Want to Hire Top Talent? Here's How to Build an Employee Referral Program

An employee referral program taps into the human desire to share things we like with people we care about. That’s why such programs are consistently one of the best sources for hiring. Sometimes it’s not what you know, but who you know that matters.

When you see a movie that blows your mind or eat at a restaurant that leaves you craving more, what’s one of the first things you do afterward? If you’re like most of us, you tell your friends all about it.

So, how do you build this channel for your own organization? Or, if you already have a referral program, how do you get the most out of it?

We’ll dive into the details, covering the employee referral meaning, how you can build an employee referral program, and the incredible benefits that can come as a result. You’ll even get an idea of how we run our referral program here at BambooHR, so you can see a real-life example.

What Is a Job Referral Program?

An employee referral program is a program through which employees can refer the people in their networks, such as friends or family, for open positions in their organization.

Referrals are valuable. Many programs include some kind of incentive to motivate employees to refer more and more people. The best referral programs:

• Help employees feel excited about referring people they know
• Let recruiters provide a better candidate experience for referrals
• Make it easier for the organization to hire excellent new team members
• Develop great trust between the organization and its workforce.

Essentially, you’re entrusting your employees to attract new team members. This gives them a sense of responsibility and involvement, which can lead to a great sense of achievement.

9 Key Benefits of Employee Referral Programs

• An estimated 30-50% of new hires are from referrals.
• Referred employees already have connections to your organization—so they're more likely to stick around.
• Referrals also produce about 25% more profit than hires from other sources.
• Employee referral programs make it easier for your recruiters to reach passive candidates (those who aren’t actively looking for a job but could be convinced to switch).
• Referral programs can also speed up your time to hire new talent over career sites. This is both by generating more qualified candidates for an open position, as well as helping you build a talent pool to pull from when another position opens up later.
• A program can help you gauge employee engagement because it can indicate through participation how enthusiastic (or not) your employees are about the organization.
• Employee referral programs strengthen the bond with existing employees.
• A strong referral program can turn employees into brand ambassadors.

How to Build Your Company’s Employee Referral Program

So, how do you build a referral program that does all of those things? Here at BambooHR, we’ve been through a few iterations of our own employee referral program – and we’ve learned a lot along the way.

Below, we’ll share what steps and principles have given us the best results with our referral program.

Don’t Overemphasize Incentives

You’d be hard pressed to find an employee referral program today that doesn’t include at least a small reward for submitting referrals. It could be a cash bonus, additional paid time off, or a special t-shirt. Many organizations see a vast improvement in the number of referrals coming in when they set up a referral bonus for employees.

However, if you focus too much on the reward, you may create a perverse incentive within your program. In other words, your employees may begin submitting referrals just to earn the prize instead of actually considering who might be a good fit for the position. You may see the quantity increase at the expense of quality.

We do incentivize our referral program, but we see it as a thank you rather than a motivator. Employees receive a small bonus, but only after their referral has been hired and worked at BambooHR for a few months. Because the reward is minimal, and because we focus on making BambooHR a great place to work, our people are primarily motivated to refer others for two reasons: a desire to help their friends, and a desire to help the organization.

When employees are focused on helping their friends or helping their organization, they still produce plenty of referrals, but the referrals tend to be higher quality.

Choose the Right Software

As your organization grows, and more referrals come in, it becomes almost impossible to keep track of referrals manually. Allowing referrals to fall through the cracks of the hiring process can impact employees’ motivation to continue referring.

Automating the process of submitting referral information, tracking referrals throughout the hiring process, and communicating their status back to their respective referrers is vital to a successful employee referral program.

In fact, this is one area in which we’re still perfecting our process. While we have a place for employees to submit their referrals, one of our biggest challenges is following up afterward to let them know what happened with their referral.

As we’ve been working to improve this part of our program, here are a few takeaways that might help you select your own software:

• Find a tool that integrates with your Applicant Tracking System (ATS) to avoid manually moving referrals into the hiring funnel.
• Make sure your solution allows employees to see where their referrals are in the hiring process.
• Choose software that is easy for employees to use and offers multiple options for how to submit a referral (like sharing job postings on social media, sending an email, directly submitting a resume, etc.).
• Select an option that facilitates a smooth onboarding process, once the referred employee is hired. For example, this could include induction program, buddies/mentors, and much more.
• Ensure your chosen tool has the appropriate level of data storage and encryption functions.

Educate Employees

An informed workforce is the foundation of a successful referral program. The best software and most strategic incentive in the world will be useless if your employees don’t know about your program or don’t know how to contribute to it.

Education around your referral program needs to cover two areas:

• How to do it
• How to do it well

In other words, you first need to get employees in the loop about how to submit referrals so they feel empowered to start. Then you need to teach them how to recognize if someone is qualified or not so they can start submitting higher quality referrals.

To educate us Bambooligans, our recruiting team presents from time to time at our monthly company-wide meetings. They present a list of open positions, remind everyone how to submit referrals, and direct employees to an internal “All Things Recruiting” webpage to learn more. On this page, our recruiters provide information to help us determine if a referral is qualified or not, including a list of the top reasons a referral may not be hired.

