Employee Referral Program: A Guide to What It Is and How to Build One

An employee referral program is a system for incentivizing a company’s current workforce to participate in recruiting efforts by encouraging or recommending people from within their personal circle to apply for open jobs.

Companies tend to fork out loads of money and resources on third-party strategies to attract candidates, when instead they could be tapping into the networks of those closest to them — their current employees. An employee referral program has multiple benefits such as saving money, making hiring faster and improving retention.

Learn more about what an employee referral program is, why it's worth the investment and how you can build one for your team.

Table of Contents

• What Is an Employee Referral Program
• Benefits of an Employee Referral Program
• How to Build an Employee Referral Program
• Employee Referral Program Best Practices

What Is an Employee Referral Program?

An employee referral program is a recruitment strategy that encourages and incentivizes current employees to refer qualified candidates from their personal networks. It’s not a request for a one-time referral of someone to fill an opening, but rather, a structured system of rewards meant to attract a continuous stream of capable applicants to benefit recruiting and hiring operations.

Employee referral programs are a boon for HR teams because they can make recruiting more efficient and ensure a high-quality class of applicants — all while cutting down on costs. They offer a steady, reliable source of job candidates, and in turn, help keep existing employees engaged at work by offering bonuses and other forms of reward that make them feel their contributions have value. 

There are different types of employee referral programs that measure specific goals and offer different incentives, but the bottom line is to encourage employees to help fill certain open roles by reaching out to their networks.

Benefits of Employee Referral Programs

Consider some of the benefits that come with implementing an employee referral program:

Employee Referrals Provide a Better Hiring Source

By using an employee referral program, companies can connect more efficiently with qualified applicants who come recommended by their already-reliable talent pool. A LinkedIn survey of more than 200 companies revealed employers hire anywhere from 20 to 40 percent of their new employees through referrals. Career Plug’s yearly Recruiting Metrics Report determined job candidates who apply through a referral are 18-times more likely to be hired than people who apply from a job board.

Referred Applicants Get Hired Faster

Employee referral programs also have the potential to speed up hiring time. Depending on the industry as well as the type of skills, education and experience an employer is looking for, an open position can take upwards of a month to fill. A survey by Clutch shows 46 percent of recruitment professionals say their companies complete the recruiting process in a month or less.

Read MoreWhat Is Employer Branding? Definition, Benefits and Strategies

Employee Referral Programs Save Money

By cutting down on job board postings and fees paid to third-party recruiters, employee referrals can result in substantial savings. More than half of recruiting professionals agree hiring through an employee referral is less expensive than hiring an applicant who wasn’t referred, according to Clutch.

Employee Referrals Lead to Higher Retention

Using employee referrals as a recruiting strategy has also been shown to improve employee retention. The Clutch survey showed nearly 50 percent of businesses see employees who are hired through referrals stay longer. Another study by iCIMS found referral hires stick around 70 percent longer than their non-referred counterparts, and the employees who make the referrals stick around 20 percent longer.

Employee Referral Programs Yield Better Quality Applicants

Because the employees who make the referrals are already familiar with the company and what it’s looking for in an applicant, there’s a greater likelihood that referred candidates will be qualified for the job and a good fit for the company. A survey by Indeed showed almost three-quarters of candidates that come from employee referrals are “extremely qualified.”

Referral Programs Enhance Employee Engagement

Gallup estimates low employee engagement costs the global economy $7.8 trillion, while business units with engaged workers see 23-percent higher profits. Referral programs can help to bolster engagement, and staying in regular communication with employees about referrals promotes continued engagement by assuring current employees their contributions are valued.

Employee Referrals Help Reach Passive Job Candidates

Passive job candidates are potential applicants who are open to new job opportunities, but are not actively looking for a job. Approximately 37 percent of the job candidate pool is passive, according to a 2021 survey. Some of the hardest (and best) candidates to reach are passive, and your top employees are among a network of other passive candidates, just waiting for an opportunity like yours to scoop them up.

How to Build an Employee Referral Program

You know the what and the why, now we’re going to delve into how to build an employee referral program. There’s no perfect way to build a program, but we’ve included some important factors to consider in this guide.

PRIORITIZE YOUR HIRING NEEDS

Depending on the size and growth stage of your company, you may need to prioritize certain hires over others. When asking employees to take time out of their day to contact people in their network, make sure their search is well worth the effort.

DEFINE THE CANDIDATE PERSONA

To help employees identify the best referrals in their network, first define the candidate personas you are looking for. You’ll want to identify:

• The specific role you are hiring for.
• The current role your ideal candidate possess.
• Their years of experience and education.
• Specific expertise and skills they may require for your open role.
• The geographical location (unless it’s a remote position)
• What personalities, traits or skills are lacking on the hiring team.
• Their online presence — where they spend time online.

Once you’ve answered all of these questions, draft up a candidate persona with all of the information your employees need to help you find the best referrals. Then identify what areas of your recruitment strategy can be used to find your ideal candidates.

REVIEW YOUR RECRUITMENT STRATEGY

Before you can start refining your recruitment strategy, review your current strategy to identify what’s working and what needs improvement. Do some deep digging into current employees to determine how they learned about your company and what platform they used to apply for the role. Consider how long they’ve been at your company and look critically at employee diversity statistics. 

This will help narrow down which recruitment marketing strategies worked with current employees, why employees have continued to stay with your company, why people have left your company, was the application and hiring process user-friendly — something to ask recent hires for the best feedback. All of this will help you improve your recruitment strategy so employee referrals are more likely to complete the application process and are blown away by your organization. 

