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Technology | 6 Min Read

Best Employee Referral Program - Complete Guide For 2021

author Written by Jinisha Ghodasara July 30, 2019

Best Employee Referral Program - Complete Guide For 2021

The employee referral program has become one of the most popular recruitment strategies in recent times. 

The employee referral program is similar to a friend recommending you a movie or television series to watch over the weekend, whereas, in this case, it's a candidate being referred for an open position in your company. 

It is essential to have a well-structured employee referral program to get the most productive outcomes.

What is an Employee Referral Program?

The employee referral program is an internal method where new employees are hired based on a reference by the existing candidates of the organization. A good referral program helps companies to get the best employee for the position and makes the current employee feel valued.

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The employee referral program is a popular way to recruit a new candidate - no need to depend on the recruiter for research and attract the right talent. Hiring the existing employee's reference will perform better compared to the nonemployee referral candidate and the cost-effective solution too.

What are the Benefits of an Employee Referral Program?

Employee referral program undeviatingly connects the employer to the profession and personal network of the existing employees'. Within a short period of time, employer seat foot on the huge talent pool. And, this is because of the primary advantages of the employee referral program. So, let have a look at the benefits of it. 

Benefits of an Employee Referral Program

1. Improving the quality of hire

The employee referral program is considered an internal method to find a candidate for a particular position. Your existing employees widely know about the attributes that your company needs in their employees, so oftentimes, employee referrals confer a most suitable candidate compared to candidates from other sources.

2. Improves employee retention

It is a known fact that employees who match the organizational culture, norms, and values better, stay longer with the company. The candidate referred by the existing employee is always aware of the company's needs and the work approach that company follows. From the beginning, they have detailed knowledge concerning the company, as a consequence, reductions in employee turnover rate.

3. Saves time

Through this program, the employer can save their maximum amount of time that they spend on a time-consuming process like onboarding as a candidate is well known about the company culture. Also, contacting them is easier. This speeds up the hiring process.

4. Saves money

If you opt referred candidate by your employees, you can eliminate a portion of expenses that you spend on other sources to get the right talent such as job boards, paid advertisements, etc.

5. Improves employer brand

Usually, before applying for any job, the jobseeker will gain proper awareness about the company. Hence, when your company hires the candidate through a referral program and if it is mentioned in the review, then it will automatically increase your brand value by creating a positive impression of your brand in the market.

What are the Disadvantages of an Employee Referral Program?

Might be the number of benefits of an employee referral program is quite high. But, the disadvantages of is it not avoidable. Therefore, we also cover the topic of the disadvantages of an employee referral program. And, here are some drawback of employee referral programs.

Employee referral program disadvantages

1. Discrimination charges

If a company excessively uses an employee referral program, it could lead to discrimination charges from rejected candidates in the long run. So, the company should strike the right balance between referrals and other sources.

2. Lack of ideas

The employee referral program might lead to a lack of independence or innovative ideas because a new employee will stick along with the existing employee consistently.

3. The disillusionment of the referral program

Strict guidelines for the bonus out for the referrals may lead the employees into disillusionment about the whole process, which, in turn, can lead to the discontent of the employees.

4. Getting alienated from other staff

When you are hiring someone through reference, they are likely to hang-in together, thus raising the risk of getting alienated from other team members.

Employee Referral Program Guidelines

As we got to know the employee referral program is a crucial and fruitful approach of hiring for the employer. But, implementing it, in the manner to taste the profit is quite difficult. Thus, we came here with the solution by providing best practice of adopting an employee referral program. Let's see the guidelines for setting up the employee referral program.

Set up of employee referral program

The following are the steps to implement the employee referral program for your enterprise.

Plan

The initial step for setting up an employee referral program is proper planning. You must understand your hiring needs like for which position you're looking for a candidate, what should be the qualities and skills required for that position, what is the persona of the needed candidate, etc. 

Also, set various types of goals like minimum duration to hire a new candidate. Allocate all the resources and designate different positions for setting up the program.

Design

After planning, automate the process by using modern and specialized HR tools like an application tracking system, email templates. Also, make sure to set rules and decide rewards prior to launching the program.

Design the employee referral program that is easy to use for employees and provide rewards to motivate and encourage them to participate in this task. HR should take the following steps.

  • Define the strategic purposes and anticipated consequences of the employee referral program.
  • Outline the process and participation rules and conditions.
  • Offer rewards in order to encourage the employee to participate.
  • Insert features to amplify the referrals

Promote

After the proper design of the employee referral program, next comes its promotion. Prefer the office lunch of the employee referral program. Launch the employee referral program and promote it through promotion campaigns, salesforce social referral events, and referrals parties.

Maintain

Once the program is launched, it is important to maintain it appropriately. The employees should be appreciated, and every time a new idea should be brought on board to keep it fresh. Also, it is necessary to evaluate the results and improve tactics to get the best out of the employee referral program.

How to Make an Employee Referral Program Effective?

By now, we have clearly discovered how useful employee referral programs are, but it does not give the desired outcomes if it is not proficiently done. This problem can be solved by keeping the following points in mind.

