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7 Reasons You Should Start Accepting Employee Referrals If You Haven’t Already
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Stephanie Nieves
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Companies spend lots of time, money and resources searching for the best candidates to fill open positions. Employee referrals can help cut these costs in half, especially when formalized through structured programs. But what are they and what direct benefits can be reaped from them? Read on to find out.

What is meant by employee referral?

An employee referral program is a recruitment method companies use to source job candidates by asking existing employees to make recommendations. Employees may refer friends, former coworkers or anyone else who fits the requirements of the open position(s). If those candidates are hired and perform well over a certain period of time, employees can be rewarded through bonuses or other perks.

What are employee referral programs?

Employee referral programs are a structured way to request and receive employee referrals on a rolling basis. This staffing strategy is typically used at organizations looking to source several people in similar roles and come with many advantages for employers and employees alike.

7 benefits of employee referral programs

Companies with tight hiring deadlines and ambitious developments can benefit from employee referrals. 

If you implement a program, some of the benefits you can expect are:

1. Increased employee retention rates: Employee referrals rank No. 1 with a 46% success rate in one year compared to career sites which total 33% of new hires.

2. Improved candidate quality: Existing employees have the best insight on the company culture, pace and core values, so they're likely to recommend people who'll work well in that atmosphere and meet the demands of the role.

3. Timely and cost-effective recruitingWith employee referrals, companies get quality candidates straight to their inbox, saving them the time it takes to source and screen them. Companies also save money from third-party staffing agencies and can pull back costs from advertisements targeted toward job seekers.

4. Reduced time to hire: Referred employees take approximately 29 days to hire and onboard compared to applicants sourced through job boards and career sites who take 39 and 55 days, respectively.

5. Increased ROI: The 2006 Direct Employers Association Recruiting Trends Survey shows that of the 73 employers surveyed for their satisfaction across several application sources, 82% of them were the most satisfied with employee referrals.

6.  Better culture fits to the company: Referrals already have established relationships with at least one existing employee giving them the advantage to gain intel on the company. With this advantage, they're more likely to decipher their own culture fit before accepting a job offer (or even applying).

7. Improved offer acceptance rates: Referred hires are more likely to successfully match with a position because of the insight they gain before the recruitment process.

3 disadvantages of employee referrals

Without a doubt, employee referrals are an excellent way to get the most applicants using the least amount of time and money. But there are some disadvantages to this recruitment strategy, too. The most common include:

1. Lack of diversity: Given the nature of employee referrals, employees may refer people who share a lot of their own demographics. Think about it: In a company employed by many cisgendered white men, many of those employees may refer other cisgendered white candidates because of the reach of their network, institution or social circles. This could lead to a lack of diversity amongst the screened candidates and employee population, overall. 

2. Company cliques: When employees refer their friends, family members or people of similar demographics as them, cliques may form around these groups because there's already an established relationship between the two. This could make it incredibly difficult for managers to promote or let go of employees because members of those cliques may be personally effected and influenced by those professional decisions (enough to even quit if a friend of theirs is let go, for example).

3. Less rigorous screening and interview process: Referred candidates are often associated with the reputation of the employees who referred them. This can lead employers to believe that their work ethic (and future performance) would be similar to that of the existing employee. The hiring process may be less stringent than it would be for cold candidates, as a result. Later on, this may also cause hiring managers to hold referred candidates to the same standards that they do to the existing employee.

Do employee referral programs work?

Given the advantages companies can gain from implementing an employee referral program, the answer is yes. The question we actually need to be asking, however, is "What should we do to create referral programs employees actually want to participate in?" In order to ensure the success (or at least movement of your program), you should consider the following five things.

1. Prioritize referred job candidates. 

In order to save your time — and everyone else's — put employee referrals at the top of your application stack when you get them. Their connections with existing employees means they may be the most prepped and/or qualified for the position, so this strategy could mean finding the right hire in less time. 

2. Respond to all employee referrals.

Whether you invite them to an interview or pass on their candidacy, job applicants (and the employees who referred them) want to feel seen.  Otherwise, what would be the point of participating in the program, at all, if they could gain the same experience on a job board?

3. Acknowledge employees for making successful referrals.

When employees recommend candidates who actually land the role, recognize them for it! All it takes is a simple email, a shoutout or a plug in the company's newsletter to acknowledge employees for their successful referrals. 

4. Offer a referral bonus.

Many referral programs incentivize employees with monetary bonuses, encouraging them to recruit even more proactively. Bonuses typically range from $1,000 to $5,000 which can really add up with every successful new hire. 

Additional employee referral resources:

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Stephanie Nieves is the SEO & Editorial Associate on the Fairygodboss team. Her words can also be found on MediumPayScale and The Muse.

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