How to Create an Employee Referral Program That Works


At a time when hiring is harder than ever, you have to do everything you can to reach and connect with more job seekers to effectively manage your human capital. That means taking advantage of every applicant sourcing channel at your disposal such as social media, SEO, job boards, and more. One channel that’s becoming increasingly effective at improving quality-of-hire is employee referral programs.

An employee referral program leverages your existing employees’ networks by incentivizing your employees to refer people they know for your open roles. Studies show that candidates referred by your employees tend to stay longer and perform better at your organization than those who do not. And among Hireology customers, one out of every eight employee referrals ends up getting hired, compared to one out of every 50 non-referrals.

Why do these programs work so well? Because typically, your best employees’ networks consist of people who are very similar to them in terms of skill set, drive, and willingness to learn. Also, in most cases your employees are only going to refer people who they’re really confident in — people they know will fit your company values. In essence, candidates who come through as referrals are already vetted by your top teammates.

And on the applicant side, these people are going to be more interested in working for you if a trusted peer or former colleague vouches for you as an employer. Also, in sectors like hospitality, it’s a lot easier to connect with qualified folks in the industry through word-of-mouth rather than trying to connect with them through digital channels.

But the problem is that most companies under-invest in their employee referral programs or worse, they don’t have one at all. It takes real effort and intentional investments to build a program that yields great results. You have to strategize how you’re going to motivate employees to participate, what the reward for referring someone will be, the process for submitting referrals, and more.

This guide will outline five key steps to building a great employee referral program so you can turn your existing employees into recruiting rockstars.

Define your employee referral program policy

The first step in building an effective program is to create your policy, which serves as the guidelines for your program. It should clearly define exactly how the program works, who is eligible to participate, payout timing, and more.

The biggest benefit of a clear and accessible policy is avoiding grey area issues down the line. For example, let’s say you have a candidate at the final round interview stage. Before the interview, someone internally comes forward and says they know this person and vouches for them. If this candidate is eventually hired, does that employee receive a referral payout? Without a clearly defined policy this can lead to frustrations among you and your employees, decreasing the effectiveness of the program long-term.

Things to consider for your employee referral program include:

Eligible candidates

Document any groups of candidates who are not eligible to be referred. For example, at some companies former employees or interns are exempt. You might also want to consider a policy for family members or significant others.

Eligible employees

Define who within your organization is eligible to receive payouts for referrals. Some organizations do not allow members of the HR team or the executive team to receive bonuses simply because it’s part of these folks’ jobs to find and recruit good people. You might also want to consider whether or not interns or contract employees can participate.

Submission guidelines

Define exactly what steps an employee must take to submit a qualified referral. This is critical to avoiding those grey areas mentioned above. Does simply vouching for someone after they’ve gone through the screening process count as a referral? Or do employees need to submit referral information through a specific channel before the person applies?

Payout schedule

Consider the timing for when you will pay out referral bonuses. Do you pay it right after the candidate accepts an offer? Or do you wait 30 to 60 days to ensure that the new hire is a good fit? To find a middle ground, some organizations pay half of the bonus when the employee first starts and the rest after they’ve been at the company for six months.

Of course, there is no right or wrong way to define these guidelines. What matters is that you determine what’s best for the unique needs of your organization and the types of roles you’re looking to fill. And be sure to document these guidelines clearly within your policy and be consistent about sticking to them.

Determine employee referral bonus amounts

Next, determine the value of your employee referral bonuses and whether they’ll come in the form of cash or other rewards, such as gift cards or extra PTO. Typically, the value and type of reward depends on the role you’re looking to fill. How hard is it to fill this particular role? What is the value of this role to the organization? What is the typical turnover rate for this type of role?

For example, people aren’t going to be motivated to scour their networks for c-level executives if the payout is a $50 gift card. On the other hand, a $2,000 cash reward is likely too costly for you if the role you’re looking to fill is a high-volume, high-turnover sales associate position.

While most organizations pay out bonuses in the form of cash, non-monetary rewards can be a really useful way to incentivize people to participate. For example, an all-expenses paid vacation might be a good fit for a VP of product referral. Or a few extra days of paid vacation might work for those fast-moving seasonal positions.

Here’s a guide to the typical payments companies offer for different types of roles:

High volume roles

High-volume roles are positions that you are always looking to fill. These might be part-time or seasonal roles in retail or hospitality, for example. These are people you don’t expect to stay long and are usually easier to find. The value of the bonus for these types of roles is typically fairly low: $25-$150.

High-skilled roles

These are full-time salaried roles that require some specific skills, education level, or qualifications. But typically, they are a bit easier to fill than really niche or high-level roles like c-suite executives. Think: marketing managers, HR specialists, nurses, or truck drivers. The average bonus value for referrals for these roles is much higher than for high-volume roles — typically $500 – $2,000.

Hard-to-fill roles

The hardest-to-fill roles are those that require years of experience and highly specialized skills. For example, a CMO or a software engineer with a decade of experience on certain platforms. These are roles that will provide a lot of value to your organization but there just aren’t a lot of people out there who fit the bill. Unsurprisingly, the bonus value for these roles is the highest: $5,000 – $10,000.

Create an easy referral submission process

You also need to define the process for submitting referrals. The key here is to make it as easy and straightforward as possible. If people are confused about how to participate or it requires too much of their time, they aren’t going to go out of their way to submit referrals. Remember that your employees are busy and recruiting is likely not in their job descriptions.

