How to Build an Employee Referral Plan That Works

by Eric Goldschein
Building Culture, Employer branding, Leading People, Recruitment, SMEs - 4 months ago
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Editor’s Note: This is a guest post by Eric Goldschein. His opinions are his own.

Recruiting top talent to your business has always been difficult. Now, with the national unemployment rate dipping to record lows, HR teams are struggling to find and engage quality new prospects more than ever.

And if you own a small or medium-sized business, that struggle is a costly one. 

According to Glassdoor, the average company spends about $4,000, and takes well over a month, to fill a role. That’s an enormous use of time and money, and as the job market continues to tighten, those numbers could rise. 

One way to reduce the amount of resources spent on recruiting: Empowering almost everyone at your company (executive leadership and the HR team should be exempt from the program) to send along leads for qualified applicants with an employee referral program. Once you turn your entire team into a recruitment arm, you’ll save on tasks like job sourcing, job boards, pre-hire assessments, and recruitment technology.

A good employee referral program is easy to use, rewarding for employees (and not just monetarily), and a source of pride for the company. Here are five steps to take when building a worthwhile referral program: 

1. Start with an applicant tracking system 

If you’re not using an applicant tracking system (ATS) during your recruitment efforts, it’s time to start. Research shows that the vast majority of companies that use an ATS hire better qualified candidates, faster. Quality HR software in general is an important tool for scaling companies. 

What’s the appeal of an ATS? Many of them integrate with the top job boards, provide an all-in-one database for candidates that is easily searchable, help schedule interviews, and send automated email responses. 

A good ATS will also come with employee referral tracking capabilities. When a prospective employee applies for a job and notes that they were referred by an existing employee, your system will automatically tag that application and highlight it for the HR team to review. You can also manually add referrals on the backend if employees send them along to the HR team through email or even over coffee in the kitchen. 

This way, your referrals will stay organized, and you can ensure that every referral that comes across HR’s desk gets a look. 

2. Offer a worthwhile reward

The first place that businesses typically start their search to fill a role is on job boards—and there are plenty of excellent options out there for that. The best job boards, however, are not free. Whether you pay a yearly subscription, or pay per hire, or pay for a package of hires, you’re likely going to shell out thousands of dollars each time you source a candidate through a job board like Hired, AngelList, Jopwell, and more. 

When announcing your referral program to your employees, offer them a sizeable reward that will encourage them to share word of your job openings to their friends, family, social media networks, alumni associations, and more. 

A cash bonus is the most popular, and often the most effective—and some companies will offer thousands of dollars to an employee who makes a successful referral (hired and still with the company after three months), as this is still less than what the business would pay out to a job board for a successful hire. 

Cash isn’t the only option: You can reward employees with paid time off, vacations, lunch on the company, branded swag, and more. Just remember that the bigger the reward, the harder people will work to earn it. 

Also, don’t be afraid to let the same employee rack up multiple referral rewards. If you’re willing to pay out the purse to whomever refers the best candidates, and one employee has a large and qualified network that they’re willing to mine on behalf of the company, then they should reap the benefits. Don’t cap referral bonuses—encourage them.  

3. Emphasize referrals as a part of company culture

From the day new employees start, emphasize to them the importance of passing on referrals.

An explainer on why referrals are important, and how they can submit them, should be a part of their onboarding experience. It should also take a prominent place in the employee handbook. 

Take the time to promote referrals during team-meetings, company-wide get-togethers, and during review sessions. 

The main selling point shouldn’t be that referrals will save the company money, but that the company wants to continue building on its culture by hiring great people. If you—the employee—has been hired, you are likely a great person, and great people know other great people. This posits the referral program, rightfully, as a tool for more effective company-building, rather than a financial shortcut.   

4. Make it as easy as possible for employees to refer

Even if you’re offering employees a sizeable reward for a successful referral, keep in mind that you’re not making them full-time recruiters. They have their own jobs to do, and shouldn’t spend much more time than they already do finding qualified candidates.

With that in mind, you should take as much of the busy work out of referring as possible. As mentioned above, you can tell employees that all they need for a successful referral is for the candidate to say they were an existing employee referred them in their application. 

What information should an employee share with potential candidates, either through email, social media, or in daily interactions? Create a digital reference guide with templates they can cut and paste with all the relevant information needed. That copy should include:

  • The name of your company.
  • The name of the role you’re seeking to fill as well as a brief job description, including location.
  • Your company values and mission statement.
  • The benefits of working for your company, including PTO, benefits, opportunities for advancement, unlimited snacks, etc. 
  • A call to action to get in touch with the employee if they want to a referral and to jump the line of applicants.

This way, your employees can easily post notifications about certain roles all over their feeds with ease. With the added bonus of getting a reward, you should see employees scramble to share this information far and wide. 

5. Share word of successful, as well as unsuccessful, referrals

Keep your referral program top-of-mind for employees by shouting out people who successfully referred new employees. Send out an email blast at the end of each month recognizing people for their referrals, and noting that they will receive their reward once the new employee hits the 90-day mark. This will encourage employees to keep up the pace. 

In fact, just because a referral doesn’t work out doesn’t mean you shouldn’t highlight an employee for trying. A referral, remember, isn’t necessarily a recommendation—a point you should drive home to employees so they don’t feel they shouldn’t share a possible referral, out of fear that it may reflect poorly on them. Highlight top referrers via email, company-wide chat channels on tools like Slack, and in company meetings. This type of public recognition is great for morale as well as the efficacy of your program. 

If you want your employees to always be aware of who is referring new candidates, allow company-wide access to your ATS so employees can see applications tagged as referred, and by whom. A public leaderboard may also spur excitement and competition. 

Conclusion

Employee referrals are an excellent way for a company to save money on recruiting—but it doesn’t end there. On average, referred employees are on-boarded faster and stay with the company longer than non-referrals. In many ways, referrals are the financial gift that keep giving, especially to smaller businesses with thinner profit margins

The bottom line: Make your referral program rewarding, public, and easy (for everyone involved) and you’ll see the dividends pay out quickly.