Ultimate guide to employee referral programs: tips, benefits and examples

For businesses struggling to attract and retain qualified candidates with critical skills, an employee referral program could be the solution to their woes. 

Survey respondents to an Aptitude Research report cited referral programs as their most effective channel for filling job openings, with referred candidates hired at a rate of 30% (compared to 7% for job applicants sourced through other methods). 

The report also found that referred candidates often perform better than the average within a company, and stay longer within their roles.  It’s no wonder, then, that 84% of companies surveyed by Aptitude Research said they use employee referral programs.

Employee referral programs are a tried, tested, and valued part of many companies’ hiring process. If you don’t have one in place already, now might be a good time to get started. In this article, we’ll dig into what employee referral programs are, how they benefit organizations, share some insights into how to create your own, and explain why you need one now.

What is an employee referral program?

An employee referral program is a hiring process that leverages internal employee networks to find new job candidates. Recruiters and hiring managers ask existing employees to refer people within their networks who might be a good fit for an open position at the company, often with an incentive in the event of a successful hire.  

Employee referral programs differ from one-off referrals by creating a structured program that actively encourages recommendations. This is typically accomplished by internal communication strategies, rewards, and support and guidance from the recruiting team.

The goal of employee referral programs is to make inbound referrals a more sustainable and more reliable source of candidates. Done right, these programs are one of the most productive and effective recruiting strategies available to hiring teams.

There are many benefits to implementing a sustainable employee referral system, which we’ll dig into more in the next section. But don’t just take our word for it: there is a wealth of employee referral statistics that demonstrate the value of these programs. We’ve included some below as well.

7 benefits of employee referral programs

Employee referral programs are one of the most productive methods for dining talent. The job market has been on a bit of a roller coaster ride in recent years, with steep competition for talent followed by massive layoffs in industries like technology. 

As the talent market swings between scarcity and saturation, companies need a reliable way to source high-quality talent. Referral programs remain one of the most effective ways to do so.

The primary benefit, and importance, of employee referral systems lies in their ability to leverage existing resources to zero in on candidates who are most likely to be a good cultural fit and make a positive impact on the organization. They empower your employees to become recruiters and reward them for identifying and convincing their contacts that your company is desirable.

Here are some specific benefits of employee referral programs. 

1. Better retention levels

Employees sourced through employee referral programs improve new hire retention rates. Deloitte’s study compared the following retention rates of candidates from several sources over three years:

• Employee referral program – 42% retention.
• Job boards – 32% retention.
• Career sites – 14% retention.
  

Your employees have an in-depth understanding of your workplace practices and the day-to-day demands of your organization. In this sense, they are equipped with better operational insight than many of their HR counterparts. This insight is often communicated to referred candidates. Candidates sourced through your careers site or job boards often miss out on this valuable insight.

Better retention levels also indicate a better quality of hire—a vital yet often difficult to define factor for many hiring professionals.

2. Reduced time to hire

The longer your hiring process the more you risk losing the talent in your pipeline. One study suggests that time to hire for employee referrals is estimated at 29 days, compared to the overall average of 44 days.

To ensure an efficient hiring process, prioritize your referred candidates above other applicants by tagging them in your Applicant Tracking System (ATS).

The use of an automated calendar sharing tool can help to speed up the hiring process with referral candidates and help hiring managers to facilitate a rapid hiring process.  HR can use key features like ‘’Find the time” to select interview slots with confidence and confirm scheduled times with both interviewers and candidates with just one click. Real-time updates and 24/7 connectivity are also essential to respond quickly to candidate or internal queries.

3. A consistent source of pre-qualified candidates

Employee referrals provide your business with access to candidates with hard to source skills. Typically, people will network with people employed in similar jobs to them. Candidates sourced through employee referrals are pre-qualified by your own employees. This makes referral candidates easy to move more quickly through your pipeline compared to candidates sourced through traditional recruitment sources.

Ensuring a stream of pre-qualified candidates also reduces hiring costs. An updated survey from SHRM found that the average cost-per-hire is $4,683, with the average executive cost-per-hire sitting at $28,329. This figure covers external recruiting costs, pre-hire assessments, sourcing, extensive background checks and potentially the use of agencies. A successful employee referral program can help to reduce these costs drastically.

4. Higher applicant conversion rate

Candidates sourced through employee referrals enjoy a higher applicant conversion rate. Referrals are four times more likely to be offered a job than website applicants, and 206% to 6.6% more likely to accept the offer. They account for 30% to 50% of all hires within the average organization. 

Recruitment metrics provided by your ATS can enable HR to differentiate between the source which produces the highest candidate volume compared to the source of your most successful hires. The difference is critical to create a smarter hiring process.

5. Better cultural fit

Better cultural fit leads to higher levels of retention and happier employees. But the majority of hiring teams struggle to succeed in this core area:

• Almost nine out of ten hiring failures are attributed to cultural fit issues, rather than the candidate’s ability to do the job they are hired for.
• 89% want to improve their ability to select candidates who are a better cultural fit for their organization.
• Only one in ten are happy with their current process.

