Employee Referrals: An Overview of Using Networks for Talent Acquisition

<div class="grey-callout">
<h2>Key Takeaways</h2>
<ul>
<li>Employee referrals can be a good way of beginning your search for new staff.</li>
<li>Obtain referrals from existing employees and new recruits, as well as from customers and suppliers. You can offer referrers a perk, but keep this small.</li>
<li>Employee referrals can provide applicants who’d otherwise be hard to find, reduce the need for screening and come fairly cheap.</li>
<li>However, employee referrals aren’t normally used for confidential roles, may be slow to deliver, can lack diversity if from a small group of people, may mean having to interview an unsuitable candidate out of politeness, and if the candidate is later dismissed might lead to the loss of the person who referred them.</li>
<li>Above all, make sure that you’re an employer worthy of getting referrals!</li>
</ul>
</div>

Employee referrals are a method of attracting passive applicants where employees recommend friends, family, past colleagues, and acquaintances, to apply for jobs. As the saying goes, “It is not what you know, but who you know that matters”.

‍

How to Set Up an Employee Referral Scheme

‍

Step 1: Make your business worth referring

Treat employees well, provide career prospects, and ensure your company is a great place to work.

Employees generally make referrals because they want to help their friends as well as their current employer, so you don’t have to pay them a bonus – large payments can actually encourage people to make poor recommendations for the money. But it can be nice to offer a small perk such as a modest gift or extra holiday. Needless to say, referrers shouldn’t take part in the process of recruiting the person they recommended.

‍

Step 2: Ask for referrals and encourage social media sharing

Inform employees about the referral programme. Include a brief overview of the job, explain how employees can easily submit their referrals (only ask for the applicant’s name, email, and telephone number to be sent to HR or the hiring manager) and explain any referral rewards.

Start with existing staff. You could get them together over food and drink and see who they know that might be a good fit. If a job is advertised online, ask them to post a link to the job advert on their social media accounts.

Ask new recruits about great people that they worked with in their last job, and customers and suppliers about people that they know at your competitors.

‍

Step 3: Introduce yourself to a referral correctly

You’re approaching the referral, so introduce yourself tactfully. It can be good to mention the referrer, but get permission from them first. See our guide Introducing Yourself to a Referred Applicant for details about this process.

‍

Step 4: Start the selection process

Always use Telephone Interviews to ensure referred candidates are suitable before inviting them to interview. Be careful when declining candidates and provide specific feedback to avoid offending the referrer. (See our guide, 3 Techniques for Declining Candidates Professionally and chapter 18.)

‍

Step 5: Follow up with referrers

Thank referrers and keep them updated on the status of their referral. 

Ensure any promised rewards are delivered, usually after the referred employee has completed their probation period.

‍

Step 6: Keep the programme fresh

Avoid letting the programme become stale by hosting referral events, offering graded rewards, and providing alternative incentives like gift cards or experiences.

‍

<span class="purple-callout"><p>I'm here if you need any advice or hands-on support! Get your free consultation.</p><p>Remember to check out my best-selling talent acquisition book for additional tips.</p><p>And for just £199, my flat-fee recruiter solution can advertise jobs on the leading job sites across the UK.</p></span>

‍

Advantages of 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 external 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, improving the quality of applicants (although you still need to Telephone Interview them).
• 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.
• 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.

‍

Disadvantages of 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 Channels.
• 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. Therefore, 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.
• 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 will be unlikely to 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.

‍

Additional Resources

• Recruitment Book: The Secrets of Great Recruitment - How to Recruitment Great Employees.
• Downloadable PDF guide; Simple Steps to Create a Powerful Employee Referral Program.
• Downloadable script; Introducing Yourself to a Referred Applicant
• Article; Employee Referral Schemes: The Secret Weapon in Your Hiring Arsenal?
• Article; How to Contact a Referred Applicant.
• Article; Employee Referral Policy Template.
• Article: Employee Referral Scheme: Announcement Email: Why Your Next Hire May be Just an Email Away.
• Article; Employee Referral Scheme: Email Announcing New Job.
• Article; Employee Referral Bonus Examples: 10 Rewards That Drive Quality Referrals.
• Article; Employee Referral Scheme: Email Conacting Referred Applicant.
• Article; Advantages & Disadvantages of Using Employee Referrals for Recruiting Staff.