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How to Create a Great Employee Referral Program

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Credit: bleakstar/Shutterstock

Finding great employees is vital for a happy and successful business. You can find great hires many ways, such as through your website, a job board or a recruiting company. However, some of the best job candidates might be connected to a current employee.

Because their staff members may have a strong professional network, many companies have implemented referral programs, in which existing employees can recommend a person they know for an open position and receive a reward if that person gets hired. Business News Daily spoke with business leaders and human resources experts about why referrals make great hires and how small business owners can create a successful job referral program.

According to research by Jobvite, social media, employee referrals and word-of-mouth are the most popular source for job seekers. About 60 percent of people have referred a friend or contact to a company they've worked for, and 35 percent of all hires got their job from a referral.

Here's why referrals make excellent choices for filling open positions.

Employers tend to find that referred candidates are of a higher caliber versus candidates that apply through a job board or career website, plus they are better suited for the position. That's because the employees who recommend them have been through the hiring process and know exactly what the company wants – and they're willing to stake their reputation on someone they believe is a match.

"The referring employee most likely will prequalify the candidate, because the referrer does not want to tarnish his or her reputation within the company with an unsuccessful hire," said Laura Kerekes, chief knowledge officer of HR solutions company ThinkHR. "The candidates also generally have a more realistic view of the job and company because of the additional insights they receive from the referring employee."

If some of your best employees are passing along the resumes of people they know, you may want to prioritize those candidates. People tend to recommend people similar to themselves, so if you have a top performer making a recommendation, odds are he or she will recommend other top performers, said Jan Jones, author of "The CEO's Secret Weapon" (Palgrave Macmillan, 2015). 

"The people being referred perform well, because they don't want to let down the person who referred them," Jones said.

Passive candidates who aren't looking for a new job could be a better fit for your position than active applicants, and may even be open to exploring the opportunity of working for your company. However, unless you take the time to research and recruit them, you'll likely miss out on your chance to convince them. With an employee referral program, your staff can tackle this difficult, expensive and time-consuming aspect of the recruiting process for you. 

"[With referrals], the company obtains access to talent that may not be actively looking but are willing to look at your company because of the encouragement of someone they know and respect," said Kerekes.

The Jobvite Index revealed that candidates hired through an employee referral consistently stay at jobs longer than those hired through career sites or job boards. Nate Masterson, CMO of Maple Holistics, said you have a better chance of finding great talent through employees because they can inform the candidate what to expect in the company.

“You'll save yourself wasted time sorting through candidates who are not suited for the job or do not want the job once they realize what the role entails,” he said.

The dynamic in your workplace vastly improves when your staff members get along with each other. By bringing in a referred candidate, you're ensuring that this person already has a built-in work buddy, which will likely help the potential employee get acquainted with and fit into the existing social groups and culture faster.

"People like working with their friends [and] are keen to bring in others ... who would be a good fit for the culture," Jones said. "In some industries, groups of people know each other from various projects they've worked on in the past, and they also socialize outside of work, so it creates a relaxed and fun work environment."

"Hiring referred candidates strengthens the bond between the referrer and the company and boosts employee relations, making company employees brand advocates," Kerekes added.

If you're thinking about implementing an employee-referral program at your company, the first thing you need to do is consider the program structure. Claire Bissot, a senior professional in Human Resources (SPHR) and managing director of CBIZ HR Services, advised thinking about the following factors:

  • Employment status and performance: To benefit from the program, referrers should be actively employed with the company at the time of referral and meet company performance standards.
     
  • New-hire tenure: If hired, the referred employee must have served for a minimum length of time for his or her referrer to qualify for payout (Bissot recommended at least six months to a year).
     
  • Payout amount: Determine if the bonus or incentive earned by the referrer is consistent for any open position, or varies based on how difficult the position is to fill. Bissot noted that increasing the payout could encourage employees to actively search for candidates, and it would still likely cost you less than a recruiting or staffing agency fee. However, be aware that it could backfire if your employees think they can refer anyone just for the chance at a big bonus.
     
  • Communication: Discuss the referral program – and new job openings – with your staff and new hires regularly. If your employees are aware of the bonus they can earn, they will always keep an eye out for interested candidates in their network. Bissot noted that publicizing your open positions could also help you spot internal candidates you may have missed.

Once you've outlined the parameters for your referral program, follow these tips to make it successful.

  • Create a culture employees want to promote. "It starts first with creating a culture that your employees want to promote, and be proud of – and encouraging them to be advocates of your company," said Amy Dolan, vice president of human resources at DialogTech. Employees won't recommend your company to friends if they don't enjoy their job.
     
  • Be transparent about incentives. Don't make your referral benefits a secret. All employees should know exactly what they can expect and if their candidate is hired. Jones noted that incentives don't only have to be monetary, either – time off or paid trips are also appreciated by employees. To determine what works best, talk to employees and ask what benefits would motivate them to refer quality candidates, Jones said.
     
  • Make it easy. No one likes a confusing and complicated job application, and candidates recommended by another employee may expect the process to be even easier for them. Make it as simple as possible for employees to make referrals (or for referred candidates to apply)."[This includes] online applications that streamline the process for candidates to learn more about the job and company and indicate that they were referred by an insider. [Provide] great marketing materials in a variety of media [to] help the employee 'sell' the company," Kerekes said.
     
  • Prioritize communication with referred candidates. While referred candidates should not be automatically hired or chosen over a better-qualified outside applicant, they should at least receive the courtesy of timely, thoughtful communications. Kerekes recommended treating these candidates like VIPs throughout the hiring process by responding and following up quickly. "Even if the job is not the right fit for that candidate, your referring employee will most likely continue his relationship with the candidate outside of work," she said. "Leave it on good terms so that it is not uncomfortable for either party."
     
  • Keep your team in the loop. Your current employees will be encouraged to keep sending qualified candidates if they feel their efforts are appreciated. If a referral wasn't hired, you should explain to the referring employee why their recommendation was rejected. "Be more specific on the job description so they know in future how to recommend someone who is a better fit," Jones said.

Additional reporting by Nicole Fallon. Some source interviews were conducted for a previous version of this article.

Saige Driver

Saige Driver graduated from Ball State University in 2015 with a degree in journalism. She started her career at a radio station in Indiana, and is currently the social media strategist at Business News Daily. She loves reading and her beagle mix, Millie. Reach her by email, or follow her on Twitter.

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