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Employee Referral Programs in 2023

Moustafa Ahmed October 30, 2022 12 Min Read
a boss discussing the Employee Referral Programs

 Employee Referral Program What does it stand for and how to use it?

“Good people always know other good people”

Remember this quote when launching an employee referral program. Recruitment has many strategies, employee referral recruitment is one of the best ways that prove its efficiency most of the time. How do you establish an employee referral program that leads only qualified candidates to your business?

What Is an Employee Referral Program?

It’s a corporate initiative that you, as an employer, can adopt, seeking to bring in and keep new hires through recommendations from the organization’s current workforce. The program organizes recruitment activities to make them more efficient and under control.

What Are the Benefits of Employee Referral Programs?

An employee referral program directly influences the processes and outcomes of the hiring process. The advantages will be as follows when you outline an employee referral program of excellent quality and useful application:

Less Overall Recruiting Costs

Even if you deliver your employees a monetary incentive for referring qualified candidates, an employee referral program will be one of the most economical methods in recruitment. No paid ads and no job postings on premium job portals, all you’ll do are inform the employees of the complete characteristics you would like to be available in the candidates and give them time to check friends, relatives, and peers.

Cutting Down the Time-To-Hire for External Candidates

When employees lead you to qualified candidates a lot of time is reduced. The time for sourcing becomes less. The screening process will be eliminated as the candidates will have a strong background in the organisational culture from the referring employee. Therefore, you will jump directly into analysing their resume and portfolio to focus on proven experience and skills.

This will also streamline a smooth onboarding that gets the employee adapted to the working environment and his job functions faster than normal conditions.

Better Targeting and Sourcing of Passive Job Seekers

As a recruitment strategy, employee referral programs apply passive candidate attraction, where the employee, representing your organization, contacts the candidates and asks them if they are interested in a vacancy that features you provide them with.

Improving the Quality-Of-Hire Metric

Most preferred candidates prove their proficiency in the case of hiring. The one who sources the candidate is another employee whom he/she might work with within the same department. Therefore, transparency and trust are characteristics that accompany employee referral programs. This makes the candidate, who accepts the opportunity, pretty sure that he is capable of facing any challenges and has the right qualifications to take the job. This results in more quality.

Deepening the Pipeline of Potential Applicants

Employee referral programs are like any sourcing process that helps your organisation to collect talents and potential candidates that you might not need currently, but you will have the capability to review their CVs and know their strengths and weaknesses through pre-screening to fit them in the right position in the future.

Why Do Referral Recruitment Strategies Pay Off?

Referral recruitment doesn’t only benefit your organisation during the hiring process but it also helps you to add greater values that you need to exist now and in the long term.

Increasing Employee Retention

Employee retention increases for two reasons. First, referred candidates fully understand the organisational culture and its values quickly compared to other channels’ employees. Second, employees who refer qualified candidates, that prove their proficiency and commitment to the organisation, feel they have done an achievement that added value to the organisation, which makes them feel belonging to it.

Improving Employee Morale and Engagement

An employee referral program is practical proof of your trust in your employees. Through this recruitment strategy, you’re telling them: “I’m sure you will refer qualified people.” This lets the employees feel valued and unleash their potential to deliver the best possible to meet their high morale.

On the other hand, newly referred employees will get engaged in the work environment from day 1 as they know at least one person in the business, which makes them adapt quickly.

Improving the Cultural Fit of New Hires

Through open channels of communication with their referring employees, referrals seem more culture fit than their peers who got hired through traditional recruitment strategies.

Refining the Employer Brand

Employees, who will participate in the employee referral recruitment and get a reward or bonus for their efforts, will talk about your business in a positive way that motivates potential candidates to apply for any open positions whenever they are available. This also gives you high credit for the employee value proposition (EVP) through which you appreciate your employees.

6 Tips to Build an Employee Referral Program That Works

When creating an employee referral program, keep in mind that the main features that will entice employees to participate are simplicity and reward. To ensure that employees refer candidates with the right qualifications, the program should aim for quality. Here are some tips for creating an effective program that yields the best results.

1- Determine the Main Goals of This Program

The primary objectives must be your main concern when building an employee referral program for the first time. Is it a short-term strategy for finding candidates that you’ll keep in your desk drawer until you need to fill a position? Or will you keep using it as a quick economic backup to fill in vacancies as they arise?

2- An Employee Referral Program Is a Reward Program!

Rewards need to satisfy employees’ needs and make them feel that they’re valuable enough to put forth the necessary effort if you want them to take part in such a program. Rewards in an employee referral program take two forms:

  • Monetary incentives
  • Non-monetary incentives

Monetary Incentives

As for monetary incentives, they are bonuses and paid cheques that could be split into two halves; one after hiring the referral and the other after passing the probationary period, or it could be paid as a whole just after hiring is completed. Most employers pay a bonus that ranges from 1000 USD to 5000 USD nowadays (November 2022).

