There are several routes to take when your company needs new hires. You can list your job posting on job boards, use social media to advertise an open position or better yet, implement an employee referral program. According to LinkedIn, the number one way people discover a new job is through a referral. Employee referrals are a cost-effective way to land high-quality employees. Creating a referral program to support your hiring process just takes some know-how and follow through.
What is an Employee Referral Program?
An employee referral program (ERP) encourages employees to recommend and recruit qualified potential candidates to the company. An ERP is an internal hiring practice that helps companies find top-quality candidates from their employees’ personal and professional networks. Typically, a referral program offers a referral bonus for every successful referral that ends up as a new hire. Bonuses can include cash, PTO, gift cards, eligibility for a drawing, recognition or other types of compensation.
Benefits of Referral Programs
Implementing a referral program can really give a boost to your overall hiring process. When properly administered, an ERP will generate referrals who:
- Stay longer
- Understand the job role better
- Are more engaged
- Are more likely to refer future employees
- Have a higher ROI than employees coming from other sources
- Take a shorter time to hire
Employees leave a company for several reasons, some of which include pay, lack of flexibility with their schedules and not liking their managers. An ERP can help eliminate some of those factors. When candidates are recommended by current employees, they come to the position with a better understanding of its requirements, the people they will work with, and the company’s culture. That’s because a current employee will share what it is like to work at the company and offer insights about the position.
An ERP can help put more qualified candidates in front of you. When an open position demands a specific set of skills, current employees will more likely refer candidates that meet those requirements. For example, an open position might require extensive knowledge of a certain machine or computer program. An employee can determine if a friend or acquaintance has those qualifications before referring them to apply for the position. Consider all the skills that potentially exist within your employees’ network and the odds are favorable you’ll find a candidate that meets your needs.
When an employee comes to your company via a successful referral, they tend to be more prepared and knowledgeable—which leads to higher engagement. That goodwill tends to spread and your new employees will in turn refer others. The more employees you have spreading the word on positive experiences at your company, the better your brand reputation will build in the community. A good reputation helps you recruit both active and passive candidates.
Lower Cost to Hire
ERPs are a more economical way to hire a new employee. The cost to hire recruiters and place ads can quickly add up. It has been estimated that replacing an employee can cost up to 30% of that employee’s salary. Even with compensating the referring employee, hiring through an ERP can eliminate many of your outside recruiting costs. Plus, as ERPs reduce turnover, you reduce the need to recruit and train new employees.
More Efficient Time to Hire
ERPs provide a larger talent pool to recruit from and can reduce some of the steps involved in time to hire, according to Indeed. Using an ERP reduces the number of resumes and candidates to screen. Resume screening alone requires several steps like sorting candidates, replying to candidates, filtering resumes and saving all files to your database.
How to Build your Program
A great referral program takes planning, design and maintenance. You want an ERP that is:
- Well communicated to employees
- Easy to access
- Simple to participate in
- Clear about expectations and outcomes
Planning Your Program
The first step is to gain input from your employees about what they’d like to see in an ERP. This is also the perfect opportunity to ask them how they feel about working at your company. If your employees aren’t engaged or aren’t satisfied at work, they likely won’t refer anyone else to come work with them. If you don’t have this data on hand, send an anonymous employee survey to gain some insight.
Next, think about the strategic goals you want your ERP to help accomplish. These goals can include:
- Improving your quality-of-hire metric
- Increasing employee retention
- Improving employee morale
- Increasing employee engagement
- Reducing turnover
- Improving your time-to-hire metric
Once you understand what you want your employee referral program to accomplish, you can design a program that ticks all of those boxes.
Designing Your Program
When designing your ERP consider these points:
- Set goals for the program. Decide how many referrals you want to receive in the first six months or the number of employee referrals that will convert to hires. Use your ATS to track referrals.
- Design a referral form that is simple, short and easy to find and fill out. Allow the form to be submitted via your company’s intranet or through email. Make sure the form includes enough information to identify the referring employee, the candidate and what position they are applying for.
- Eliminate unnecessary steps, like needing to include a resume. Think of an ERP like a lead. You just need a name and general information, the resume can be uploaded later.
- Create an incentive for employees to participate, typically monetary or public recognition. As mentioned above, a set cash bonus is common but companies short on funds can also use gift cards, drawings and/or recognize referring employees in company newsletters and emails.
- Decide who can refer employees. According to SHRM, some companies limit participation and exclude HR employees, managers the new employee would report to, and executives. Others exclude temporary, contract or part-time employees. Yet, SHRM notes the more you limit your employees’ participation, the fewer referrals you’ll receive—and you could end up de-motivating employees.
