How To Create An Employee Referral Program That Works

What is an Employee Referral Program?

As a quick refresher, an employee referral program is an internal recruitment method where a company encourages its employees to refer people from their networks to their open job listings. Typically, an incentive is provided (most often a monetary bonus) to reinforce employee participation.

Benefits of an Employee Referral Program

Implementing an employee referral program offers several advantages:

Reduces turnover rates: Studies show that employees hired through a referral program have a 46% retention rate (compared to 32% from career sites and 22% from job boards). (In small companies, these hires stay 122% longer than those hired through job boards!)

Costs less: Research suggests that the average cost-per-hire is roughly $4,100. An employee referral program reduces (or even eliminates) the need for costly recruiters.

Fosters engagement: Including your employees in the recruitment process makes them feel valued and like their input matters.

Optimizes the hiring process: Interviewed referrals are 18 times more likely to be hired than those found on a job board, saving valuable time for your recruitment team.

Best Practices

To create a successful referral program, business owners should look for opportunities to enhance their strategy:

1. Include a cash bonus as an incentive: 96% of employees prefer a direct bonus to any other reward method, making it the clear-cut choice for employers. Although this isn’t a hard-and-fast rule, be sure to take it into consideration when building out your program. 
2. Make the rules clear: keep your program straightforward. Avoid creating criteria left open to interpretation that could negatively impact your program. For example, ensure employees clearly understand any exceptions that would make them ineligible to receive the incentive.
3. Keep employees updated: provide frequent updates to employees about the status of their referrals. One of the goals of this program is to foster employee engagement, so it’s important that you reciprocate all communication.
4. Create relatable questions: ask your employees the right questions. Questions like “can you think of anyone we could hire?” is too broad and generic. Instead, consider more targeted, thought-provoking questions like, “Do you know anyone who would be a good server in Seattle?”
5. Gather and apply feedback: every business operates differently. Its industry and culture play a huge role in what an employee referral program might look like. Establish methods to document feedback and use these ideas to hone your strategy over time.
6. Promote your program: make some noise about your program. Think about how it fits into your company culture and how you can get your employees excited.

Conclusion

Employee referral programs are a valuable tool for businesses, big and small. In addition to quickening the hiring process, it costs less, fosters employee engagement, and drastically reduces turnover rates. In this article, we shared six best practices for creating a successful employee referral program for your business. If you’d like to learn more about optimizing your hiring process, read The Secret to Injecting Some Teamwork Into Your Work.