Further Reading25 Employee Value Proposition Examples to Know

SET GOALS FOR YOUR EMPLOYEE REFERRAL PROGRAM

In order to measure the success of your employee referral program, set measurable recruitment goals to track and reevaluate over time. It’s not practical or possible to focus on all of the recruitment goals at once, so narrow down a couple of primary areas of focus for your recruitment strategy. You can always reevaluate later and set different goals once you’ve met previous ones. Here are a few recruitment metrics to consider:

• Number of Referrals
• Quality of Referrals
• Applicants Per Opening
• Application Completion Rate
• Cost of an Unfilled Position 
• Time to Hire
• Offer Acceptance Rate
• Cost Per Hire
• Quality of Hire
• Quality of Applicant
• Employee Retention Rate
• Diversity Recruiting 
• Employee Engagement

You can narrow down the metrics you track and set reasonable goals by evaluating your current recruitment strategy. Look at what is working, where do you obtain the best candidates in the shortest amount of time and what are some areas of your current strategy that need a little extra attention. 

EDUCATE EMPLOYEES ON THE PROGRAM

In order to ensure your employee referral program runs smoothly and efficiently for everyone involved, it’s important to educate employees on your goals, the candidate persona, roles to prioritize and information on how they can effectively recruit referrals.  

Whether your employee referral program runs year round or is only implemented for certain high-priority roles, it’s important to provide employees with the job description of the open role, an overview of the qualities you are looking for in the hire as well as some tips on how they can approach people in their network. 

KEEP THE REFERRAL PROCESS SIMPLE AND EFFECTIVE

It’s one thing to have an employee tell their friends about an open position, but it’s another thing to have the referral actually follow through and apply for the job. You can help employees help their referrals apply by making the referral and recruitment process as simple as possible.

One way to identify and track which employees referred which candidates is to create a unique trackable link for each individual employee to share. If your company utilizes an applicant tracking system, they often have a link builder that tracks jobs shared by individual employees.

KEEP EVERYONE IN THE LOOP

Communication is key when it comes to an employee referral program. When working with people referred to you by employees, you really owe it to both the employee and the referral to keep them updated on the status of the hire. Even if the referral isn’t a match for the role, let your employee know, and show your appreciation for referring someone in their network.

OFFER AN EMPLOYEE REFERRAL BONUS

The best way to get employees to refer friends is to offer some kind of incentive. Employee referral bonuses can either be monetary or non-monetary. Monetary bonuses usually range from $1,000 to $5,000, and are typically conditional based on the employee remaining with the company for a minimum period of time. The difference in the amount of bonus cash may be determined by the seniority of the role hired, the difficulty of the role hired or the length a role has been open.

There are also a wide variety of non-monetary bonuses companies offer employees to refer candidates, such as: 

• Extra time off
• All-expense paid trips
• Tickets to games, events and concerts
• Gift cards

The smaller prizes are also a nice gesture to offer anyone who refers a candidate even if they don't get hired.

SUPPORT A DIVERSE EMPLOYEE REFERRAL BONUS

Hiring diverse candidates is critical to the success and growth of any company. In order to turn words into action, Glowforge utilized its employee referral program to bring in more diverse candidate referrals, offering a steep $5,000 referral bonus for employees who refer under-represented candidates. Talk about putting your money where your mouth is.

HOST AN EMPLOYEE REFERRAL EVENT

Employee referral events are a highly effective recruitment strategy. Unlike most recruiting events, an employee referral event is often more enticing because the employee who referred them can attend the event with them and introduce the referral to other people at the company. It’s more laid back, and both candidates and employees will get a good sense of how the other will fit into the job opportunity. 

And if you’re offering some kind of employee referral bonus, kindly remind employees about the very sweet benefit they could enjoy if they took the time to refer people from their network.

Employee Referral Program Best Practices

If you’re really struggling to hire for a certain role, up the ante with more enticing bonuses or prizes for employees that refer a candidate. Provide imagery, recruitment videos and written content tailored to different social media platforms as well to help them share the role on their personal and business social media accounts.

Every time you open a new role and define a candidate persona, make sure to continuously communicate this information to the team. One of the biggest downsides to hiring by employee referrals is that employees are limited to the people in their network — which typically means they are referring people who share similar backgrounds, experiences and interests. While referrals are often the best source of candidates, they all too often lead to homogenous teams of like-minded thinkers and doers. Encourage current employees to make diverse referrals to ensure a broad array of backgrounds and experience in the candidate pool.

Referrals can be tricky because feelings and relationships can easily be affected. Employees aren’t just going to refer anyone in hopes of receiving some kind of referral bonus. They are going to refer people they think would be a great match for the role, culture and that they would enjoy working with. These individuals are often close friends, so when the referral doesn’t get hired, it’s up to you to ensure the relationship is left intact.

Similarly, many people assume to have a leg-up by being referred, and while referrals are often top candidates, that doesn’t always mean they will get hired. If they’ve been asked/referred by a friend to apply for a job and go through the recruitment process, it can be really disappointing to not get the job. After all, they probably didn’t plan on applying for a job until your employee convinced them to, so it can feel like they’ve wasted their time.

Don’t let referrals leave on a bad note. Provide them with helpful feedback on why you didn’t hire them, send a thank you note for applying and encourage them to join your talent community for future open roles.