Don't Have an Employee Referral Bonus Program? You're Making a Mistake

professional skills

Offering employees incentives in exchange for referrals is an effective program that can reshape your entire hiring process. Read on for more information on how these programs can make your life as an HR professional much less complicated.

What is an Employee Referral Bonus Program?

As an HR professional, you're probably all too familiar with how difficult it can be to find qualified applicants during the hiring process. Whether you're posting on online job boards or reaching out to old contacts to see if they're interested, finding the right person for the job has always been, and will continue to be, difficult.

One popular method involves employee referral programs. While the specifics vary from one company to the next, the principle remains the same: employees refer colleagues/connections and get rewards (such as financial compensation) if the referral ends up taking the job.


Research suggests that this trend is growing in popularity. A study by SHRM found that 52 percent of new hires in 2016 came from internal sources. If you haven't already implemented an employee referral bonus program, you should strongly consider adding one.

What are the Benefits?

If the idea of such a program has piqued your interest, here's some more information on how it can benefit your workplace and make your life easier.

Lower Cost (In More Ways than One!)

First and foremost, having an employee referral bonus program is really just an advanced form of delegation. Instead of carrying out every aspect of the recruiting process by yourself, this model allows your employees to do the work.

As you might expect, this saves you a major chunk of time because instead of hunting down candidates, they come directly to you. There's still vetting to be done and interviews to conduct, but referrals take a significant portion of the hiring process and delegate it to other employees.

Employer referral bonus programs can save you money as well as time. For example, let's say a recruiter charges 10 percent of a new hire's salary, and the employee makes $100,000. That means you're out $10,000, but if you use an employee referral program, the cost reduces dramatically. Even if you offer a $2,000 incentive (which is quite hefty), it's still one-fifth of what your recruiter would charge.

Better Applicant Quality

Online job boards like Indeed are certainly not without merit; they have access to millions of users, which makes it easy to get your opening noticed by potential employees. The issue with these sites is not so much quantity as it is quality.

Anyone is free to respond to your posting even if they do not meet the position's requirements. This means you'll need to wade through dozens or maybe even hundreds of unqualified suitors before you finally review someone worthwhile, and even then you know nothing about their character, work ethic, or attitude.


When working with referrals, the odds of getting better applicants increases. Think of it as a 'it takes one to know one' mentality. Your employees are (in theory) reliable and possess sound judgement, which makes them more likely to network and have connections with similar people.

Lower Turnover

Once you've acquired new talent, you also need to take steps to make sure that it sticks around, or else you're right back to square one. Statistics show that employee referral programs can actually improve loyalty and reduce employee turnover rates.

Whereas career sites have a retention rate of 33 percent after one year, employee referral programs boast an impressive 46 percent retention rate according to data published by referral management platform Zao.

Another reason for high turnover is unrealistic job previews during the hiring process. Candidates have one idea of the position in their head, and when the reality does not line up, they are dissatisfied and leave the company.

With referrals, however, they already come into the position with a much better idea of what to expect, thanks to their colleague. With more accurate expectations comes more satisfying work experiences, and both employer and employee come out on top.

There's also something to be said for personal loyalty. When an employee brings a friend onto the team, it strengthens their bond to the company and makes them that much more likely to remain with the company. Not only will they feel closer to the company, but the presence of their friend makes them more likely to stay with the team in the long haul.

happy team

Are There Any Downsides?

Of course, it would be dishonest to claim that there are absolutely no drawbacks to an employee referral bonus program. While these programs are enormously beneficial for both employees and HR departments, we need to take a moment to discuss the potential negative outcomes for the program.

Friendship Bias

Much in the same way that your employees are likely to know people who would be a great fit for your company, you also need to accept that they also know people who would not be a good fit, but their personal attachment means that they are blind to the faults of their friends.

It's not so much that your employees are knowingly recommending people with bad work habits, it's much more likely that their friendship makes it harder for them to recognize the flaws of their companions.

Either way, you have to be aware that not all referrals are going to be winners. You can expect to encounter a low conversion rate when it comes to the overall success rate of your referral bonus program.

Resentment from Rejections

In a similar vein, there are other dangers when you invite personal relationships into a professional space.

While most employees are willing to recognize that there's nothing personal about the hiring process, there are some who may see it as a slight against their judgement if their referral is not offered a position. Worse still, they may try to argue on behalf of their friend in an effort to change your mind.

To avoid any confusion or slippery slopes, make it clear that referring a potential hire is no guarantee that they will be hired. Do not allow recommenders to lobby on behalf of their referral, or else you risk creating a conflict of interest that could destabilize your team.

Lack of New Ideas

When employees recommend their peers, it can improve quality, but it doesn't always do much for diversity in the workforce.

Much in the same way your quality workers have quality connections, it's also likely that these new hires will have similar backgrounds and ideologies. While this can be a good thing, it can also lead to a lack of new ideas and perspectives.

Companies thrive on diversity and need workers from all walks of life, and employee referral programs can create a cycle of stagnation when it comes to fresh ideas.


Get with the Program

Employee referral bonus programs are a great way to save time and money while simultaneously improving the overall quality of your organization. Be mindful of the possible pitfalls and design a referral program that works for your team and organization. The trend toward internal hiring is growing for a good reason.

By Bill Sands
February 2018

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