Like with your program policy, there is no right or wrong way to create your submission process. Figure out what works best for your employees and the needs of your recruiters and HR team. For example, if your HR team is already working with an applicant tracking system (ATS), look for a way to get referrals automatically entered into your ATS. That way, your team doesn’t lose track of referral candidates.

Here are some tips for designing a simple and user-friendly referral submission process:

Avoid lengthy forms

Ask for the bare minimum information from your employees — just the name and contact information for their referral. Asking your employees to track down anything more will deter them from participating. Your recruiters can collect any additional information — like a resume — once they speak with the applicant.

Don’t require application logins

Asking someone to create a username and password is another major barrier to participation. And even if your employees do take the time to create one, chances are they’ll forget it when it comes time to login and submit a referral later.

Use text messaging

Your employees don’t always have time to sit down at a desktop or laptop computer. They’re either interacting with customers all day or if you’re a remote friendly company, maybe they’re working on-the-go. Navigating to an email or a submission form is too complicated from a mobile device, but texting is easy. So why not embrace it for employee referrals?

Integrate it with existing tools

As mentioned above, integration with existing tools makes life much easier for your HR team — particularly if they’re swamped trying to fill multiple open roles. Don’t make them manually transfer referral information from forms or email into your ATS. Look for HR platforms with employee referral capabilities built in.

Build a communication plan

Next, form a plan for how you will regularly communicate your open roles to your employees. Folks aren’t going to take the time to navigate to your career site to find the positions you’re looking to fill. Plus, recruiting just isn’t top of mind for the majority of your team. So it’s up to you to ensure that the program remains front and center for your employees.

You can do this in a few ways:

Physical signage

If you’re a business that operates in person (e.g., a retailer or a hotel), put up physical signage in the breakroom or anywhere else employees frequent. Include information about the open roles, the payout, and the process for participating. You can even add a QR code that makes it really easy for folks to access crucial information on their mobile devices.

Announcements in regular meetings

If you have regular all-company or team meetings, plug the program at the beginning of every meeting. And if you have multiple open roles, feature a different role each week — highlighting the skills and experience necessary for the role. And as always, remind folks how to submit their referrals.

Email campaigns

Send regular all-company emails featuring your open roles. You can get creative with these campaigns by featuring different roles or a different referral bonus each time you send it out. Be sure to include links that take folks directly to the channel for participating.

Email signatures

Promoting your program via your email signature is a subtle way to keep the program top-of-mind for your employees — especially if your team uses email often. Your signature should include the bonus amount as well as the link for submissions.

Embrace employee referral technology

Next, look for tools that can help you make this process easier for your HR staff and your employees. Of course it is possible to build a program by piecing together email, chat tools, and spreadsheets. But with disparate systems you risk losing candidate information, failing to reach out to referrals quickly, and forgetting to pay out your employees, decreasing the effectiveness of your program over time.

Purpose-built recruiting and hiring platforms that include employee referral features can help you avoid these issues. Look for a solution that:

  • Is built into your ATS, ensuring that referrals automatically enter your system
  • Tracks who referred each candidate and when payouts are due
  • Provides analytics to help you better understand metrics like referral to hire rate or employee participation rate
  • Allows you to automate email campaigns to encourage participation
  • Makes it as easy as possible for people to participate — via text, email, or web browser
  • Automatically updates employees and candidates on the status of the referral

Tailor your employee referral program

While the above steps offer a good starting point, there is no one-size-fits all employee referral program structure. Every company is different, thus requiring slightly different approaches to managing and executing the program in order to maximize results. That might mean payout structures that are outside of the norm or unique processes for referral submissions.

Google and Pinterest are excellent examples of this. Google struggled to get its employees to participate in its employee referral program altogether — even after doubling the reward amount. And Pinterest found that employee referrals hurt the diversity of its engineering department. Here’s more insight into how each of these organizations adjusted their programs given these challenges and ultimately yielded better results.

Google’s culture of referrals
It was clear that more pay wasn’t going to motivate Google employees to participate in the company’s referral program. So the tech giant decided to do a complete cultural overhaul starting with its new employees. They added a step to the onboarding process where they asked new employees to list 5-10 people they’d want to work with again — rather than asking employees to refer individuals via a traditional submission process down the line. This instilled referrals in the culture from day one and gave the HR team a list of top performers that they could use for proactive sourcing.

Pinterest’s diversity efforts
Pinterest found that although employee referrals were a great source of top talent, it turned out that most of their top employees’ networks were homogenous. As a result, the organization became less diverse over time. To combat this, the company used its regular internal messaging campaigns to prompt employees to focus on women and underrepresented groups. This simple reminder to prioritize more diverse talent resulted in a 55x increase in the percentage of candidates from underrepresented ethnic backgrounds.

Employee referral programs are an incredibly effective way to boost applicants and drive long-term retention. But most companies fail to put forth the effort it takes to get an employee referral program right. If you’re relying on word-of-mouth to encourage participation or tracking the program in your email or with spreadsheets, it’s time for an overhaul. Hireology can help. Our all-in-one recruiting, hiring, and employee management software has built-in features that make us the best applicant tracking system to run an effective referral program. Learn more by scheduling a demo today.