  • Keep your existing employees updated about new vacancies
  • Acknowledge good referrals
  • Offer appealing monetary, as well as non-monetary incentives
  • Enhance user experience
  • Experiment with referral tactics
  • Provide the strong candidate experience

Best Employee Referral Program Examples

Some of the most successful employee referral programs have been Fiverr's gamification method, where they add a competition among the employees by offering points for sharing jobs and referrals like a game leaderboard.

Another great program was by none other than Google where they simply ask questions to their employees like who is the best designer or coder they know!

Intel took a step up in the game by getting referrals and bringing diversity in the company at the same time. They offered a double bonus for the successful employment of women or minorities by the referral program.

Digital Ocean structured is a program where they awarded the referring employee with $3,500 and made a charitable donation of $1,500 on the employee's behalf. In this manner, they made the employee feel valued and contributed to a good cause.

Hewlett Packard kept it simple and effective by giving recognition to the employees for their efforts and celebrating them publicly.

Another honourable mention is Distillery. They personalized the employee referral bonus as per the employee's desires. So, if an employee has a hobby of collecting action figures and they want a particular one, they get it as a reward.



What is the Importance of Employee Referral Rewards?

Employee referral rewards and bonuses are significant for a successful employee referral program. Often, some employees refer better than others, and their work should be rewarded.

The employee referral program becomes the most productive source to hire top talent  if employee referral rewards are fruitful & designed appropriately. Proper employee referral rewards encourage current employees to participate actively.

Best employee referral reward ideas

Everybody loves to get rewards and appreciation. Some of the ideas for referral rewards are given below:

  • Give days off as a reward
  • Provide a bonus
  • Give a small gift even if the referred person doesn't get hired
  • Sponsor lunch for the new hire and the referrer
  • Fund as per the employees' choice
  • Plan a holiday
  • Gift Vouchers
  • Corporate gift basket
  • Create personalized stationery
  • Gift for their pets
  • Certificate of appreciation
  • Recognition on social media
  • Handwritten note

Employee Referral Program Execution and Challenges

When you plan an employee referral program, there may be something that can lead it to failure. To avoid this, we bring some potential challenges that you may need to overcome.

  • Employees are not well informed about the employee referral program
  • They are unable to track the referrals
  • Employees face difficulty while submitting referrals
  • Once the referrals are submitted, they don't hear about it from the company
  • The process is long and tedious, so employees prefer not to refer it
  • The rewards are not exciting enough
  • Lack of motivation in the referred candidates.

Some Employee Referral Program Statistics

Every business decision is always based on some analyses and statistics. 

So, here are employee referral program statistics that help you to know the real benefits of employee referral programs. These statistics show you that you are last in the race of competition if you haven't adopted the employee referral program yet.

Employee Referral Program Statistics

1. Provide the highest ROI

82% of employers rated employee referrals above all other sources for generating the best return on investment. (Source)

2. Reduce the cost per hire

Through an employee referral program companies can save $3000 or more on per hire cost. (Source)

3. Conduct by many organization

69% of employers stated that they conduct formal employee referral programs in their organizations. (Source)

4. Reduce the time per hire

The referral candidates are 55%  faster to hire compared to the other hiring sources. (Source)

5. Reduce turnover rate

After two years, retention of referred employees is 45% compared to 20% from job boards. (Source)

6. Employee start the job sooner

Referral candidates start the job within 29 days, while the candidate from the career site takes 56 days and candidates found through job boards start in 39 days.

Reasons Behind the Unsuccessful Employee Referral Program 

The employee referral program is like telling your employees to bring new employees that are suitable for the position. Yes, it is a great procedure. It relieves companies to hire faster with minimal cost. Additionally, the right fitted talent.

But also it is not a piece of cake. For a successful employee referral program, it requires proper analysis, design, and implementation. And, here, some companies fail to give their 100 per cent.

 

1. Complicated process

Several of the companies make the whole process of the employee referral program so complicated. But in actual it is like a waterfall process. The complicated employee referral process uninspired the employees to participate in it. 

Employees show less interest in it if employees are not really much impressed with the overall process, then who will refer the candidates. And, it is one of the reasons behind the failure of the employee referral program.

2. Fruitless reward

Does your employee receive any reward once a candidate is referred by them? Is that really fruitful and motivating for the employees? Are they excited whenever the employee referral program has been announced?

These are the questions that really matter—another reason behind the failure of the employee referral program. Employees don't show interest in the program if they don't get the fruitful rewards. Everyone sees their benefits. For this reason, employees also have sought profit.

Therefore, the organizations with fruitless rewards against the reference face the unsuccessful employee referral program.

3. Lack of communication

Communication, half of the employee referral program, becomes a disaster due to the lack of communication. Did you tell your employees about the referral program via any medium? Or you convey to them about the whole procedure? Or do they have enough knowledge of the employee referral program?

If companies do not well inform about the program to the existing employees, the only outcome is disaster and failure. Communication is essential between the employees and the HR department. Openly communicate with employees concerning the position, requirement, description, etc.

Summary of Best Employee Referral Program Complete Guide

Thus, at the end of the day, you will probably hear about the positive outcomes through the internal referral program. Even in the research, it has been found that candidates by referral program are more productive and high in quality than the candidates sourced from different platforms.

Referral candidates accept the offer letter faster, stay at the job for a long period and perform better. These factors speed up the hiring process and relatively reduce the cost per hire. Moreover, reduce the turnover rate and amplify the retention rate.

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