6. Engages passive candidates 

In addition to streamlining hiring efficiency, employee referral systems are a fantastic technique for engaging with passive candidates and building a high-quality talent pipeline. Even if an ideal candidate is not actively looking to make a move, having a conversation about your company with an employee can plant the seed in their head, which may lead to a quality hire down the line.

7. Strengthen employer branding 

Employee referral programs help to strengthen your employer brand. As employees become ambassadors for your company, they will spread authentic, social-proofed messaging about your culture and workplace. 

This, in turn, creates a powerful message to the industry that you are a desirable place to work, and worth considering when job seekers are looking for a new opportunity.

Disadvantages of employee referral programs

While employee referral programs offer a wide range of proven benefits, they do come with some risks if proper checks and balances aren’t in place. 

For example, hiring primarily from employee referral programs can: 

• Risk decreasing diversity. Employee referral programs can often lead to a more homogeneous workforce because employees tend to refer to candidates who are similar to themselves in terms of background, experiences, and perspectives. This can limit diversity within the organization, which is crucial for fostering innovation and a broader range of ideas.
• Increase the potential for bias and favoritism. There's an inherent risk that referrals can lead to favoritism, where referred candidates might be given preferential treatment over other candidates. This could be due to existing relationships or biases towards people within one's network. Over time, this could impact the overall fairness and objectivity of the hiring process.
• Limit your candidate pool. Relying heavily on employee referrals can cause shrinkage in the company’s employee candidate pool through a failure to regularly attract and screen new candidates. This method may also overlook highly qualified candidates who could be found through other recruitment channels, potentially limiting the organization’s ability to find the best talent available on the market.
• Create an aversion to change. If not managed carefully, heavy reliance on referrals can lead to a company culture that is resistant to change. It might reinforce existing cultural norms and resist fresh ideas and new perspectives that outsiders might bring to the organization.

Employee referral programs should not take center stage in an overall hiring process. They should be one tactic alongside traditional sourcing channels. This will ensure that organizations are gathering a diverse cross section of candidates for each job opening—of which referrals are a part—and conducting unbiased screening and shortlisting.

How to create an employee referral program 

Creating an employee referral program requires careful planning and cross-functional collaboration across HR, recruitment, senior leadership, and departmental heads. 

Here’s a step-by-step guide to help you create a new employee referral program. 

1. Define the objects and employee program structure 

The first step is determining what the company hopes to achieve with a new referral program. Common goals might include speeding up the hiring process, increasing the quality of hires, enhancing workplace diversity, and reducing recruitment costs.

Once those objects are identified, decide on a structure for the program. This includes identifying key stakeholders and program managers, which employees are involved, and what types of role will be eligible for rather. 

2. Create an employee referral policy 

The next step is to take the above planning process and put it onto paper. This process will culminate into a new employee referral policy for your organization. 

Typically, this policy will include information about:

• Eligibility. Specify which employees are eligible to participate in employee referrals
• Rules and processes. Clearly define how referrals should be submitted, processed, and what constitutes a valid referral.
• Non-discrimination: Ensure the policy includes language that promotes diversity and prevents discrimination.
• Employee referral bonus. Outline the rewards compensation—if there is any—that employees will receive for a successful referral, and the criteria for them receiving that reward.

3. Implement a tracking and feedback system 

Employee referral programs, like any other strategic initiative, will need to be monitored and refined over time. Implement systems and tooling to track the status of referrals and measure the overall success of the program. 

This system should enable HR to monitor which stages referrals are at (e.g., application received, in process, hired, rejected), and provide feedback to referrers regardless of the outcome. An ATS is a great, centralized tool to collect and surface this material to key stakeholders. This transparency encourages ongoing participation and trust in the process.

4. Launch and promote the program 

Roll out the program by clearly and transparently communicating it to your employees. Use multiple channels to ensure all employees are aware of the new program, understand how it works, and know the benefits of participating. 

Consider holding a kickoff meeting or webinar to explain the program and answer any questions. Regular updates and success stories can keep the program top of mind and maintain employee engagement.

5. Review and refine the referral program over time

Continuously evaluate the effectiveness of the referral program against your initial objectives. Collect feedback from participants and review the hiring results. Use this data to refine the program's rules, rewards, or processes to better meet the company's needs and improve employee participation.

By following these steps, organizations can set up an employee referral program that not only enhances their recruitment strategy but also boosts employee engagement and contributes to a positive company culture.

Should you offer an employee referral bonus? 

As mentioned above, referral bonuses and rewards are a common and integral part of most programs. Offering a mix of monetary and non-monetary incentives for successful referrals is customary. Bonuses could include things like a gift card, employee trip, or extra paid vacation.

Make sure that if you choose to go this route, it is consistent in application to avoid employee disappointment. When well implemented, employee referral bonuses can be a powerful tool to incentivize referrals.

Kicking off your program with a few employee referral examples

Putting pen to paper (or fingers to the keyboard!), can be tough with no examples to follow. Don’t worry, there are many who have come before you when it comes to building their own employee referral policies and programs. Below you’ll find a few great employee referral examples:

1. Salesforce engages employees in healthy competition
2. Google offers a trip to Hawaii to successful referrers
3. DigitalOcean gives prize money to charity
4. Buffer uses a fun portal for referrals