Do I Need An Employee Referral Program?

Published: Jun 06, 2018 By

Do you need an employee referral program? Need is a strong word. But could you benefit from an employee referral program? Absolutely. That is, of course, as long as you do it right. The good news is, doing it right is pretty easy. You ask your employees to recommend friends to fill open positions.  You offer them a bonus if the friend is hired. You work smartly and efficiently to employ the recommended personnel, and perhaps you offer another bonus if the new hire works out long term.  Pretty simple, right? But the question remains, why should you do this? What are the advantages?  As you can see below, there are actually quite a few.

employee referral program

Higher-Quality Employees

When someone refers a potential employee, they know they’re putting themselves on the line.  Therefore, they will make sure whoever they recommend is a highly qualified candidate. Anything less reflects poorly on them. They are also likely to know more about the individual and therefore be a better judge of what types of positions they’re best suited for. Moreover, when you hire someone off the street or from a recruitment ad, you’re taking a big risk that the candidate is who he portrays himself to be. When hiring a friend of a trusted team member, that knowledge is already secure.

Reduced Turnover

There is significant evidence that employees who are hired as referrals have a substantially lower turnover rate than other hires. In fact, according to EmployeeReferrals.com “almost 50 percent of referrals will stay at least three years.” That means less time and money you have to spend recruiting, interviewing, onboarding, and training. It’s a well-known fact that it costs a lot more to hire a new employee than it does to retain an existing one. So if you want to avoid the high cost of turnover, an employee referral program could be your best option.

A Better ROI

Your return on investment (ROI) when hiring a referral is going to be better than it is when you hire a complete stranger. First, consider your investment. The monetary bonus you pay your employee for referring a qualified candidate is going to be significantly lower than the cost of blindly tossing out a net and recruiting from a large pool. You are also likely to get an employee already somewhat familiar with the organization and its practices because the worker who made the recommendation has probably filled them in. That saves you time and money on onboarding and training. And the fact that referred employees tend to be less likely to quit means in most cases your investment will more than pay for itself before the ink dries on the bonus check. 

Critical Feedback

Human Resources Manager Liz Ryan suggests, “An employee referral program is a temperature gauge on your culture.” This makes a lot of sense when you think about how many referrals you are getting, the quality of those referrals, and what that tells you about your organizational culture.  Your employees are not going to be lining up to recommend their friends if they are not happy about their workplace—their enemies, maybe—but not anyone they care about. 

If you start an employee referral program and the number of recommendations or the quality of the candidates is low, this could be a good indication something is amiss in your company. What better way to find out if your employees are happy than by giving them the opportunity to show you? It’s not surprising when the person who holds someone’s livelihood in their hands asks an employee if he is satisfied, he’s going to say yes even if he’s miserable. But if you want to know the truth, the success or failure of an employee referral program could be a good gauge. 

You might be able to convince yourself the referral program is failing because your employees just don’t know any qualified candidates, but that’s highly unlikely. People tend to surround themselves with others who have similar interests, talents, and abilities. So if you think Claire is a good employee, she probably has a lot of friends who are just as good.

Can you survive without an employee referral program? Probably. But great organizational leaders want to do more than simply survive. When you see an opportunity to improve your company while saving time and money too, you should grab it. It will reflect positively on you and your organization, and that’s never a bad thing.

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