Sourcing candidates is one of the most difficult challenges of the recruiting process, but HR doesn’t have to go about it alone. It’s important for companies to remember they have an entire team of employees and associated professional networks they can tap into. All it takes is a little encouragement and incentive to get employee referrals rolling — which is where referral bonuses come in.
Read on to learn what a referral bonus is, why you need one and how to choose the most effective bonus for your team.
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What Is an Employee Referral Bonus?
What Is an Employee Referral Bonus?
An employee referral bonus is an incentive provided by an employer that motivates employees to help recruit candidates from within their networks. Bonuses can be given through a selection of rewards or prizes and are usually part of a more robust employee referral program.
If an employer offers an employee referral bonus opportunity, it’s likely granted under specific guidelines and conditions. This can include what type of role is being referred, how long the referred candidate has been at the company and what role the employee submitting the referral has.
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.
Benefits of an Employee Referral Bonus
Employee 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. If your company is facing problems in hiring new employees, offering a referral bonus is one of many strategies to boost recruitment.
Supplements Staffing Agencies
Staffing agencies can be helpful, but they’re also expensive. Plus, they’re not as effective as many other recruiting strategies. So rather than fork out tons of cash outsourcing your hiring efforts, cut your spending and offer employees an opportunity to support your recruitment strategy while making an impact on the future of their workplace. Doing so will reduce your reliance on staffing agencies and reward employees for their efforts.
Improves Candidate Pool
Research shows 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 too — because it’s one thing to get an influx of candidates, but it’s another thing to acquire qualified candidates.
Saves Company 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 options to choose from like tangible prizes or company recognition.
Candidates are up to 6.6 percent more likely to accept a job offer when done through an employee referral, and a referral bonus can help to speed up the recruitment process. 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 to 5,000 on average, a shorter time-to-fill is well worth the employee incentive.
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 percent less hiring referrals than they do recruiting candidates from job boards.
Helps Meet Hiring Goals After Funding Rounds
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.
Employee Referral Bonus Guidelines
Employee referral bonuses tend to come with specific guidelines that must be met before it can be given. Here are some common guidelines used to determine referral bonuses eligibility.
Type of Job Role
Referral bonuses are typically offered to employees who refer someone for full-time, permanent roles. Depending on the company, roles that are part-time or contract-based may not be eligible for a referral bonus.
Length of Employment
A referral bonus may be granted once the referred employee is hired and remains at the company for a predetermined amount of time. This length of time can range from several days to several months depending on personal company policy.
Relationship With Company
For referred candidates, some companies do not consider those who have a relationship with the company — like someone who previously applied to an open role — as eligible for a referral bonus. This prevents existing employees from dipping into the company’s established talent community to cash in on a bonus.
For existing employees, those like HR professionals, recruiters, hiring managers and executives are also excluded from receiving a referral bonus. It’s already their primary responsibility to fill vacant roles, meaning they may have existing knowledge in recruitment strategies or have an already expansive professional network. Due to this, allowing these employees to be eligible for a referral bonus may create an unfair advantage over other colleagues in the company.
11 Employee Referral Bonus Ideas
Types of Employee Referral Bonuses
- Additional benefit
- External non-employee
While the majority of referral bonuses are money-based, they aren’t always the most effective method for incentivizing referrals. In fact, research has found that the main reasons employees refer candidates is to help friends find a job (35 percent) followed by to help their company (32 percent), then being recognized as a valuable employee (26 percent). Only around 6 percent of employees refer candidates to earn money.
Here are some of the most common employee referral bonuses companies offer today. To figure out which one is most effective for your company, conducting an employee survey may be your best bet.
1. CASH REFERRAL BONUS
Monetary bonuses are by far the most common type of referral bonus. These bonuses can range from as low as $250 to as high as $25,000 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. The company realized in its case that more money did not equate to higher quantity or quality of candidates. Instead, Google discovered 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 percent of the bonus for referrals that receive a phone interview, another 30 percent for referrals that get an in-person interview and then the remaining 50 percent 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 may offer prizes like gift cards, subscriptions or smart devices. If you decide to use this type of referral bonus, find something tangible and wanted by the employees specific to your company.
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 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 offer.
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. RECOGNITION REFERRAL BONUS
Contrary to popular belief, referral bonuses don’t have to be expensive. Sometimes it’s enough to simply recognize, thank and award your employees for their referral in a company-wide format.
9. Charity 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.
10. EXTERNAL NON-EMPLOYEE REFERRAL BONUS
If your employees don’t refer to 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.
11. 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.
How to Promote an Employee Referral Bonus
How to Promote an Employee Referral Bonus
- Explain the bonus to employees.
- Remind employees.
- Make referrals fun.
- Market on social media.
In order to successfully utilize an employee referral bonus 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 ideas for promoting your employee referral program and referral bonus.
Explain the Bonus to Employees
Employee referral bonuses are not as common or intuitive as you may think. Many people may 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 bonus program, have an all-team meeting and break down exactly what you’re looking for in referrals. In addition, create clear and shareable documentation for employees to reference before they make referrals. You don’t want an influx of under qualified candidates or disgruntled employees if the guidelines weren’t properly followed.
Regularly remind employees of your referral bonus, especially when you’re planning on having a mass hiring period. 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.
Make Referrals Fun
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.
Market on Social Media
Make sure to include content about your referral bonus program in recruitment marketing and branding 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 competitive 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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