Employee Referral | Meaning and Definition

What is Employee Referral?

Employee referral is a structured program organization used to hire the best talent by asking their existing employees to suggest candidates from their social network.

In return, companies offer them different kinds of cash rewards.

What is an Employee Referral Program?

When an existing employee recommends a candidate for the organization this is called employee referral. In most cases employees hired through this program do not follow the traditional process, instead of responding to a job ad they directly submit their resume to the HR of the organization. Then the hiring team will do the further needful process such as reviewing resumes, interviewing the desired candidate and evaluating their performance through various self assessment tests.

Importance of Employee Referral

Employee referral programs play a vital role in hiring the most suitable candidate for the organization. An existing employee better knows who will be a perfect fit for the organization in their network.

Employee referral programs have recently become very popular for hiring the best candidate from the talent pool. It solves the problem of hiring the right fit for the organization.

What are the benefits of Employee Referral?

Employee referral programs provide several benefits to the organization. Some of the benefits are:

1. Improves Quality of Hire

It improves the hiring quality by selecting the best candidates for the organization.

Existing employees are well aware of the organizational culture. So they will recommend only candidates that will be the right fit for the organization, thereby improving the quality of hire.

2. Increases Employee Retention Rate

Employee retention is directly related to the quality of hire. So it becomes necessary for the organization to hire talent that will stay long in the organization.

Those who are hired through employee referral tend to stay longer as compared to those who are hired using other sources.

3. Reduces time and cost of hiring

Getting referrals from employees means you get quality candidates for specific job roles. 

An HR can directly contact them for interviews, thereby saving time for resume screening.

Since the time to hire is shorter, job positions can be filled through employee referrals in a short period.

4. Strengthens the employers brand

Employee referral helps to strengthen the employer’s brand in the eyes of respective candidates as the candidate trusts the employee more than any other person in the organization. If an existing employee will connect with the person on their social network for a job they will trust him more than any other person of the company approaching him.

5. Higher conversion rate

Candidates hired through employee referral programs are likely to convert into an employee as the chances of matching the desired job role is maximum in employee referral. The existing employee of the organization is well aware of who will be the right fit for his organization.

6. Highest ROI

Recruitment is a very costly process. The company has to incur a variety of direct as well as indirect costs while hiring. The company ends up paying 10-15% fees of employee’s basic pay to the recruitment agency while they have to pay only 2-3% as referral bonus to employees.

7. Hire easily for hard to find roles.

The biggest challenge faced by organizations is to find a right fit for their organizations but the number of candidates with required skills are limited. So a company can hire those candidates from existing employee’s social networks as it is hard to find employees for these roles through other platforms.

8. Improves Employee Engagement

An employee referral program is the best way to improve employee engagement in organizations. When companies ask their existing employees for referrals they feel more empowered and they are helping someone in their network to get a job. So it’s a win-win situation from both sides.

Disadvantages of Employee Referral

We have discussed the different advantages of employee referral. Now it’s time to discuss why employee referral might not be the best option.

1. Lack of Diversity

Employees usually hire the candidates with whom they are attached or whom they are socially connected. The candidate will be similar to the employee in terms of culture or they might be friends.

Thus it lacks the diversity of candidates in the organization. So employee referral should not always be a primary source of hiring. Various other sources should be kept in mind other than employee referral while hiring candidates.

2. Lack of Transparency

Sometimes lack of transparency demotivates employees to hire candidates through referral. A simple example may understand this. For example, Ram recommended Sohil as a software designer for his organization, and he conveyed the same to Sohil. He was very excited about the job, but a few days passed, and Sohil didn’t get any response from HR. After a few days, Ram came to know that the organization already hired someone else as a software designer. This will break the trust of Ram, and he will not recommend any candidate for the organization in the future. 

3. Biased Recommendations

Most of the time employees have pure intentions while referring to a candidate in their social network. But in some cases employees refer candidates with the intention of working with a friend or to receive a referral bonus. It can affect the productivity of an organization as well as it costs a lot to organizations in monetary terms.

4. Can give rise to negative company politics

While employee referral can induce peer morale they can also cause unnecessary stress. A negative impact can arise if an external person is hired rather than the internal promotion of existing employees. Furthermore it can also impact the image of the referee if the referred candidate didn’t perform as expected.

5. Company could lose both refer and referee

When one goes, others may follow. When one employee decides to leave the organization with any reason whether for better opportunity or due to company politics the other may go with him which in turn results in losing both the employees.