An effective employee referral program should be an integral part of any employee recruiting process. There are many recruiting sources that can be used for your employee recruiting and it is not necessary to limit activities to any single source. Referrals from existing employees have been shown to be some of the best employees. Study after study have shown that employees referred by existing employees perform better and last longer on average.
There are many benefits from a well designed and implemented employee referral program in addition to getting better employees. The first area of improvement is a significantly reduced cost per hire for bring on new employees. Employee recruiting is expensive. Running ads, posting on-line and using headhunters all cost money. In many cases multiple sources will be used to build a candidate pool and the costs add up.
But giving existing employees a referral bonus can be much more cost effective. There is only one payment. Calculate an amount that is both attractive to your employees and cost effective for the business. A good recommendation is 20-25% of the normal cost per hire number.
The second benefit of a good program is the program can be a significant morale booster for existing employees. They are much happier when the money spent on recruiting “stays in the family” instead of being spent on outside sources. Existing employees appreciate the opportunity to make more money while helping the company at the same time. Everyone benefits from a well-run employee referral program.
Designing The Employee Referral Program
The program does not need to be complex. The first step is determine how much to pay for the successful referral. As mentioned above, 20-25% of your cost per hire (CPH) is a good place to start. If you aren’t sure of your CPH, pick a number that is attractive to existing employees and you still feel good about. Then adjust as necessary based on the results you get. You can get additional information regarding recruiting metrics here. Decide if there will be different levels of payment. It is possible to pay a different amount for professional positions versus hourly jobs. Also, there might be a special bonus for critical, hard to fill jobs. Once again, needs and common sense should dictate these decisions.
Next, determine how to pay the bonuses. Some organizations pay the bonus the day the new employee starts. Some wait until 90 days or when the probation period ends. My recommendation is a combination model. Pay half of the bonus the day the person starts and the remainder at the end of the probation period.
The rules for the program can be very simple. Create a process to accept and record official referrals. A simple form that employees complete with the critical information about the referral is all that is needed. Consider requiring a completed application or a resume as well. The submission is date stamped. To receive the bonus, both the referring employee and the new employee must be present on the dates the payouts are due. That’s about it. It doesn’t have to be overly complex.
Getting The Most From Your Employee Referral Program
To get the most from your referral program generate some excitement. Promote the program constantly. Talk it up to employees. Consider having posters or tee shirts or coffee mugs made up to promote the program.
One other promotion you might consider is to have a contest. Raffle off a prize where raffle tickets are earned by referrals (in addition to the normal bonus). Anything that generates excitement and more referrals should be considered.
In conclusion, an employee referral program should be part of an overall employee recruiting strategy. Not only will you benefit from better employees and lower recruiting costs but existing employees will appreciate the opportunity to earn extra money.
