EMPLOYEE REFERRAL: Definition and Bonus Programs

Employee referral
Image Credit: Achievers

A candidate-driven market necessitates a proactive approach to talent acquisition. According to a Deloitte study, employee referrals are the best way for just over half of organizations to find qualified candidates. If a business is having trouble finding and keeping qualified people with important skills, an employee referral program could be the answer. In this article, we’ll look at what employee referral programs are, how they benefit organizations, and explain why you need an employee referral bonus.

Employee Referral Programs

To find new job candidates, employee referral programs make use of internal resources and networks. They ask current employees or external partners to refer their contacts to job openings as they become available, and they offer some sort of incentive in exchange.

Employee referral programs are different from one-time referrals because they have a structure that encourages people to recommend the company. This is usually done with the help of internal communication strategies, rewards, and the support and guidance of the recruiting team.

Also, employee referral programs try to make referrals from current employees a more reliable way to find new candidates. When done right, these programs are some of the most productive and effective ways for hiring managers to find new employees.

There are a lot of good reasons to set up a referral system for employees, which we’ll talk more about in the next section. But don’t just take our word for it: there is a wealth of employee referral statistics that demonstrate the value of these programs.

Importance of Employee Referral Programs

We have changed the way we recruit. Candidates now have far more power during the job search than they did just a few years ago. Research and what recruiters and HR professionals see every day at work show that 90% of the job market is driven by the candidate. That means you are no longer a select talent. You are chosen by talent.

Because of this, it has become very hard, expensive, and time-consuming to find and hire good job candidates, especially those with skills that are in high demand. To deal with this problem, many modern recruiters have started to get their current employees involved in the process of hiring and recruiting. Employee referral programs have quickly become one of the best and most popular ways to find talented people.

What are the Benefits of Employee Referral Programs?

#1. Improves hiring quality

Because your current employees have first-hand knowledge of your company’s culture, mission, and vision, they can easily recommend candidates who are the best cultural fit for your company. It is also an excellent (and sometimes the only) method of approaching passive candidates. Because your best job candidates are passive job seekers, reaching out to them can make or break the quality of their hiring.

#2. Improves employee retention

Employee retention is highly correlated with hiring quality. Employee retention improves as hiring quality improves. It is critical to hire the best talent who is a perfect fit because they are more likely to stay with your company for a longer period.

#3. Reduces hiring time and cost

When your employees send you good candidates, you can get their contact information right in your inbox and invite them to an interview. You will save a lot of time if you skip the sourcing and screening of applicants.

#4. Improves your employer’s brand

When an employee wants to recommend someone for an open position, they first speak with the candidates. Because job seekers trust employees’ words far more than CEOs’ or words from corporate brands, this is an excellent way to build your company’s employer branding strategy and talent pool for future job openings.

Tips for Creating and Managing Employee Referral Programs

Setting up a full-fledged employee referral program from scratch can be intimidating. Fortunately, there are some simple best practices to assist you. The four key steps to getting started are as follows:

#1. Plan and prepare

An employee referral program is not something that can be implemented overnight. No way if you want it to be the best. You must plan and prepare as you would for any major undertaking. Gather your decision-makers and pose the following questions:

  • How frequently do you need to hire, and for what positions?
  • Are there any open positions that you’ve had difficulty filling in the past?
  • What are the minimum practical requirements for new hires? Do they, for example, all need to be proficient in a specific technology, such as virtual webinar tools?
  • What is the culture of your company, and what types of candidates will fit in best?
  • What are your goals for your employee referral program? Do you want to broaden your applicant pool for specific roles? Do you need to cut back on hiring?

The answers to these questions will help you figure out what your program will look like. They can advise you on how much time, money, and effort you should put into getting it up and running. The insights will also tell you which roles in your new program require optimization.

#2. Define the rules and processes clearly.

With a general idea of how your program should look, you can get down to business. This entails defining the scheme’s rules and processes. There are many technologies available today to make this easier. Similar to how scheduling software automates a calendar, applicant tracking software streamlines referrals.

