Employee Referral Programs, Why You Need One and How to Build It

recruiting systemWe’ve all heard about employee referral programs and but how many of us understand just how useful they are? The answer is, few. Cultivating a strong referral program provides many benefits such as better hires, quicker hire times, reduced costs, and a positive company culture. Read on to learn why referrals are so great and how to make sure you get the benefits from a referral program.

Why Employee Referral Programs are So Great

We all want to hire a great candidate quickly. One who will stay a long time and be a productive team member without having to spend a great deal of time or money making it happen. This isn’t the pipe dream it sounds like. If you are interested in starting a successful employee referral program, make sure your recruiting system is not outdated. If it is, it’s time to try something new, like Recruiteze. Recruiteze is the number one recruiting system on today’s market and you can start Recruiteze for free! Make online recruiting easy and get started today!

Referrals produce better hires quicker because they cut the advertising and sourcing steps and the major employee qualification of cultural fit was already taken into consideration when the referral was made. No one’s going to suggest a job to a friend they don’t think they’ll want, so a referral indicates that your current employee who is well-acquainted with the culture has good reason to believe the candidate will be a good fit. They’re usually right too. Who knows what it feels like to work somewhere better than an employee?

Because you skipped the advertising and sourcing steps, you saved all the job board fees, agency fees, sourcing costs and all that hiring time. Hire times are notoriously long right now, and hiring a referral helps you get to the productive part of the process faster.

Even more importantly, a better hire saves you big in rehiring costs. Most companies lose a lot of money because of turnovers. You may not have even made profit off of the employee before they’re gone and you’re spending money to hire another.

This post on LinkedIn by Dineva with Holbrook and Geshuri shared a great description of the referrer’s viewpoint:

“Looking at the time referred employees stay at our company versus non-referrals, it is clear that referred employees stay longer. As a matter of fact, the difference in tenure is significant.

This probably has something to do with the fact that when I decided to refer my buddy Todd, I already pre-filtered for cultural fit and possibly, even for performance. I was able to make this judgment call based on our social interactions and the comments he made here and there over the years we were friends. I knew if he likes working 9 to 5 or if he likes to get everything done when his muse strikes, regardless of the time of day. I knew if he was looking for a mature work environment or wanted a cool start up with bean bags instead of office chairs. I knew if he embraces uncertainty or preferred to plan things out to the last detail and stick to the plan.

I probably knew more things than his old boss or any future interview panel would ever know about Todd. My projected culture fit estimate was even better if I knew him from a previous company where we worked side by side. In either case, if I have known Todd for a while, I could guess if he would be happy at the place I am referring him to. I want Todd to be happy, after all, we are friends.”

Employees who successfully refer someone, meaning you hired their suggestion, are also more likely to stay with your company. This further increases your retention rates and builds more engagement and a stronger company culture. You want loyalty and engagement from existing employees and giving them the impression that their input matters is a powerful boost in both areas.

Referrals also help you achieve diversity goals. Many people anticipate just the opposite, but referrals are organic, so they aren’t as likely to be hindered by the unconscious biases and unfortunate corporate policies that hiring teams may be plagued with. People refer friends, family, neighbors, and past co-workers and in today’s diverse country, these are naturally diverse groups. Let off the reins a bit and let inclusivity happen.

You can strategically create a referral program to maximize the benefits of employee referrals. The hiring team or recruiting agency you use has only a certain number of eyes, but a healthy referral program can make every employee a potential recruiter.

How To Create a Strong Employee Referral Program

A strong referral program is a planned and measured referral program. The following tips will help you plan how you’ll inspire referrals and how you’ll ensure nothing hinders them.

Advertise Internally

Advertise job openings within the company. Employees are more likely to think to refer someone if they know there’s an opening. It will also further inspire them if they have details about the position that could make them think of a particular individual or will be selling points they can use to entice the candidate.


Bonuses are popular and effective incentives to get employees to refer candidates. You may think paying bonuses negates your cost savings but any bonus costs far less than the savings(the average bad hire costs $17,000), so it’s just a sound investment. You could consider offering different size bonuses for different positions, if you like.

Remove Obstacles

Make it easy. When you want someone to do something, you reduce obstacles. Managers should always seem interested, they should allow employees to provide whatever they can rather than requiring resumes or detailed criteria, and they might have a designated place available 24/7 for phone numbers, business cards, and resumes to be deposited.

Be Reliable

Actually reach out to referred candidates. Current employees and the people they refer are going to be extremely disappointed, i.e. develop a powerfully negative association with your company if you don’t even bother to contact them.

Nurture Great Referrals

Yes, we know you’ve got buts after that last point. And they are valid buts. You can eliminate them with a little nurturing. If current employees are well-versed in the job position and what you’re looking for, they’re more likely to give you a candidate you are really interested in. So don’t just offer a bonus for referrals and let the rest take care of itself. You want to supply information like internal advertisements and communicate with your employees about your goals, which is a good policy all the way around.

Help Them Understand

If you can’t hire the referral, explain why. It shows respect and interest and may not deter them from referring again. If they just never get a response, they’ll feel helpless and like you are either unprofessional or disinterested.  In the latter case, they’ll probably never recommend anyone again and may be more inclined to quit themselves.

Tell employees what to expect. When you initiate the referral program, and when advertising for jobs internally, specify time frames to hear back and what may be required of the candidate and any other pertinent information. The more your employee knows and can tell the person they referred, they more secure and respected they’ll both feel.

Make Your Company Referable

Improve your company culture. People aren’t going to refer someone to an unpleasant job, and the more thrilled they are, they quicker they’ll refer, with or without a bonus.

Set Goals

Set goals and prepare to measure. You don’t want to just encourage referrals without a plan. Review the positions you need, goals you want to achieve, and strategies to encourage referrals. You’ll need to record where you are at the start of the program, designate goals to reach, and measure results. You may want to decrease costs, improve productivity, foster a specific company culture, or strengthen diversity. It’ll be hard to determine if you’ve succeeded and it’ll take longer than it needs to without measurable goals.


Employee referral programs save companies a great deal of money in hiring costs and  improved productivity. You don’t have to source, length of hire is cut dramatically, the chances of making an effective hire are much greater, and both the old and new employee have a boosted impression of your company, leading to better engagement, productivity, and retention. But this isn’t quite as easy as it sounds. You can easily create any old employee referral program, but a great one that will give you all the rewards you want will require some strategy and nurturing. Basically, it all boils down to keeping candidates informed and fostering an environment where employees want to refer candidates and find it easy to do.

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