How To Develop An Employee Referral Program (With Tips)

By Indeed Editorial Team

Updated 15 November 2022 | Published 22 November 2021

Updated 15 November 2022

Published 22 November 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Employee referrals are an optimal way to use a company's existing employee network to find new candidates for open positions. Using this recruiting strategy can help a human resource department find qualified candidates in a cost-efficient way. Learning how to create your own referral program can help your employer recruit new talent and reward employees for helping in the process. In this article, we discuss what employee referrals are, outline some of the major benefits, explain when to adopt them, describe how to create a program and list several tips on how to create an effective one.

What Is An Employee Referral?

An employee referral is when an existing employee of a company recommends a person outside the company for a job at their employer. The employee usually makes the recommendation to the human resource department for a specific job opening. When companies adopt a referral program, they create a systematic way for using their current employee's professional network to seek new candidates. Once the employee makes a recommendation within the program, the employer may give an incentive once the referred candidate completes a probationary period. Some types of incentives include a bonus, time off or additional vacation days.

Related: Recruitment Process: A Step-By-Step Guide

Benefits Of Employee Referrals

Employee referrals have several benefits, including helping to shorten the hiring process and improve the chances of hiring the ideal candidate. Below are some benefits for why creating a referral program can be a valuable strategy to adopt:

  • Employees have a better grasp of the job requirements: This better equips them to know which people in their network are the most qualified. They can also help pre-qualify the candidates by informing them ahead of time about the job requirements to determine if they are interested and qualified.

  • Referrers suggest only eager and qualified candidates: Since they do not want to damage their reputation, an employee may only refer individuals who have the most relevant skill sets. This helps companies save time in qualifying suitable candidates since the employee has already done this.

  • The referred candidates feel obligated to perform well: Because there is a relationship between the employee and the person they referred, the referred candidate may feel obliged to work harder and stay longer in the job than a non-referred candidate. This helps create a more productive workforce and helps lower turnover.

  • Saves money and time: Using online job boards, attending job fairs and hiring recruiting agencies can be very costly and take time to implement. Having an employee take on many of the responsibilities of finding and qualifying the candidates can help create a much more effective recruiting strategy and save company resources.

  • It can increase employee satisfaction: Since most referral programs include an incentive, employees feel more satisfied with their employer when being rewarded. It may also make them feel more engaged in the company, as they are playing a more active role in the company's success.

Related: What Is Headhunting And Recruiting? Definition And Process

When To Adopt A Referral Program

A referral program can benefit a company at any time, even when hiring new candidates is not an issue. Yet, there are some situations that can warrant adopting a referral program. Some of these common scenarios are:

  • You have a small recruiting budget.

  • The human resource department is understaffed.

  • The company continues to hire unsuitable candidates.

  • Your current recruiting strategies are not attracting many candidates.

  • The company is experiencing high turnover rates.

  • Productivity and engagement of the employees is decreasing.

Related: How To Motivate Employees: 18 Steps For Workplace Success

How To Create An Employee Referral Program

A successful referral program requires time to get approval from management and time to create a clearly defined strategy and framework. Once you learn how to create a successful one, your employer can save money and create a more productive workforce. Below are several steps to help you create a referral program:

1. Define the structure

Defining the structure of the program helps to create a foundation from where to build the program from. This means figuring out all the features of the program, who is going to be responsible for what tasks and how to launch the program. Here are some of the key questions to address:

  • What types of incentives are there for employee referrals?

  • How much are employees to be paid for their referral?

  • At what point can you pay the employee, once you hire the referred candidate or after a certain period?

  • How can you publicise the program?

  • Who handles questions about the program?

  • How long is the program running for?

2. Offer an incentive

If you want the program to be successful, attractive incentives can help employees want to take part in the program. Usually, a monetary bonus works best as an incentive. Ensure the amount is significant to attract employees to want to take part. You can also try creating a tiered incentive program and base the incentive package on how many successful candidates someone refers. The key to finding the optimal incentive is organising brainstorming sessions with employees to see what intrigues them the most.

Related: What Is A Bonus? Definition And Types

3. Create a referral contract

A referral contract helps to set the expectations of the program and defines clearly what the conditions are for the reward. This avoids any miscommunications between the employee and the human resource department. Keep the language simple and clear, as any employee in the company can qualify for the program and be able to understand the contents of the contract easily. The employee usually signs the contract before hiring the referred candidate. Below are some important criteria to include in the contract for the employee to receive the incentive:

  • The candidate meets the qualifications and skills that are required for the position.

  • The candidate was not a previous employee of the company.

  • The candidate has no previous involvement in the company's recruitment process.

  • The candidate did not apply for the position without a reference.

4. Educate employees about the program

Before launching the program, you can expect employee questions ahead of time. You can also include some employees in a brainstorming meeting to gauge what types of questions and reactions to expect. Then you can create a frequently asked questions sheet to include in the program's launch to help deal with these questions more efficiently. Sharing recruitment videos, general employee job requirements and what types of candidates you are seeking can help the employees more effectively adopt the program as well.

5. Launch the program

If you want to launch the program successfully, create excitement around the program and ensure the details reach every employee. If you can, include the CEO in the program's launch, either through a recorded video, or have them host a meeting to make the announcement. Employees are more receptive to a new program that is launched by the company leader. Announce the program through multiple touchpoints, such as at a meeting, by email, through posters on company bulletins and online staff portals.

6. Gather feedback

Feedback is important throughout all the stages of the program. Gathering feedback from both the employees and new candidates helps to identify ways to improve the program. Ask them if they like the program and if they know ways you can help improve the program. You can assess feedback through surveys, interviews and focus groups. You can even include a feedback form with each referral contract that an employee can fill out.

7. Monitor and remind

Create a set of metrics to monitor the ongoing program. Evaluate for each quarter how many employees have made referrals and how many referrals became successful new hires. For the program to be a success, you can create multiple reminders for the program. For example, you can include a mention of the referral program in the signature of your email. You could even create company promotional items that help advertise the program like branded t-shirts, posters and business cards.

Tips For Creating A Referral Program

Referral programs require a strategy and a lot of preparation. Creating an effective employee referral program can bring a lot of benefits to an organisation by onboarding more qualified candidates. Here are some tips for creating the optimal referral program:

  • Use simple rules: The simpler you make the rules of the program, the easier it is for more employees to engage with the program. Using simple rules also makes the program seem more rewarding, as the incentive seems more achievable.

  • Offer meaningful incentives: Not every employee finds motivation by money. Think of other creative incentives to attract employee adoption like paid vacations or a donation to a charity of their choosing.

  • Update referrers: Maintain regular updates of the status of the candidate to the employee who made the referral. This helps keep them engaged and also allows for the employee to help by following up with the candidate or helping to update contact information.

  • Acknowledge successful referrers: An incentive like money is just one way to celebrate a successful hire. Acknowledging a referrer to their coworkers can help boost their morale and help encourage others to engage with the program.

  • Measure and refine: Every year, measure how well the program is performing. Try to identify ways to update the program and make it better based on employee feedback.


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