Referral features and templates are common in such tools. They will provide you with an email template to distribute to your employees. They will also have analytics to track who suggested which candidates. If you do not want to use specialized software, you must design the processes yourself.

#3. Promote your program and reward participants

It’s time to get your employee referral programs up and running. Begin by informing your employees about it. You must spread the word about the program as quickly and effectively as possible. During a team meeting, one idea would be to screen-share an example referral.

The following critical step is to acknowledge all program participants. Employee buy-in is essential for the success of your program. Every time an employee makes a referral, publicly acknowledge and reward their efforts. This encourages employees to keep submitting referrals. 92 percent of workers agree that being recognized for action makes them more likely to repeat it.

#4. Change up your incentives.

Employees’ incentives for participating in your referral program may change. It is up to you to think creatively about what your employees will appreciate. You could use a points-based reward structure with tiers. For example, a worker may receive 1000 points (equal to $10) for submitting a referral that does not progress. If their recommendation advances to the interview stage, the reward could increase to 2500 points (equal to $25), and so on.

Employee Referral Bonus

An employee referral bonus is a monetary incentive for employees to hire people from their networks. It is frequently part of a larger employee referral program. An employee referral bonus is frequently given after the employee is hired and stays with the company for a set period. Employees who recommend someone for a permanent, full-time job typically receive the bonus.

Why Should you Offer an Employee Referral Bonus?

Are employee referral bonuses worthwhile? Yes, it is a resounding yes. Giving a bonus as part of your employee referral programs can help your brand a lot. There are several good reasons to give an employee referral bonus, whether it’s for bringing in new customers or new employees:

  • Potential applicants and customers believe peers who recommend a business. As many as 90% of people trust referrals far more than they trust traditional forms of marketing, such as advertisements and messages from your company. This fact alone can be used to justify offering referral bonuses.
  • Giving referral bonuses will open the floodgates to more repeat referrals. If they receive something in exchange for their efforts, up to 92% of employees are more likely to do it again. This means you’ll spend less time looking for the best-fit applicants or customers and more time focusing on the things that matter most to your bottom line.
  • Bonuses demonstrate that you value your employees’ contributions to the success of your business. And nothing makes employees happier than being recognized when and where it matters. Consistent recognition increases employee engagement up to eightfold.

Choosing an Employee Referral Bonus

When you hear the word “bonus,” you immediately think of cash. After all, that is the most traditional type of bonus.

However, an employee referral bonus does not always have to be monetary. A bonus is something that is given or paid in addition to a regular salary. Perhaps that is an added benefit, such as schedule flexibility or additional vacation days. Perhaps it is a tangible gift or an experience that the employees would appreciate.

When Should you Give Out Employee Referral Bonuses?

First, decide when to award bonus compensation.

If you have an employee-to-employee referral program, you can choose to pay a bonus when you hire a referred candidate. You can also wait a little longer and pay the bonus after a referred hire has been with your company for at least a month.

For many hiring managers, the latter makes more sense because it provides more flexibility and has a lower financial impact. Besides, you’ll have more time to determine whether the referred hire is worth its weight in gold. As a result, you’ll be in a good position to fine-tune your referral program in the future.

Type of Employee Referral Bonus

We’ve made a list of the most common employee referral bonuses used by businesses today. Survey your employees to find out which one will work best for your business.

#1. Cash referral bonus

By far, the most common type of employee referral bonus is monetary compensation. They typically range from $1,000 to $5,000, depending on the seniority level of the role, the demand for the position, and the length of time the position has been open. Companies often increase referral bonuses for important jobs, but Google found that this doesn’t always work.

#2. Diversity referral bonus

When a company has an employee referral program, they frequently hire people with similar backgrounds, interests, and ways of thinking. In addition to setting diversity hiring goals, companies can use their employee referral program to bring in people from different backgrounds.

#3. Tiered referral bonus

Some employers don’t give the full referral bonus to employees until the new employee has been on the team for a certain amount of time. Instead, they divide the bonus and give it to employees in small amounts as they look for new employees.

