Many companies today are looking to hire more employees but the recruiting process is easier said than done. You need more than just bodies; you need employees who will excel in the positions you have open. And while recruiting through job boards and social media works, steps must be taken to make sure the candidate will be a good fit at your organization. An employee referral program may help streamline the hiring process. 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.  


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. 

Why You Need an Employee Referral Program 

Implementing a referral program can really give a boost to your overall hiring process but has other benefits as well. 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 

Lower Your Turnover Rate  

Employees leave a company for several reasons. According to Pew Research Center, last year people left their jobs due to low pay, a lack of opportunities for advancement and feeling disrespected at work. An ERP may eliminate some of those issues. When candidates are recommended by current employees, they typically come to the position with a better understanding of its requirements, the people they will work with, the company’s culture and sometimes pay. Encourage current employees to share what it is like to work at the company and insights about the position. 

Higher Quality Candidates  

An ERP can help put more qualified candidates in front of you. Current employees are more likely to refer a candidate who closely matches the skills required for the position. 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. Employees will want new members that make the team stronger faster and likely won’t refer someone without the right qualifications.  

Improved Company Brand 

Employees who are happy and engaged will spread that goodwill by referring others. The more employees you have spreading the word on positive experiences at your company, the better your brand reputation will be in the community. A good reputation helps you recruit both active and passive candidates. 

Reduced 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. Hiring outside help, like a recruiter or headhunter, could cost 15-25% of the future employee’s salary. But even if you do all your hiring in-house, it can still add up to spending around $4,000 per employee. Even with compensating the referring employee, hiring through an ERP can eliminate many of your outside recruiting costs like posting to a job board and attending a job fair. Plus, as ERPs reduce turnover, you reduce the need to recruit and train new employees. 

Reduced Time to Hire 

ERPs provide a larger talent pool to recruit from, thereby reducing 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. 

Things to Consider about an Employee Referral Program 

ERPs are effective for recruiting candidates, but 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. 

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 login. Compliance is maintained by storing all applications and accessing them through an Applicant Flow Log Report as well as your Affirmative Action Plan and VEVRAA records. Our ATS software also prepares you to clear potential Office of Federal Contract Compliance Programs (OFCCP) and I-9 audits. 

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