11 Ways to Offer An Employee Referral Bonus

Plus 6 reasons to have a referral bonus
Bailey Reiners
February 3, 2020
Bailey Reiners
February 3, 2020

Sourcing candidates is one of the most difficult challenges recruiters face, but they don't have to go about it alone. They have an entire team of employees who have a wealth of great candidates within their personal and professional networks they can tap into. All it takes is a little encouragement and incentive to get employee referrals in the door.

That's where referral bonuses come in. We'll cover exactly what a referral bonus is, why you need one and how to choose the most effective bonus for your team. Feel free to click the links below to skip ahead. 

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Table of Contents

 

What is a referral bonus?

referral-bonus
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A referral bonus is an incentive that motivates employees to recruit candidates from within their networks. It is often a part of a more robust employee referral program.

The referral bonus is often granted once the employee is hired and remains at the company for a predetermined amount of time. The bonus is typically offered to employees who refer someone for full-time, permanent roles.

Some companies do not consider referred candidates who have a relationship with the company — i.e. previously applied to an open role — as eligible for a referral bonus. This prevents employees from dipping into the company's established talent community to cash in on a bonus. 

Often times, HR professionals, recruiters, hiring managers and executives are also excluded from receiving referral bonus because it’s their job to fill the role or their networks are expansive, giving them an unfair advantage over other people in the company.

There are a number of different types of referral bonuses companies can offer, but first, let’s talk about why referral bonuses are beneficial to companies struggling to hire. 

 

candidate-journey

 

Why you should offer a referral bonus

referral-bonus
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Referral bonuses can make a significant impact on your hiring efforts, especially in a candidate market where talented professionals have a wealth of employment options. Here are a few problems your company may be facing that can be reduced by offering a referral bonus. 

 

Your hiring efforts rely on staffing agencies

There’s no doubt that staffing agencies are expensive. Not only that, but they’re not as effective as many other recruiting strategies. Rather than fork out tons of cash outsourcing your hiring efforts, cut your spending and offer employees an opportunity to not only support your recruitment strategy but have an impact on the future of their workplace. Doing so will reduce your reliance on staffing agencies and reward employees for their efforts.  

 

Your candidate pool Needs Improvement

It’s one thing to get an influx of candidates, but it’s another thing to acquire qualified candidates. Research finds that referrals are one of the best sources for recruitment with nearly one in three referrals being hired. Taking your employee referral program to the next level with a referral bonus can drastically improve the quality of your candidate pool

 

You’re a small company with limited resources

If you’re a small company and struggling to hire great employees, offering a referral bonus can be a viable startup recruitment strategy. While referral bonuses are often associated with monetary rewards, there are a number of other less expensive options that we’ll discuss in a bit. 

 

You Struggle to hire great people fast 

Studies indicate that employee referrals improve time-to-fill by 40%. Depending on the role and level of seniority, the cost-of-vacancy for a position can reach upwards of tens of thousands of dollars. With referral bonuses costing only $1,000 - 5,000 on average, a shorter time-to-fill is well worth the employee incentive.

 

You want to save money (Who doesn't?)

Cost-per-hire is a strong indicator of your team’s ability to recruit qualified candidates. To determine if your referral bonus program is cost-effective, calculate your cost-per-hire and compare it to how much time and money you’ve spent on referral bonuses in the past year. On average, companies spend 40% less hiring referrals than they do recruiting candidates from job boards. 

 

You need to meet goals after closing a round of funding

If you just closed a round of funding, then you have lots of cash (great!) along with steep growth and hiring goals (yikes!). Improve your recruiting efforts after a round of funding by using some of that new cash towards referral bonuses to ensure you meet investor goals.  

 

11 Types of Employee Referral Bonuses

While the majority of referral bonuses are money-based, they don’t always have to be. Monetary bonuses are also not always the most effective method for incentivizing referrals. In fact, research has found that the main reason employees refer candidates is to help friends find a job (35%) followed by to help their company (32%), and coming in dead last — 6% of employees refer candidates to earn money.

We’ve gathered a list of the most common employee referral bonuses companies use today. Survey employees to figure out which one will be most effective for your company. 

 

1. Cash Referral Bonus

Monetary bonuses are by far the most common type of referral bonus. They typically range between $1,000-5,000 depending on the seniority level of the role, demand for the position or duration the role has been open. 

While companies often up the ante by increasing referral bonuses for priority roles, Google found that this strategy doesn't always work. They realized more money did not equate to higher quantity or quality of candidates. Instead, they found that being more transparent with their employees and referrals during the recruitment process was much more effective. 

