Employee referrals matter and here’s why

When it comes to finding the best candidate, employee referrals can be an excellent talent pool to use. Explore the benefits of employee referrals and how to set up a referral program at your company that will support your talent pipeline and fill those open positions.

Dismal recruitment numbers got you down? It can be tough to recruit quality candidates in a job market that combines historically low unemployment rates and mad skill shortages. By the time a job seeker is located that seems to have the right factors, a competitor swoops them up before you have a chance to make a job offer. There are endless strategies out there for how to turn the tide in the war for talent. Many focus on new ideas and new technology, all of which are good topics to be aware off, but one strategy you might also consider has stood the test of time. When it comes to finding great candidates, you might want to dust off your approach to employee referrals. 

What are employee referrals?

An employee  referral is simply allowing current employees to recommend a colleague or someone in the employee’s network for an open position within the company. There are also some organizations that take this a step further and allow outside employee referrals (for a small finder’s fee), but we won’t get into that here. In most cases, inside (employee-only) referrals make the greatest impact on recruitment and the quality of hires. Maybe this is why a CareerBuilder survey indicated 82 percent of employers rate employee referrals “above all other sources for generating the best return on investment.” So if referrals really help companies find the best candidates over more traditional channels like career sites, shouldn’t you be doubling down on them too?

The key benefits of an employee referral program

There are other benefits beyond merely finding the best talent as well. When a current employee refers a colleague to the company, he does so at his own risk of looking bad if the employee does not perform well. This means there is already a high level of trust in the abilities of the candidate. For a recruiter, this is a winning proposition because it not only helps improve their recruitment process, it also reduces the time needed to  vet  quality candidates. Research from Dr. John Sullivan, a recognized expert in HR and recruitment, shows that 88 percent of employers mention referrals as the number one best source for above-average hires.

Retention and productivity of these  hires  matters too. Studies have shown that employees who have been referred by other employees are 25 percent more productive, and after two years, twice as many  stick  around as compared to those hired through job boards. That helps a company drive down their turnover rates and, hopefully, drive up engagement and job satisfaction. Really, there are too many benefits of employee referrals to list, which is why your company needs to use this best-kept secret wisely. 

Pro-tip: Wish there was a hiring crystal ball? That’s where assessments come in

Creating an effective employee referral program

Getting employees to introduce their colleagues to your company starts with developing an easy-to-navigate employee referral process, complete with incentives and a company culture that supports this. Setting up an internal referral program can be as simple as asking all newly hired employees if they know someone who would be a good fit for the company. This is what property insurance company PURE does to successfully recruit around 40 to 60 percent of its new associates using this direct approach. Then they can be shown how to complete a quick referral form and submit it to the recruitment team. A Google form works well, or a quick email to a dedicated employee referral address. Remember to keep employees informed about the progress and if their friend has been hired. And remember, if you’re giving a referral bonus, pay it out promptly.

In order to encourage employees to participate in the employee referral program, be sure to mention that the company offers a generous bonus incentive for them if a referral accepts the job and once they hit 90 days of employment. This could be around 5 percent of the referred employee’s starting annual salary. Or you could offer unique perks like InMobi, the global mobile advertising and discovery platform that offered employees who made successful referrals the choice of either a new Vespa bike or a trip to Bali. Regularly remind all employees about the program and how it works by encouraging managers to speak up during staff meetings. Ask employees to share how they were successful in getting a colleague  onboarded  through the referral program, adding their testimonials to the career website, recruitment marketing resources, or even as success stories posted on social media. Emphasize that it’s a great way to build a team of fellow colleagues while earning some nice bonuses while you’re at it. And if these incentives seem steep, think about it this way. You want your employees to be invested in their recommendations and in putting forward people they know will want to stay. From a talent acquisition perspective, is a nice bonus really too much to pay for a dedicated worker who might spend years increasing the productivity of your company? Especially if it saves you thousands off of making a wrong hire? If you’re going to build a program, make it strong and make it worth everyone’s time, then sit back and enjoy the benefits of referrals.

Read more: What’s the real cost of a bad hire? We break down the math so you don’t have to

Things to watch out for in employee referral programs

Now as great as  refferals  are, there are also some potential pitfalls of using employee referrals. Around one-third of U.S. workers have obtained their current job by way of an employee referral, but this can lead to  pay  inequities and less diversity in the workforce, based on a Payscale study. Why? Because the majority of these employee referrals come from friends and family, so guess what? People are generally  referring  others who are a lot like them. It’s important to take a step back and review hiring statistics, including those relating to EEOC guidelines, on a regular basis when using employee referrals as a main source of candidates. Blend in traditional sourcing methods with employee referrals to guarantee a diverse and inclusive employee population.

Employee engagement levels can be affected by referrals too. The Payscale study revealed that when people received a referral from a family member or close friend, they were more engaged than those who were not referred. However, it seems some also ended up having lower levels of overall job satisfaction with the employer and not so great relationships with management. 

Consider this too: if an employee who has referred his or her friends to the organization decides to take another job with a competitor for better pay or work perks, you bet they will let their friends and colleagues know — which means an entire team could make an exodus from your organization if there’s a space for them to go.


So what’s the bottom line? While there are potential issues to be aware of with referral programs, they still offer a great and largely untapped talent pool for many companies.  Treat these employees well, give them the same opportunities as others to grow and be promoted within the organization, and keep them interested by providing a great compensation package and corporate benefits that resonate with them. Be mindful of what the competition is offering, and stay one step ahead. Make your referral program simple, fun, and rewarding to see the best results.


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