Employee referral schemes are now a key part of the recruitment process for many organisations. Success hinges on careful planning and implementation, with HR playing a pivotal role.
An employee referral scheme sees existing staff recommend or refer potential new hires who would be a good match for the company, usually for a financial or non-monetary reward like extra vacation days. Because referred candidates have been endorsed by current employees who understand the company culture and what makes a good fit, it can boost the new employees’ credibility and cut the risk of making bad hires.
The hiring process is also quicker – referred candidates are typically hired in 29 days, compared to 55 days for most hiring methods, according to LinkedIn Talent Solutions. What’s more, referred hires tend to stay at the company longer: a study by JobVite found that 47% of referred new hires stay at their position beyond three years, compared with around 14% of job-board hires.
It comes as little surprise, then, that referral schemes are increasingly common: 84% of companies see them as the most cost-effective way to find talent, according to Aptitude Research.
HR is central to delivering a successful referral scheme, from structuring the programme and drawing up the policy to creating awareness and promoting the scheme across the organisation.
Janine Chidlow is managing director at talent acquisition firm WilsonHCG. She suggests establishing a steering group of various stakeholders, including legal, compliance and marketing representatives, who will be involved in rolling out, communicating and monitoring the programme.
“One element of implementation that shouldn’t be overlooked is how employees belonging to different groups can benefit referral schemes, particularly when it comes to supporting diverse and inclusive hiring practices,” Chidlow notes. “These groups will be aware of any barriers to inclusivity in the business, which makes them a prime stakeholder to engage with for referrals.”
Incentivising employee referrals
Referral schemes should offer attractive incentives to employees who refer successful candidates. These can be either monetary or non-monetary, but they must resonate with the team, says Dan Buckley, CEO of Cognexo, an employee experience platform.
“Monetary bonuses are common, but other perks such as additional vacation days, experience-based rewards or donations to a charity can also be effective,” he says.
Companies should also consider the practicalities of the referral process. According to Buckley, digital tools – such as an online referral portal or dedicated email address – make it easy for employees to submit referrals, which can then be tracked to determine hire and retention rates.
Monetary bonuses are common, but other perks can also be effective
Colt Technology Services operates an employee referral programme that provides a financial incentive to employees who introduce suitable candidates to the company. In 2023, 19% of all externally advertised vacancies were filled via a referral.
Colt’s chief people officer, Catherine Leaver, says a referral bonus is payable to employees when they refer a candidate who is subsequently employed by the company as a result of the introduction, provided the terms of the scheme are met. “It is Colt’s way of saying ‘thank you’ for identifying outstanding people to join us.”
By accessing Colt’s internal career portal, employees can select a “refer a friend” option, with the candidate then contacted directly by the recruitment team. A standard interview and selection process follows and if the candidate is successfully hired the employee will receive a referral payment.
A level playing field
With skills shortages across sectors, efforts to broaden access to fresh talent should be welcomed. But for a referral programme to work it is important to set parameters and ensure that the referral scheme is an integral part of a recruitment strategy and that the hiring experience is consistent across all channels.
As Leaver explains, this could become complicated in a global company such as Colt, with different hiring and employment regulations across countries. “The key lies in staying connected with your local talent acquisition managers and making sure they are as committed to and excited about the programme as those in the country where your head office is based.”
Although referred candidates have been recommended by existing staff, this shouldn’t be viewed as a replacement for the usual assessment process, such as any vetting procedures. It is vital to maintain a fair and thorough approach for assessing new hires.
“You want to avoid a situation where someone is deemed to have been given an easier ride because they’ve been recommended by a current employee,” says Chidlow.
On the other hand, you don’t want a situation where someone who has applied for a role via a referral programme feels unduly left out of crucial stages of the recruitment journey: for example, in the way you communicate with candidates, sending an email to thank them for their time or providing study materials if they want more information about the organisation.
The candidate experience helps individuals decide if they want to work for a particular brand, and if they don’t go through the same touch points it could have a detrimental impact on the impression the employer makes. “From a risk and compliance perspective, everyone must be thoroughly vetted for a role, regardless of who recommended or referred them to the job,” notes Chidlow.
The risks of referral schemes
The benefits of employee referral schemes are clear, but there are potential risks. For example, overreliance on referrals can result in a homogenous workforce, as employees tend to refer people who are similar to themselves. “HR can guard against this by setting diversity goals and encouraging referrals from all backgrounds,” says Buckley.
Referred candidates may also have higher expectations due to their connection with current employees, potentially leading to dissatisfaction if the process isn’t managed well. “Ensure clear communication about the recruitment process and company expectations from the outset,” he stresses.
From a risk and compliance perspective, everyone must be thoroughly vetted for a role, regardless of who recommended or referred them to the job
HR must be mindful of the potential for bias to creep into the hiring process. The risk of perceived or actual bias if referred candidates are consistently chosen over others can be damaging to the organisation, says Jonathan Firth, vice-president and UK & Ireland recruitment solutions head at LHH.
“Nepotism has a big impact on employee morale as incumbent employees can feel discouraged to invest and develop their career when someone could swoop in at the same level thanks to their connections and not necessarily their skills or experience,” he says. “While there is no explicit obligation on employers to prevent nepotism, employers must take measures to protect against potential discrimination claims.”
Communication is key
Clear internal communication around employee referral schemes is pivotal to their success. Without clarity, employees can misunderstand eligibility criteria or how to participate, leading to disengagement or misuse.
Buckley suggests launching the programme through company-wide meetings, emails or internal communications platforms.
“Share the benefits and successes of the scheme to build momentum and ensure that all relevant information about the scheme is easily accessible,” he says. “Sharing stories of successful hires who came through referrals not only reinforces the value of the programme but also encourages participation.”
Employee referral schemes are now a key part of the recruitment process for many organisations. Success hinges on careful planning and implementation, with HR playing a pivotal role.
An employee referral scheme sees existing staff recommend or refer potential new hires who would be a good match for the company, usually for a financial or non-monetary reward like extra vacation days. Because referred candidates have been endorsed by current employees who understand the company culture and what makes a good fit, it can boost the new employees’ credibility and cut the risk of making bad hires.
The hiring process is also quicker – referred candidates are typically hired in 29 days, compared to 55 days for most hiring methods, according to LinkedIn Talent Solutions. What’s more, referred hires tend to stay at the company longer: a study by JobVite found that 47% of referred new hires stay at their position beyond three years, compared with around 14% of job-board hires.
