Employee Referrals: A Powerful Recruiting Tool

Employee referrals were formerly considered a somewhat risky practice – an invitation to nepotism and favouritism. But, in reality, an employee referral can be a very reliable recruiting source for small businesses. Most employees would rather walk across a bed of hot coals than recommend a friend or relative who is a bad fit for a role. The evidence suggests, too, that the turnover rate among employees recommended by other staff is typically low.

An Employee Referral Program: How to Create One

No surprise, then, that more small businesses today have instituted an employee referral program, with rewards (e.g., extra vacation days, trips, cash bonuses, etc.) for employees who recommend someone whom you eventually hire and who stays with the company for a specific period.

Before you launch an employee referral program, make sure you consider the ramifications and establish a systematic process for administering it. Some questions to consider include:

  • What incentives are you going to offer for employee referrals, and are you going to vary the incentives based on the importance of the job?
  • How long does a referred employee need to remain with your company before the person who made the referral becomes eligible for the incentive? (The norm at most companies is between three and six months.)
  • What procedure must an employee referral follow?

Publicizing Your Employee Referral Process

After you set up an employee referral program, don't keep it a secret. Publicize it in every way that you can – through posters, emails and newsletters, for example. Keep in mind that your objective is to generate as many quality employee referrals as possible. Remind staff about the program and make sure everyone knows when someone receives a bonus for an employee referral.