To bolster our recruiters’ efforts further, we’re planning to start incorporating referral program training as part of our onboarding process for new hires. We want people to be excited about sharing BambooHR with their friends and family from the very beginning, rather than leaving them to learn about it through the grapevine.

First, we’ll train new hires on the software and teach them the technical part of how to submit a referral. Second, a few months after their start date, and once they’ve been able to get a feel for our culture, we’ll train them on how to determine if a referral is a good fit – not only for the position but also for the company. This way, we ensure cultural fit remains a top priority within our referral program as we capitalize on the energy and enthusiasm of newly hired employees.

Evaluate and Adjust as Necessary

As mentioned earlier, we’ve been through a few iterations of our own employee referral program. That’s right, we didn’t get it perfect the first time. Besides, situations change, and evolving the program keeps things fresh and working well.

What sort of program details may necessitate a refresh? You may want to make adjustments anytime something doesn’t work, but also whenever you experience changes in:

• The specific role(s) that need to be filled
• The working environment, such as from in-office to remote or from formal to casual
• The organizational goals
• Budget
• How the results need to be tracked and measured
• Response to/success with the program

If the engagement level of employees is low, consider implementing novel incentives and gamification elements. Whatever you do, show appreciation for referrals by recognizing the employee’s effort.

FAQs About Employee Referral Programs

What is the Purpose of an Employee Referral Program?

The four main purposes of an employee referral program are to:

• Deepen the job applicant pool with other qualified candidates. Since referrals come prescreened, they tend to be higher quality applicants. And, because the candidate has already been informed on the job and company, they can apply with confidence and genuine interest.
• Shorten the length of time it takes to find qualified applicants. If you don’t already have many (or the right) candidates for a position, it can take weeks or months to find and hire them through job sites.
• Decrease the cost it takes to recruit applicants. Online job posting sites have monthly costs for a single job posting, with possible additional costs. Recruiting firms can be partnered with either on a contingent, retained, or contract basis. Referrals don’t cost nearly as much to find and hire.
• Lower turnover rates due to:
  • Employees referring people they already know and trust.
  • Candidates who already know what to expect with the position and company, and have an idea that you’re probably a good fit for them.
  • Employees working alongside friends and/or family, making a comfortable and fun work environment for them.
• Make use of extensive personal networks. People know people: make use of it. Whether it’s friends, family members, or people they know through others, referrals make use of already established networks.

When all of these elements work in harmony, both the organization and the referred hire gain great worth from the employee referral program.

How Effective Are Referrals?

Referrals are very effective at getting good candidates not only on the interview list, but in the door of their new job.

Generally speaking:

• Referrals are more likely to be hired than other candidates, especially by smaller companies. This can be up to 6.6% more likely according to research.
• It takes less time to fill a position with a referred candidate versus a traditional recruit. Research suggests this is 55% faster than the standard process.
• Referral hires save a company money in the recruiting process.
• Employee referrals can help to tap into the ‘passive’ job market, i.e. those who aren’t actively looking for a job but would be open to a new position.

The consensus among organizations is that referrals are a practical and profitable way to find new employees to fill open positions.

Why Do Referrals Work?

Since an employee referral is basically an endorsement of a person’s talents and character, referrals tend to work well for employers looking to hire. Sometimes hundreds of people apply for a single position, but an employee referral program helps thin the crowd and zero in on top candidates.

Other reasons employee referral programs work are because the referred candidates:

• Already know about your company and its culture
• Help the company save time and money on the recruitment process
• Tend to be more excited and engaged in their work, as they already have at least one person they know with the company
• Feel welcome a lot quicker, as they already have a familiar face within the organization. The familiarity removes some of the pressure of entering into a new workplace.

These reasons go to show how important training employees on how to give a good referral is to the program’s success.

What Makes a Good Referral?

Spotting a good referral when it’s presented brings value to an employee referral program. Here are a few signs a candidate is relevant for the position, from their own perspective as well as the company’s:

• The candidate can fit right into a specific position and hit the ground running. Building a position around a new hire isn’t wise and can lead to redundancies and wasted costs.
• The referral comes from an employee who is trustworthy, dedicated to their own job, and a pleasure to work with each day. This is the type of person you can count on to make referrals that make sense.
• The referral can contribute and complete required work. Take notice if you ever hear an employee say something like: “I know someone who can get it done”. Employees are apt to say such a thing only if it’s true.
• Your employee is educated about how to give a good referral (see below). Providing plenty of information about what you need and clearly explaining your expectations can make all the difference.
• The new candidate is asking the right questions about the future. If a new candidate is asking questions about the strategic direction of the company and their place in it, it’s an indication they’re interested in sticking around.

Final Thoughts

Obviously, a referral program that improves retention, engagement, time-to-hire, and more isn’t built overnight. Case in point: we’ve been developing and perfecting our own employee referral program for years (and will continue to do so for years to come).

Optimizing your referral program is a continual effort, and you may need to adjust your strategy as your workforce grows and changes. But wherever you are in your journey, we hope these referral program ideas have given you a place to start transforming your organization’s program into a powerful hiring tool.