Running Your Program
Once program objectives and the plan are in place, you’ll need to launch it to your employees. Your choices are to create a full marketing effort or simply send a company-wide email about why the program was created, how to use it and what they’ll receive if they participate.
After it is launched, reinforce the program by communicating to your employees when there is an opening and asking them to refer a candidate.
- Remind employees how to refer someone and why it’s worth their effort
- Explain what you are looking for in an ideal candidate
- Provide sample text for use when posting on social media or approaching prospects directly
- Include a great job description. The description should include a position overview, key duties and responsibilities, tools and skills necessary, physical demands, qualifications desired, scheduling requirements, and levels of authority and supervision.
When an employee referral is submitted, treat it as a VIP. Your employees will hesitate to refer anyone in the future if they feel their friends or acquaintances were ignored or treated as unimportant. Once a referral comes through, be sure to:
- Keep your employees updated on the process
- Give feedback to employees if they submit an unsuitable employee so they can improve their recommendations
- Contact the candidate and alert them that their name was referred to your company and keep them updated about the hiring process.
- Provide the best candidate hiring experience. This includes having a mobile-friendly application process, continually communicating with the candidate and using an AI assistant to schedule interviews.
Maintaining Your Program
Once you get your ERP up-and-running its important to track its progress. Launching an ERP should create a nice return on investment, and tracking its performance allows you to prove it. Employee surveys about the program, as well as other important data, will be critical in proving the effectiveness of your efforts. Make sure to track data, like:
- When it was launched
- Who has referred candidates
- Retention rate of referred employees
- Employee satisfaction of referred employees
HR and Legal insights
While ERPs are effective for recruiting candidates, there are some potential pitfalls to consider. According to SHRM, referral programs may create an unintentional disparate impact if employees refer candidates of the same race, religion, national origin or other protected class.
SHRM advises trying to avoid unintentional discrimination by:
- Using a variety of recruiting methods including posting the position to job boards, using social and ERPs to keep your applicant pool diverse.
- Open the ERP up to the entire organization, not just specific departments or divisions.
- Use the same criteria to evaluate all candidates. If your online application has set parameters, like an education requirement, make sure to manually apply those to any referred candidates.
- Consistently monitor your workforce to ensure your ERP is performing as expected and that the candidates referred are not only qualified but diverse as well. If your referral program isn’t meeting your set standards, you will need to reevaluate it.
Employee Referral Program Examples
While employee referral programs may be nothing new, there are some companies out there who are excelling at their use.
Salesforce, the CRM software provider, says employee referrals are its number one source of new hires. It has a dedicated team whose sole responsibility is processing and prioritizing of referrals. It offers a Chatter community where employees can engage with an expert from the ERP team. The company also hosts employee referral events, like recruitment happy hours, and encourages employees to invite their connections. Recognition is given for participation, not just hires, and excitement is driven with contests. Employees are also encouraged to share company news on their social networks to increase awareness. This helps their network get to know the company.
Computer company Intel had an established ERP but set a goal to increase diversity in its workforce. The company announced it was doubling its employee referral bonus to encourage minorities, women and veterans to work at the company. Qualified referrals of these groups will earn current employees a bonus of up to $4,000.
PURE Insurance company has an employee referral program. According to AIHR Digital, the company asks both current and new employees (who may have only been there two weeks) to refer candidates. The company has found involving new employees right away emphasizes the importance of the program while garnering more referrals.
Implementing some best practices will ensure your ERP is a success.
- Get employee feedback first.
- Set strategic goals that your ERP will help your company meet.
- Make your ERP simple and straightforward.
- Compensate employees for referring successful candidates.
- Recognize employees for every referral, even if it doesn’t result in a successful hire.
- Communicate the plan to employees.
- Drive excitement with recruiting events and contests.
- Treat referrals as VIPs by keeping the lines of communication open.
- Encourage your employees to post about your company on social media.
- Track your results to determine ROI.
- Routinely reevaluate the program to ensure your receiving quality and diverse candidates.
Arcoro’s Applicant Tracking System can help you create and track your employee referral program to boost your talent pool. Employees can refer a friend to job openings by simply texting the name and number to Arcoro’s personal AI assistant. The candidate experience is enhanced with an easy-to-use mobile application process that doesn’t require a log in.
Once you find your desired candidate, the ATS automatically moves the data to onboarding for a seamless experience. And because it is an integrated, cloud-based system, it works with your existing software from anywhere at any time. And Acoro puts your compliance first. All applicants, no matter how they entered your system, are stored and accessible through an Applicant Flow Log Report as well as your Affirmative Action Plan (AAP) and VEVRAA records. Our ATS software also prepares you to clear potential Office of Federal Contract Compliance Programs (OFCCP) and I-9 audits. Schedule a demo to get started.