provided by third-party software suppliers.

<div class="grey-callout"><p><span class="text-color-purple">Tip #1:</span> Your employees are putting in a lot of effort to get referrals, so make their life as easy as possible.  Avoid asking them to get CVs, or submit details to a career page. Streamline the process  by asking for the applicants name, email and telephone number to be sent in an email to HR or the hiring manager.</p><p><span class="text-color-purple">Tip #2:</span> I don’t recommend allowing very senior leadership and line managers hiring for their own department to make referrals because their political ‘strength’ can make it challenging to treat each application fairly and objectives.</p><p><span class="text-color-purple">Tip #3:</span> Generally HR, and internal recruiters should not be eligible for referral rewards. They already get paid to do this job and shouldn’t be put in a questionable position about where applicants really came from.</p><p><span class="text-color-purple">Tip #4:</span> This is more a word of warning. If you’re not getting referrals, could this be feedback that you’re not an employer worth recommending, and so your employees aren’t that engaged?</p></div>

Step 4: Introduce yourself to a referral correctly

If you like the sound of a referral and want to approach them, never forget that they have the power to rebuff a poor introduction, so proceed cautiously.

It is normally best to speak with them and you might say to them, “You were recommended to me as I understand you’re great at your job and I’m always looking for talented people. If possible, I’d love the opportunity to discuss if our company may be a good fit for you. Is now a good time to talk?”

Now you cover the three screening questions I recommend.

<span class="grey-callout"><span class="text-color-purple">Important:</span>It’s useful to personalise the call and add value by mentioning the name of the person who referred them. But don’t assume it’s ok to do this without getting the referrer’s permission first.</span>

If you can’t reach them, send a friendly and professional email as a last resort. Some key points include:

  • If the applicant sees a familiar name in subject line, they’re more likely to open the email and respond to it. So include the name of the employee who made the introduction.
  • Use a friendly yet professional tone. It’s possible the applicant is already aware of the job, so you don’t need to be too formal.
  • You want to briefly explain the role. Make them curious enough to start a conversation.
  • Indicate what the next steps are. We normally recommend a call as it is more personal. We don’t recommend asking them to apply via a career page because it is often a lot of effort and too formal.

<span class="navy-callout">I’ve included an email template for contacting referred candidates.</span>

Step 5: Start recruiting

Even though someone has been referred I would still recommend starting the recruitment process with Telephone Interviews. This is because some employees may have misunderstood the job and recommended irrelevant people. Or they may have become desperate to receive a referral bonus so recommended anyone! Therefore Telephone Interviews will ensure you spend time with the right people.

For the avoidance of doubt, referrers shouldn’t be involved in the recruitment process itself.

If mis-hires from referrals occur, you shouldn’t blamed the referrers. However, if this becomes a pattern, improve your recruitment process and perhaps make incentives dependent on a successful tenure of six to 12 months.

Step 6: Follow up with referrers

Referrers have gone to a lot of effort and deserve to be kept in the loop.

At the very least thank them for each referral.

If possible, it is always best to update if an applicant has been hired or rejected.

I accept you’re probably swamped with work. But if you don’t meet these basic expectations, you’ll lose the referrer’s trust, making them less likely to recommend someone again.

Obviously if you incentivised them with a referral reward, make sure you give it to them!

Step 7: Keep refreshing your employee referral scheme

After a while employee referral schemes can be come stale. Employees are aware of them, but constant announcements become less interesting and possibly ignored. Therefore, here are some ideas to keep it fresh:

  • Host referral happy hours. Invite colleagues for pizza and drinks. Encourage them to share valuable information about connections they know at competitors, suppliers and wider networks who would be great for the company, regardless of whether you have a suitable job.
  • If you offer monetary rewards, considering incentivising based on quality. For example, offering a small reward for all applicants shortlisted, another reward for those who got an interview, a larger reward for those who start, and possibly a final reward for those completing probation period.
  • If you don’t offer monetary rewards, mix up the prizes with gift cards, hospitality experiences, personalised presents.

<span class="navy-callout">As mentioned I’ve included my top 10 best employee referral rewards.

<div class="grey-callout"><p><span class="text-color-purple">Tip:</span> Consider asking for referrals from other networks:</p><p><ul><li>Customers who interact with suppliers and competitors. Ask, “Who do you rate highly at suppliers or competitors who we might want to recruit?”</li><li>Suppliers. Providing you don’t have a non-solicitation clause in contracts, if you value the potential of a supplier’s employee more than the supplier relationship itself, you may wish to poach that member of their staff. Alternatively you may be able to place a ‘Help Wanted’ advert in a supplier’s shop. For example a hiring manager recruiting tree surgeons placed an advert in a shop they purchase equipment from. It cost almost nothing and got highly relevant applicants.</li></ul></p></div>

You don’t need software to get employee referrals

Try referrals, before you rush in and buy any software!

Most of the people who want to recommend recruitment marketing software want to sell you theirs! But you don’t really need any of these tools and have everything you need:

  • Use your existing email, messaging app or intranet to make employees aware of job opportunities.
  • You aren’t going to get inundated with referrals, so use a spreadsheet or something similar.
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Geoff Newman has dedicated his entire career to recruitment. He has consulted for many well-known international brands, and worked with over 20,000 growing businesses. He has helped fill over 100,000 jobs.

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We literally wrote the book on...

The secrets of great recruitment

The Secrets of Great Recruitment is a top-seller. It is easy to read and wastes no time in giving powerful actionable strategies you can use straight away.

Book cover for The Secrets of Great Recruitment