Employee referral program

How to create a successful employee referral program

In sales, your most qualified leads usually come as referrals from satisfied customers. In recruiting, a referral from one of your satisfied employees can be just as powerful.

Employee referral programs bring qualified talent to the table and cultivate a sense of company loyalty in both the referring and prospective employee.

An employee referral program can significantly increase your company’s qualified talent pool. Most of the time, the referrers (your current employees) have a good understanding of what you expect from staff members. Therefore, the candidates they refer are more likely to have the skills you’re looking for. This can speed up the initial screening process so that you can hire qualified talent quicker.

Now let’s explore how to encourage participation with incentives and launch a successful referral program.

Offer cash incentives or other prizes

Cash rewards are an effective and popular method for motivating employees to participate in referral programs.

The amount should be fair and buzzworthy, according to your industry, company size and culture. You may want to offer bigger rewards for harder-to-fill roles. Also consider incentivizing referral quality and retention by giving a second award after a newly hired referral has worked 90 or 180 days.

But sometimes cash incentives just aren’t in the budget. These low-cost alternatives can also get your employees excited about making referrals:

  • Lunch – If you regularly take new hires to lunch, include the employee who referred them on the invitation.
  • Gift card – While a larger cash reward might be out of the question, a gift card to a coffee shop or local restaurant might make a good reward.
  • PTO – Give employees who make referrals an extra day of PTO when a recommendation is hired.
  • Recognition – Openly recognize employees who have suggested a great candidate. You could do this with a thank you note, reserved parking space, or announcement and thank you at a department or company meeting.
  • Lottery – Instead of giving an individual reward for every hired referral, you could do a drawing for one big prize every quarter out of all the employees who participate.

Launch your program

When you’re ready to establish an employee referral program, you can take one of two approaches: the year-round program or seasonal campaign approach. The program can be year-round or sporadic to address the ebbs and flows of your business.

A seasonal employee referral campaign might better suit your business if you do most of your hiring in certain months of the year, or if you’re working on a small budget.

A year-round employee referral program is best if you would like to accept and incentivize referrals at all times. In a tight market, this can be good option to make sure you’re not waiting until the last moment to fill positions.

Another point to consider is whether you need referrals for all openings at your company, or just those that are typically difficult to fill. By only incentivizing referrals for your hard-to-fill positions, you avoid paying employees for referring candidates for positions that already have a large pool of qualified, available talent.

Whichever way you want to configure your program, the setup is mostly the same. You’ll need to:

1. Put your employee referral program in writing

Provide employees with policy guidelines that explain your program in detail.

For example, this should cover:

  • Incentive-eligible positions
  • Applicable time periods
  • How employees can make referrals
  • How those referrals are processed
  • How hiring decisions are shared
  • What the award is when a referral is hired

When you carefully outline the details, it makes it easier for employees to understand and get excited about participation.

2. Ensure you have a way to track referrals

If you have an applicant tracking system, you can likely take advantage of its referral features. If not, some creativity is required. Smaller employers may use a spreadsheet or perhaps an email account that tracks all submissions with a time stamp.

Regardless of what system you implement, create a central location for tracking referrals. This will help you assess the results of the program and keep a clean record of which employee made the referral.

Additionally, this can serve as a great way to build your pipeline of candidates for future positions. Even if you pass on an applicant initially, you can always refer back to your list when you have more positions that open up.

3. Consider how you’ll market the program to your employees

Do you need an internal web page that explains the program and accepts online referrals? How else are your employees going to know the program exists? Email is always good for getting the word out, but don’t get stuck in a rut.

Get creative, and your employees will not only remember the program, but look forward to hearing about it (and the incentives, of course). Try mass voicemails, posters, an internal job fair event or a video. Encourage employees to reach out to their contacts on social media.

When a new position becomes open, send messages out with a link to the job posting and a reminder about the referral program.

Pitfalls to avoid

When designing your program, consider these pitfalls and how you’ll avoid them.

1. Responding too slowly

When employees refer candidates, the hiring manager or recruiter should follow up quickly. It can hurt your company’s credibility and employment brand if your actions don’t show gratitude and responsiveness throughout the process. Not getting back shows a lack of respect for your employees and their contacts.

2. Failing to follow up

No matter the hiring outcome, you need to communicate decisions to candidates and the employees who referred them as soon as it’s feasible.

If there is a lack of follow-up on the status of their referrals, employees may become frustrated. This can lessen the chance they’ll refer another candidate, and the negative experience can make them feel as if their opinion is not valued, in turn damaging morale.

For example, share the news with employees via email when their referral is being interviewed or hired. Or, if a candidate won’t be offered the job, let them know.

However, be sure to keep applicant information confidential. Tell the referring employee that company policy does not allow disclosure of reasons why a person was not offered a particular position, but that you will keep the person’s information on file for future positions. 

This helps to protect sensitive applicant data, including things that might have come up on background checks. Employees have the option of speaking directly to their referral for additional information under these circumstances.

3. Hiring based on relationship alone

Not all referrals will have the skills or experience you need. With every interview, screen first and foremost based on the needs of the department and the organization. In other words, screen for the best skills, and avoid hiring based on friendships alone, as this could negatively affect the department or organization.

Reap the rewards of your employee referral program

An employee referral program may very well be the shortest path to better hires. Your company will likely save on recruiting and onboarding costs, and meanwhile, and you’ll have strong pipeline of candidates at all times.

For more suggestions like this on how to build a strong workforce, download our free magazine: The Insperity guide to employee retention.

The Insperity guide to employee retention, Issue 14
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