Non-monetary Incentives

Rewards can have an appreciative effect that has no materialistic value. Non-monetary incentives are not directly connected to money. They make employees feel more satisfied and belonged. Also, they are seen as valuable human resources and sources that deliver qualified individuals. Non-monetary incentives include

  • A paid additional day off
  • Points that employees can redeem for gifts
  • A gift card and voucher
  • Eligibility for a “valuable” prize drawing held every quarter
  • Recognition in a company newsletter or staff meeting
  • A shout-out

According to a Clutch survey,  71% of employers who participated in the survey say that a cash bonus is the most effective way to reward employees who refer qualified candidates. 13% of them assured that paid time off is a better incentive. 10% of employers see that gifts could be more appreciated. Only 4% see that social praise (a shout-out, recognition in a company newsletter or staff meeting, …) is the most remarkable choice.

You can mix and match the two different forms according to the degree of importance of the position needed to be filled. Also, you can put bonuses into different categories according to the job level; entry, junior, senior, or C-suite. Check that the rewards you deliver are clearly explained to the employees.

3- Deliver Employees What They Need to Refer

Your current employees are your brand ambassadors, and provide them with all the information they need to recommend the right candidate. They do their job and look for candidates that might fit. What if one of the candidates asks a question they can’t answer due to a lack of information? This would seem unprofessional!

Explain the requirements for the job(s) needed to be filled. Provide employees with detailed job descriptions that include qualifications, skills, and experience. Make sure that culture-fit candidates are the only candidates that the employees refer to.

4- Start With a Simple Form

Develop a simple and easy-to-fill form to encourage employees to put their referrals into the organisation. You can use either digital forms or paper forms. However, reduce the paperwork As much as you can. The form data should eventually be turned into an Excel sheet or recorded on an applicant tracking system.

The data should include the referral information, the employee information, and the date of the documentation. Whenever the referral is hired, the agreed reward will be directly delivered to the employee on the date he/she should be informed of.

5- Include Transparent Communication Channels

Keep the employees who referred the candidates updated with the stage that their referral is occupying, this provides them with more tranquillity wishing for their referral to complete the stages in the hiring process successfully. You should let them know the strengths and weaknesses of the referrals to avoid their presence in any other candidate they might refer to in the future.

Exposing the employee referral program in general meetings and staff gatherings might be effective and lead the program to become a point of interest for some employees.

6- Put Metrics for Program Efficiency

Set clear metrics that let you know how effective the program is and how your employees comprehended its objectives. The metrics of the employee referral program should include:

  • The number of employees hired from the employee referral program compared to other recruiting methods.
  • The number of qualified candidates referred compared to other recruiting methods.
  • The percentage of employees in your organisation who participated in the program.
  • The ratio of the referred new hires’ retention rate to that of new hires sourced through other recruiting methods.
  • The performance of referred new hires compared to the new hires of other recruiting channels.
  • The overall employee satisfaction with the program through employee surveys.

Challenges You Might Face With Employee Referrals

It’s never 100% effective, just like any method or strategy in business, so it needs to be used and improved to avoid the pitfalls that were found. You should think about the following challenges before starting your employee referral program:

Biased Recommendations

Sometimes, employees don’t look for qualified candidates that meet the business needs, they may look for a friend that they would like to work with or refer any candidate who would accept any offer for the sake of getting a job, to eventually get the agreed reward after hiring the referral. This damages the whole system and makes it useless. The solution is to develop strict screening criteria to avoid this situation.

Decreased Workforce Diversity

An employee will mostly refer a candidate who has some common characteristics he/she has. This makes the company exposed to be less diverse and has a certain dominant race, religion, gender, or even personality type.

One of the biggest problems that low diversity results in are the lack of innovation and new ideas, as the organisation’s human resources will think the same way. The solution to that problem is to care of this element from the minute of the company’s establishment. So, whoever employee refers a candidate, the organisation will still be balanced.

You Might Not Only Lose an Employee but Two at Once

It’s a good idea to project the future of newly hired employees. They might depart one day; will their referrer accompany them or will they depart on their own?

Not everyone equates their professional success with their friendships, but how can you stop things like this from happening? The cost of hiring new employees will double. Simply create awareness campaigns within your organization to foster mentalities that distinguish between personal and professional relationships. Additionally, provide the elements at work that increase employees’ job satisfaction.

Tension in the Workplace

Referral programs for employees may unintentionally cause conflict. Tension will have two sources. The relationship between the employee and referral with the rest of the team will be the first source, as some coworkers may see themselves better in that role if a promotion option was available at the same time.

The relationship between the referrer and the referred employee is the second source of tension. The referrer will refrain from criticizing the referred employee if they work together directly because doing so might come across as a form of self-criticism.

Need More Help?

Check our Blog and have a look at the other topics in  Whitecollars is a premier HR consultancy and recruitment agency that creates the best solutions to support your company’s growth through the human element. Check out our services to learn more if you need to create an employee referral program that puts your company on the right track.

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