What Are Employee Referral Programs?

When you're searching for a new job, a referral from someone who already works at a company can get your resume a closer look, and may even help you get an interview. For employers, a referral program can be a way to source candidates who come recommended by a current employee. It’s a winning situation for all the parties that are involved.

While you’re job searching, check to see if you have any contacts at the companies where you’d like to apply. If you do, then perhaps your contact can help you get a job referral and get a reward from the company in return for their effort.

What Are Employee Referral Programs?

Employee referral programs are formal programs employers have instituted to encourage employees to refer candidates for jobs at the company. Referral programs benefit both the employer and the current employees, as well as the prospective new hire. In some cases, an employee can earn a bonus if a candidate they referred is hired. 

Benefits for Employers

A referral program is a way to help ensure the company is recruiting top talent for available positions. The assumption is that current employees are uniquely qualified to identify the best candidates since they know the organization's mission and company culture. Employees may have friends or colleagues they know to be talented and who would fit perfectly into that culture.

A survey from ERIN reports over 80% of employers rated employee referrals as the best source for generating a return on investment. Referred candidates are four times more likely to be hired, and 45% stay with an employer for longer than four years, compared to candidates hired from a job board. 

Benefits for Employees

Employees who refer successful applicants can earn cash bonuses, prizes, points that can be used for prizes, extra time-off from work, gift certificates, or other rewards. For cash bonuses, ERIN reports that the average bonus is $2500.

Benefits for Job Applicants

For job seekers, a referral is a way to get your application priority consideration. When companies receive many applications for every available position, a referral can help yours stand out from the crowd of candidates.

If you're a college graduate, also check with the alumni or career office for a list of alumni who may be able to assist.

How Employee Referral Programs Work

Employers with effective programs promote the option regularly to employees and provide an easy mechanism, like an online referral system, for staff to forward referrals.

Providing employees with a summary of selling points for working with the organization and educating employees about effective ways they can reach out to prospects are important ingredients for viable programs.

Some organizations conduct some specific targeting towards employees believed to have contacts from prior employers who are competitors or who have a reputation for developing high impact talent. 

Company Referral Incentives

Company referral programs often have financial incentives for employees who make viable referrals like prizes, time off, free travel, and cash rewards. 

Sometimes small rewards are provided for any referred candidate who ends up getting an interview. In other cases, rewards are contingent upon referred candidates being hired and remaining with the organization for a specified period of time.

Non-financial incentives such as formal recognition of employees who make referrals through corporate communications can also be effective. Recognition of contributing employees by supervisors can also be an incentive.

What Are Friend-of-the-Firm Referrals Programs?

Some employers have expanded their referral programs beyond employees only and have added mechanisms for non-employee "friends of the firm" to recommend candidates for vacancies.

Who Qualifies as a Friend

Companies set criteria for who qualifies as a friend. Common categories of friends include ex-employees who have left in good standing, suppliers, clients, consultants, college interns, family members of staff, high-quality candidates who have declined offers, and members of advisory boards or boards of directors. 

Referral Policies

Most organizations establish guidelines for referrals. For example, most companies stipulate that recommendations should be supported by tangible evidence of an individual's past performance. Firms make it clear that they are looking for top performers. They may provide materials to educate employees on the best way to approach and screen potential referrals. 

Referral Incentives

Some firms will put incentives in place including cash or prizes if referred individuals are hired and stay with the organization for a specified period of time.

Potential Benefits for Employers

As with employee referral programs, a major potential benefit of a friend program is the opportunity for an employer to source high-performing individuals who are not looking at job advertisements or otherwise actively seeking new jobs.

Also, by relying on friends rather than strictly employees, employers open themselves up to a much larger hiring pool. An additional benefit is that friends of the firm are not on the payroll, so the time spent looking for potential hires is free for the company (beyond any cash or prize incentives).