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Updated Oct 24, 2023

How to Create a Great Employee Referral Program

Employee referrals can improve your hiring process while benefiting your current team. Here’s how to obtain them.

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Saige Driver, Business Strategy Insider and Senior Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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

To take advantage of staff members’ strong professional networks, many companies have implemented referral programs, which allow existing employees to 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 HR experts about why referrals make great hires and how small business owners can create a successful job referral program.

How to create an effective employee referral program

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 director of Kainos Capital, advised thinking about the following factors.

Consider 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. Obtaining referrals from top-notch employees help ensure that you’ll hire the most qualified individuals.

Establish new-hire tenure.

If hired, the referred employee must serve for a minimum length of time for his or her referrer to qualify for payout (Bissot recommended a period of at least six months to a year). This helps limit referrals solely to current employees whose work and judgment you trust.

Set the payout amount.

Determine if you want the bonus or incentive earned by the referrer to be consistent for any open position, or to vary 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, it could backfire if your employees think they can refer anyone just for the chance at a big bonus.

Communicate about the program.

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.

Key TakeawayKey takeaway
Communication, ample payouts and considerations about which employees should be able to make referrals form the core of a great employee referral program.

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

1. 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, chief people officer at ConverseNow.AI. Employees won’t recommend your company to friends if they don’t enjoy their job.

2. Be transparent about incentives.

Don’t make your referral benefits a secret. All employees should know exactly what they can expect if their candidate is hired. Jan Jones, author of The CEO’s Secret Weapon noted that incentives don’t only have to be monetary, either — employees also appreciate time off or paid trips. To determine what works best, talk to employees and ask what benefits would motivate them to refer quality candidates, Jones added.

3.  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,” said HR consultant Laura Kerekes.

4. 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.”

5. 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,” said Jones.

If you explain why you didn’t hire a referred candidate to the recommending employee, that individual will have a better idea of what qualifications your company is looking to fill for their next referral.

The benefits of using an employee referral program to find new hires

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

They’re prescreened.

Employers tend to find that referred candidates are of a higher caliber than candidates that apply through a job board or career website, and that they are better suited for the position. After all, 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,” Kerekes said. “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.”

They’ll work hard.

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 Jones.

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

They’re untapped talent.

Passive candidates who aren’t looking for a new job could be a better fit for your position than active applicants. They may even be open to exploring the opportunity of working for your company. However, unless you take the time to research and recruit passive candidates, you’ll likely miss out on your chance to convince them. An employee referral program means 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.

They won’t leave as quickly.

Zippia revealed that candidates hired through an employee referral consistently stayed at jobs longer than those hired through career sites or job boards. In fact, 45 percent lasted more than four years; in comparison, 25 percent of job board candidates remained. Nate Masterson, CEO of Maple Holistics, asserted that 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.

They boost the workplace environment.

The dynamic in your workplace vastly improves when you have staff members who get along with each other. If you bring 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.

Did You Know?Did you know
Employee referral programs benefit both your current employees and your hiring process.

Your employees may know the best people for your team

Your employees know better than anyone what it’s like to be on your team — and what it takes to do great work for your business. Creating an employee referral program is a smart recruiting step for any company. Since your team knows what you expect and how your business works, they’ll likely know who might fare best as new hires.

Giving the referring employee an incentive is part of any great referral program. Still, you’ll know your company is doing things correctly if you get referrals even before you announce any rewards. This is a sign that employees like your work environment enough that they’d gladly bring friends into it. In other words, your team is probably happy — and that means you can rely on them for great work as well as good recommendations.

Max Freedman and Nicole Fallon contributed to this article. Some source interviews were conducted for a previous version of this article.

author image
Saige Driver, Business Strategy Insider and Senior Writer
Saige Driver is an experienced digital marketing strategist who advises business owners on both basic and advanced marketing principles, strategies and tools. She also shares expertise on social media management, relying on her hands-on experience with various platforms to guide clients toward the best services. Driver regularly collaborates with business stakeholders to implement best practices and strengthen brands, using data analytics to inform marketing and sales decisions. She has a degree in telecommunications and journalism and holds credentials in account-based marketing and social media.
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