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