#4. Raffle referral bonus

Another possibility is to enter the names of all employees who made a good referral into a monthly or quarterly raffle for various bonus prizes. If you have a smaller company or don’t have the budget for a robust referral bonus program, this is a great option.

#5. Prize referral bonus

Some businesses offer prizes instead of money. If you decide to use this type of referral bonus, choose something tangible that each employee desires, such as the most recent piece of technology.

#6. Vacation referral bonus

Another excellent referral bonus option is to provide your employees with a vacation. It could be a trip that your company plans and pays for in full, or it could be a lump sum of cash that can be used for travel, hotels, or experiences.

What Kind of Employee Referral Bonus Should you Provide?

When it comes to employee referral bonuses, choose rewards that employees want to earn rather than give out peanuts just because you can. However, don’t give out blank checks. Based on how much each referral is worth to your company, employee referral bonuses must also be able to be paid for.

Instead of choosing just one employee referral bonus, give employees a list of options that all have the same amount of money. It’s also a good idea to ask employees what kinds of bonuses they’re interested in, just to make sure you’ve chosen something motivating.

Is an employee referral good?

It has been shown that employee referral programs are the best way to find new employees. Not only is this method of hiring people less expensive and faster, but referred employees are typical of higher quality.

Why is employee referral important?

Referral programs also work better than other ways to find a good candidate, like job boards and recruiters. According to studies, referral programs not only reduce recruitment costs but also allow businesses to tap into a talent pool that they might not have had access to through their employees.

How do I get employee referrals?

7 ways to increase employee referrals

  • Engage employees in the recruiting process. HR leaders should make employees feel like they are an important part of bringing in new employees
  • Make the process more automated
  • Make it a competition.
  • Incentives should be advertised.
  • Make it a celebration.
  • Recognize each referral.
  • If necessary, make cultural changes.

How Do Employee Referral Programs Work?

To find new job candidates, employee referral programs make use of internal resources and networks. In exchange for something, they ask current employees or outside partners to recommend their contacts for job openings as they come up.

What is Employee Referral in HRM?

Employee referral is a method of finding job candidates that are used internally. Businesses and organizations use employee referral, which is a structured program, to find talented people by asking current employees to recommend people from their own networks.

How do you manage employee referrals?

How to use workable to track candidate referrals

  • What percentage of candidates who entered the pipeline for a position were referred?
  • How many of the referred candidates were hired?
  • How many referred new hires left the company within the first year?
  • In one year, how many people has each employee referred?

Is employee referral internal or external?


Employee referral is a method of finding job candidates that are used internally. Businesses and organizations use employee referral, which is a structured program, to find talented people by asking current employees to recommend people from their own networks.

How do you write a referral letter?

here is how to write a referral letter

  • Incorporate both addresses.
  • Create a succinct introduction.
  • Give an overview of the applicant’s qualifications.
  • Tell us about the applicant.
  • Include a closing statement.
  • Sign your name.

How do you mention a referral in an interview?

Include a few sentences about why your referral thinks you’d be a good fit for the role and ask if they’d be willing to provide a reference if necessary.


Employee referral programs that refer both job candidates and new customers can be extremely effective when done correctly. Follow our best practices and guidelines to ensure the success of your programs from the start. Don’t forget to keep changing your programs based on the information you get from referral software.

Employee Referral FAQs

What are the best employee referral programs?

Examples of 7 Brilliant Employee Referral Programs

  •    PURE. 
  •    Salesforce’s happy hours. 
  •    InMobi’s bikes. 
  •    Fiverr’s gamification method. 
  •    Google’s razor-sharp questions. 
  •    Accenture’s emotional reward. 
  •    Intel’s double bonus.

Do referral programs really work?

People trust recommendations from people they know more than mass advertising messages, so referral programs work. A customer referral is far more effective than any general campaign because they have firsthand knowledge of your brand.

What is a good employee referral rate?

Employee referrals are responsible for 30-40% of all hires. Employee referrals have a $1,000 lower cost-per-hire than other hiring sources on average. Furthermore, employee referral programs are rated as the best source of applicants by 88% of employers. Candidates who have been referred are 2.6% to 6.6% more likely to accept job offers.


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