3 Must-Haves for Your Small Business’s Employee Referral Program

Henry Updegrave

Henry Updegrave heads up marketing at Nowsta, a workforce management platform that makes it easier for businesses to schedule staff, track their hours, and run payroll faster.

Imagine a new employee shows up for their first day of work at your business. They walk through the door eager to learn, but also nervous and a bit unsure of themselves. They don’t know what to expect and don’t know any of the other staff.

Now, imagine someone starting their first day having been referred by one of your current employees. They walk in confidently, having heard all about the day-to-day routine at your company and knowing they have a friend to help them along the way.

Which of those two employees do you think is more likely to make a positive impact sooner? Obviously, it would be the latter.

That’s why an employee referral program can be so beneficial for your business. Several studies have shown that people hired via referral onboard faster and have lower turnover than the average employee.

It makes sense: Referred employees come in with more background information, have a friend they can go to for help as they learn the ropes, and are vetted by someone who knows your workplace. And in a tight labor market like the one we’re currently experiencing, small businesses need to use every option available to find good talent, both full-time and contract.

How to Build a Successful Employee Referral Program

So, what exactly goes into a successful employee referral program? Below, we outline three criteria you need to fulfill.

Pick a Compelling Reward Structure

The first piece of a strong employee referral program is an incentive to get employees to refer their friends. We recommend cash or an equivalent such as an Amazon or American Express gift card. For most hourly employees, something between $100 and $150 is standard.

But here’s the trick: Don’t give employees the full reward all at once. Give them half when you first hire their referred applicant, then give them the other half once that new hire has hit a milestone of, say, 100 hours worked or three months of successful employment. That way, your staff is incentivized to only refer friends they’re confident will be a good fit, and won’t immediately contribute to turnover.

You also may want to consider extra rewards to inspire your staff to refer more than once. A simple way to do this would be to just increase the reward amount for employees who have successfully referred a certain number of people (e.g. $200 instead of $100 for your fifth successful referral). But you can also get creative and offer non-monetary rewards, such as:

  • A month of shift scheduling preferences
  • A nice meal out with a friend at a local restaurant
  • Experiences like tickets to a movie or museum exhibit

Those rewards are usually cheaper than cash, but they’re more memorable for the employee—especially if you tailor them to the individual’s interests. You can also offer these extra incentives to all your employees as one-off prizes if you’re understaffed or going through a particularly slow hiring month.

employee referral program

Promote Your Employee Referral Program Heavily

No one on your team will remember to refer people if you mention it once and never bring it up again. You need to remind the team that your program exists, emphasize why it’s important, and show them why it’s in their best interest to refer. Point out that while the reward is the primary motivator, the employee referral program is also a chance to help shape the culture of the company.

You have several options when it comes to promoting your employee referral program:

  • Send an email to your staff list announcing the employee referral program and explaining how it works. Follow up by sending occasional reminder emails or by shouting out the program in other communications to your employees.
  • Bring up the employee referral program in your team meetings and one-on-ones.
  • Post about your referral program on your company’s social media channels whenever you promote job openings, and encourage your employees to do the same. Their friends might see and ask for a referral.
  • Tell new hires about the employee referral program once you’ve verified that they’re a good fit and that you plan to keep them around long-term.
  • Publicly congratulate and thank people who successfully refer so the team sees the benefits first hand.

You also don’t have to limit your referral program to just your employees. Why not encourage your customers to refer as well? Companies that do this have reported as much as 41% of referrals coming from non-employees.

Make It Easy to Refer

The processing of referring a new candidate should be as fast and easy as possible for both the referrer and the applicant. Think of it as a five-step process:

  1. The employee tells their friend to apply.
  2. The friend applies via referral.
  3. You interview the new applicant.
  4. You make the offer and they accept.
  5. You give the referring employee their reward.

Your goal is to ensure there’s as little time as possible between each of those steps. Any friction or hold-ups along the way will cause applicants to drop off.

Your ability to streamline the referral process largely depends on the technology at your disposal. If you have a robust applicant tracking system, you’ll save time and effort by automating some of these steps. Some ATS tools notify you of employees who come in via referral and tell you who to reward. But even if you don’t have that technology, you can always add fields to your job applications asking job candidates if they were referred, and if so, who referred them.

Once you have a way of tracking which applicants come to you via referral, make sure you put them on the fast track. You know they’re more likely than others to be a good fit for your business, so try and get them in the door for an interview faster and let them know if you’ll be hiring them sooner than other applicants.

This isn’t just about making the hire faster: If you reward referring employees sooner after they recommend someone, it triggers a positive feedback loop that encourages them to refer again more quickly.

Employee Referral Program: Your Secret Well of Talent

A successful employee referral program helps you build a better team faster and gives your staff a sense of ownership over your company culture. Not only that, but it can greatly reduce your recruiting and onboarding costs.

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.

Henry Updegrave

Henry Updegrave heads up marketing at Nowsta, a workforce management platform that makes it easier for businesses to schedule staff, track their hours, and run payroll faster.

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