Among the best recruiting strategies used by the employers today, employee referral has gained the most popularity. It not only helps in low cost recruiting by minimizing the amount of resources (time, people and money) spent on advertisements, career pages and headhunting firms but also results in increased employee motivation by paying them a referral bonus and by involving them in the recruiting process. If we look at the statistics

  • 82% of the employers rated employee referral as a recruiting method with the best Return on Investment (Direct employers association recruiting survey).
  • 88% of the employers stated that employee referral gives the highest quality of new hires as compared to any other method. (Direct employers association recruiting survey).
  • Employee referrals are the fastest time to fill. It takes 29 days to fill a position through employee referrals, 39 days for job boards and 45 days through career pages. (Jobvite index 2012)
  • Employees hired through referrals have 46% retention rate after one year as compared to job boards which is 22% and career sites which is 33%. (Jobvite index 2012)
  • The applicant to hire ratio of employee referrals is 1 out of 3 applications for top performing firms and 1 out of 10 applications for average performing firms. (Dr. John Sullivan and associates research 2008-2011)
  • Employee referrals are the most productive source for diversity hires as compared to any other source. (CareerXroads 2011-2012).

How to set up an employee referral program

To set up an employee referral system, a company must follow the given steps:

Determine the incentive/ referral bonus

  1. The first step is to determine the incentive that the employees will get in return for referring a candidate. The incentive could be a cash bonus, extra vacation or any other monetary or non monetary reward. In most of the cases, the incentive happens to be the cash bonus. The bonus could be different for different positions e.g. for a position like an IOS developer which is difficult to fill, the bonus could be more than any other position. If we talk about Pakistan, the referral bonus may vary from PKR 10,000/- to 20,000/- ranging from easy to hard to fill positions.
  2. Determine the rules for paying the referral bonus: The next step is the form a procedure for paying the referral bonus. This is important to make sure that the right candidates are being referred who are actually hired and plan to stick to the company. The bonus could be paid according to the following guidelines: 50% of the bonus amount is paid to the employee at the time of joining of the new candidate. Remaining 50% of the bonus is paid after successful completion of the probation period of the candidate. If an employee is hired for a different job than the one he was referred for, then the HR department will check following: If the referred applicant is hired for a job where referral award scheme does not apply, no payment will be given to the employee. If the referred applicant is hired for a job where referral award scheme exists then the payment will be given to the employee based on the job offered.

If the candidate referred by the employee is hired within the 6 months by the organization, then the employee will get payment according to the award associated with that job. If referee leaves the organization before the completion of referred person’s probation then only 25% of remaining amount will be given at the time of settlement.

  1. Determine a referral method

Third step is to determine a referral method. i.e. what procedure should the employees follow to refer a candidate. The employees could be given access to a website with “refer a friend” option. The website displays all the current vacancies. The employees can thus identify the names and contact information of the referred candidates against any particular job. The candidate in turn, could be asked during the application process about who referred him/her.

  1. Train the employees and track the referrals

With the implementation of an employee referral program, the employees would be participating in the recruitment process; therefore, it’s important to train them on making contacts and networking. They must be encouraged to use social media and other sources that could lead to more qualified referrals. Moreover, the company should also keep track of the referrals and make sure that the bonus is paid to the employees on time.
Part of the blog post is crowdsourced.