 

2. Diversity Referral Bonus

Unfortunately, an employee referral program often leads to companies hiring homogenous people with similar backgrounds, interests and thought processes. In addition to setting diversity hiring goals, companies can use their employee referral program to attract diverse candidates. Glowforge is a great example of this offering employees $5,000 for every referral hired from an under-represented background. 

 

3. Tiered Referral Bonus

Rather than paying employees the full referral bonus after the candidate is on the team for a certain time period, some employers break down the bonus and distribute them in increments at different stages in the recruitment process. 

For example, you may give 20% of the bonus for referrals that receive a phone interview, another 30% for referrals that get an in-person interview and then the remaining 50% once the referral is hired and works for 90 days. 

 

4. Raffle Referral Bonus

Another option is to put every employee's name that provided a quality referral into a monthly or quarterly raffle for different bonus prizes. This is a great option if you’re a smaller company or you don’t have the budget for a robust referral bonus program. 

 

5. Prize Referral Bonus

Instead of giving out money, some companies offer prizes. If you decide to use this type of referral bonus, find something tangible each employee wants, like the latest piece of technology.

 

6. Vacation Referral Bonus

Another great referral bonus option is to offer your employees a vacation. It could be an all-expense paid trip planned by your company, or you a cash lump sum to go toward transportation, hotels or experiences. Remember, you don’t have to go all out with a European adventure, you can keep it local with a staycation spa day or a fancy dinner. 

 

7. Additional Benefit Referral Bonus

Boost your current perks and benefits by offering more PTO days, additional money towards their education stipend or lunch paid by the company for a year to incentivize employees for referrals. 

 

8. Custom Referral Bonus

Rather than having a set referral bonus, allow employees to decide how they would like to be rewarded for their efforts. You may need to set some kind of limitations, but employees will be happier with their reward if they have a say in what it is.

 

9. Recognition Referral Bonus

Contrary to popular belief, referral bonuses don’t have to be expensive. Sometimes it’s enough to simply recognize and thank your employees for their referral in a company-wide format. 

 

10. Charitable Referral Bonus

As we mentioned earlier, offering employees cash isn’t always the most effective incentive. However, if all or part of the referral bonus is donated to a charity of the employee’s choice, they may be more inclined to make referrals and support the causes they care about. Think about it, if the number one reason people make referrals is to help a friend find a job or to help the company, imagine how much of a motivator charitable donations would be.

 

11. External Non-Employee Referral Bonus

If your employees don’t refer the quantity and quality of candidates you need to meet hiring goals, you can offer referral bonuses to people outside of your company. In the end, a good referral is a good referral, so it doesn’t really matter who it comes from. And anyone who is willing to bat for your company and attract great candidates should be deserving of a little bonus to say thanks for their efforts. 

 

How to promote your referral bonus

In order to have a successful employee referral program, it’s critical you clearly communicate what it is, how it works and most importantly, the prizes you offer for qualified referrals. Here are a few tricks of the trade for promoting your employee referral program and referral bonus. 

 

Explain the program

Employee referral programs and bonuses are not as common or intuitive as you may think. Many people have never worked for a company that offers such a benefit, and even if they have, programs change from company to company. 

The first time you roll out the program, have an all-team meeting and break down exactly what you’re looking for in referrals. You don’t want an influx of under qualified candidates as employees try to cash in on a bonus because that’s a waste of everyone’s time. 

Create clear documentation for employees to reference before they make referrals. Also, make sure they understand the criteria for receiving the bonus so employees aren’t disappointed and frustrated if their referral doesn’t make the cut. 

Additionally, provide employees with talking points and content they can share with people in their network to ensure they stay true to your employer brand

 

Remind employees

Regularly remind employees of your referral bonus, especially when you’re planning on making a lot of new hires. If you’ve made any changes to your program like if you’re increasing the cash value of the bonus for a hard-to-hire role, make sure everyone in the company knows about the change so there’s an equal and fair chance at earning the bonus. 

 

Set competitions

If your team is full of competitive go-getters, a competition is a great way to encourage employees to make referrals. Offer an additional bonus for employees who make the most referrals in a set time or who refer hard-to-fill positions. 

 

Incorporate recruitment marketing

Make sure to include content about your program and referral bonus in recruitment marketing materials. This is particularly important if you offer bonuses to people outside of the company. Spread the word with social media recruiting and you may even find your next new hire is actually an external candidate wanting to make some extra cash through your referral bonus program.   


 

Referral bonuses are a great way to incentivize employees to recommend candidates within their networks and help your team connect with qualified candidates. Don't let a compeitive job market slow you down, start offering referral bonuses today and you'll reduce your time-to-hire and cost-per-hire in no time.

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