What Is An Employee Referral? How To Recruit Better (For Less)
Are you missing out on the cheapest and most effective way to hire? Referred to as "The Holy Grail" of hiring, employee referrals account for 40% of all hires, yet only make up 7% of applications for job openings, according to JobVite.
Clearly, your existing employees hold the key to an untapped source of qualified candidates who would be a good fit for your company.
So if you don't have a referral process in place right now, you're losing out on great candidates when it's time to hire.
In our latest blog post, we're explaining everything you need to know about employee referrals and how to make them a valuable part of your company's recruiting strategy.
What is an employee referral?
An employee referral is a specific type of candidate attraction strategy and a method of sourcing people to apply for jobs in your company.
It's an increasingly popular recruiting tool, because it's cost-effective and it works.
Employee referrals help you hire great people without paying a large fee. It works by hiring managers asking your existing employees to recommend people they know who might be a good fit for a vacant position.
It's arguably the cheapest - and most effective - alternative to relying on job boards or other recruiting strategies to find a new employee.
Benefits of employee referral programmes
There are so many benefits to encouraging your employees to recommend a vacancy within your business to someone they know.
Here are a few of the main advantages to boosting the number of referrals you receive.
Higher quality candidates
People don't generally recommend people unless they'd be genuinely good for the role because their reputation is at stake as well - nobody wants to be seen to be recommending someone poor.
Plus, referrals often identify high-quality passive candidates who aren't actively seeking a new job.
Research revealed people sourced via referrals are four times more likely to be hired than candidates sourced using other recruitment methods.
Better culture fit
Your existing employees are likely to have friends and connections who share their values and attitudes, so people they recommend are often similar to them and therefore a good culture fit for your company.
Plus, if a potential candidate is already familiar with your organisation via their friend, they're usually more aware of the company culture and know it sits well with them.
Faster hiring process
Generally, referrals have a shorter hiring cycle and come pre-vetted by your existing employee, so you can get them in position faster than going through traditional recruitment channels.
Research revealed recommended hires start within 29 days, compared to 39 days when they come via job boards and 55 if they apply on career websites.
Another study by Toolbox revealed referred candidates are hired 55% faster than those sourced through traditional methods.
Save money on recruitment
84% of companies think employee referrals are the most cost-effective way to find new employees, according to Aptitude Research.
And it's easy to see why they're far cheaper than using a recruiter or taking out job ads.
Say you'd normally spend £10,000 on a recruiter fee to generate a candidate for an open position.
If you ask your employees to recommend someone they know, you can identify a great person for free or for a much smaller incentive.
Boost your employee retention rates
Referred employees tend to stay longer, boosting your retention rates and lowering the cost of employee churn.
In fact, research by LinkedIn revealed employees hired through referrals are 30% less likely to quit within the first six months, in comparison to people hired through other sources.
Almost half (45%) of employees hired after a referral remain with a company for longer than four years, whereas only 25% of employees found via job boards stay for over two years.
Improve employee engagement
Internal employees who help you find qualified candidates feel more engaged and invested in the success of your business, as they've played a direct role in it.
In fact, referrals lead to better engagement for both candidates and employees.
Can large and small businesses leverage employee referrals?
Yes, absolutely.
Larger organisations in a town (both public and private sector public sector) have a huge opportunity to use employee referrals for open roles.
Thanks to the six degrees of separation, companies will often pay a significant fee to hire a new starter who ends up knowing someone who already works there. That fee could've been slashed to as little as zero if only they'd encouraged employees to refer candidates.
Meanwhile, small companies can see the biggest success from referrals from employees - one American study showed referred employees in smaller businesses stay 122% longer than people sourced via job boards.
The average person knows 150 people socially, according to Dunbar's theory, and has 500-600 acquaintances.
So, even if you have a smaller business of up to 10 people, they're likely to be able to refer someone suitable for the roles you're trying to fill within that smaller - yet sizeable - network.
What's the key to a successful referral scheme?
Employer brand
The important thing to acknowledge is that having an effective referral recruitment strategy is inherently linked to your employer brand - how your business is perceived internally and externally.
Internally speaking, a strong employer brand leads to employee advocacy. If your people love working for you, your employees become your biggest brand ambassadors.
This works externally, too.
If candidates are hearing really good things about your organisation on the grapevine, they're more likely to reach out and be open to an opportunity that their friend has approached them about than if they've heard bad things or mixed reviews about what you're like to work for.
So, if your employer brand is strong, tapping into your employee network and encouraging referrals as an attraction source is game-changing.
Trust
Another key issue surrounding employee referrals is trust.
There needs to be a culture of trust within your business when asking employees to share job openings with their connections.
No one wants to feel like a failure, so they need to know they're not going to be judged, criticised, or embarrassed if that person doesn't get hired.
Your team also needs to trust their friends are going to be handled well, regardless of how successful their application is. After all, a slapdash interview process with zero feedback or respect for the candidate's time is going to create an awkward situation for your employee.
So, ensure your recruitment process is tight and everyone is treated with respect, in line with your company culture.
Awareness
A successful employee referral programme is one everyone knows about and uses.
Once you've decided what it looks like, come up with a system and a communication plan to get employees to participate, making sure they know about new positions and job requirements to match them with relevant people.
Set out clear instructions about which vacancies are open to referrals and how an employee should go about formally referring a candidate.
For example:
Is there a dedicated email address or Teams channel where employees should send their referrals?
Do they need to simply forward a CV?
Are there any conditions around this process that they need to know about?
If you have a bonus scheme, what are the rules around it and how does it work?
What is your communication strategy to let employees know and regularly remind them about your referral scheme? e.g. intranet messages, printed posters, agenda items for meetings.
When setting up an employee referral scheme, remember to keep things clear and simple to encourage as many people to take part as possible.
Do you need to offer a referral bonus to employees who refer candidates?
We believe a company's employee referral programme works better when recommendations come from the right place.
So, there is absolutely a case to say you don't need any sort of incentive to encourage your current employees to make referrals.
Happy employees will naturally refer potential job candidates.
However, if you feel like there isn't enough of an incentive for people to do that right now, you can put a reward scheme in place.
Referral bonus amounts vary, but here's an example:
Offer £1000 to someone who refers a new hire - £500 is paid when candidates get hired upon referral and £500 is paid after a three-month probation period.
Get support to use employee referrals successfully in your business
If you're curious about exploring the benefits of employee referrals as a recruiting tool but aren't sure where to start, let us step in and support you to get it right first time.
We work with businesses of all sizes to establish effective processes that change how they attract, hire, retain, and engage employees.
Setting up your referral scheme can happen as a one-off project or as part of a wider recruitment strategy to ensure the best people find you and want to work for you.
Let's start with a discussion about how you currently hire and retain employees so we can recommend the best plan of action for your future success - contact our Managing Director Katie Mellor by email to schedule in a free, no obligation call here.