We're stating the obvious here: employee referrals are great. They're more likely to be a culture fit, and therefore, stand a better chance at succeeding within the company.
And they save you a heck of a lot of resources on recruiting costs.
To reward employees for successful referrals, the least you can do is offer them a bonus. Here, we'll review seven best practices when offering an employee referral bonus.
What is an employee referral bonus?
An employee referral bonus is a financial incentive or rewards program that encourages employees to refer job candidates. Referral bonuses typically range from a few hundred to a few thousand dollars in cash value. Employers pay them on an ad hoc basis.
Examples of common incentives for employee referrals include:
- Cash bonuses
- Gift cards or vouchers
- Additional vacation days
- An all-expense paid trip
- Special events for the employee and their referral
Employee referral programs are part of a company's larger bonus program and overall recruitment strategy. They work equally well for entry-level positions and tough-to-fill exec roles.
Think of employee referral bonuses like a finder’s fee (but way more cost-effective). The referring employee gets rewarded for bringing in someone awesome. The company no longer has to worry about recruiting for that role. A win-win.
Two types of employee referral bonuses
There are two main ways you can encourage employees to refer candidates. You can either offer a flat rate or tiered bonus structure.
Flat-rate referral bonus
With a flat rate bonus structure, you offer the same amount of money regardless of the position being referred or how long it takes to fill the role. It helps keep the process simple and straightforward.
This tends to be more manageable for smaller companies that don't handle a lot of referrals regularly. It also works well for large organizations with dozens of people in the same roles, such as a recruitment agency, sales team, or team of software developers.
Tiered referral bonus
Tiered referral bonus programs account for the complexity of a role and the difficulty in filling it. You provide different tiers of bonuses based on job levels, such as executive or entry-level roles.
You can also structure referral bonuses to be paid out at certain milestones or after specific periods of time. This incentivizes employees to refer candidates who are more likely to stay with the company for longer periods
Who is eligible?
Employees who refer qualified candidates are usually eligible for a bonus payment. However, eligibility requirements vary from company to company.
Common requirements include:
- Limits on how many referrals a referring employee can submit
- How long referred candidates need to stay at the company for a bonus to be processed
- Specifications that only full-time employees warrant a referral bonus
- Rules and restrictions on who can refer a candidate (for example, you might only allow current employees or those with job titles above a certain level)
Limiting the amount of submissions an employee can make ensures the company receives more quality referrals, not just those sent in an attempt to earn a cash bonus.
Why should you offer your employees a referral bonus?
The benefits of employee incentive programs are well-known and documented. As for referral bonuses, there are clear reasons to incentivize them.
- Employee retention. 45% of referrals stay with the company longer than four years, compared to just 25% of hires from other sources.
- Cost savings. The average cost per hire is $4,700, according to SHRM data (without accounting for any of the residual costs, like a position sitting open). A referral program can bring that cost down to under $1,000.
- Quality of hire. 88% of major employers say employee referrals are their best source of applicants. They onboard more quickly, perform better, and stay longer, on average.
- Better culture fit. Referred job candidates tend to fit into the company's culture more seamlessly than those sourced through traditional channels like job boards and career sites.
- Employee morale. Culture fit plays a huge role in how new employees feel about their jobs. When they're working with someone they like and fall into their role more quickly, they're more likely to have a sense of community at work. Then, they'll want to do a good job.
In a world where just 20% of employees are actually engaged, employee referral bonuses are a win-win for everyone involved. Hiring managers get qualified candidates, employees earn rewards, and job seekers find a job they don't mind waking up for five days a week.
Don't create an employee referral program until you meet these prerequisites:
1. High employee engagement and satisfaction
Engaged employees are already motivated to show up and get the job done. If the current workforce collectively goes through the motions, their disposition will rub off on any new referrals.
To gauge how employees feel about your workplace, you can send out an employee satisfaction survey (something you should do anyways). If most employees are unsatisfied or disengaged, you have bigger fish to fry.
2. Well-defined company culture your employees are proud of
Really, you should define your company culture before hiring anyone. But you definitely want your employees to see your company as a great place to work.
Otherwise, you won't get the best referrals.
When you survey your own employees, you should include a question/statement like:
"My company is a great place to work." (Agree/Disagree)
or
"Rate how likely you would be to refer someone else to our company." (1-10)
An employee referral program will only work when your employees already want to be yoru advocates. If they're one foot out the door, you won't see much engagement from them.
3. Streamlined hiring and onboarding processes
Before you can create a referral process, you need to nail down the basics.
When a new employee starts, what will they experience? And before that, how will you interview them?
Hiring requires a lot of coordination and communication. Depending on the size of the company, it involves HR employees, hiring managers, team leads, and even execs.
If you're going to bring someone on (and have your own employees advocate for you), you need to live up to their expectations from day one.
4. Knowledge of what motivates employees to refer others
The biggest reason your referral bonus program could fail is because your employees don't care about it.
Or, they care but lack the motivation to submit referrals because of how your program is structured.
You can find out what motivates them by talking to them directly or surveying them. An employee benefits survey is the best way to do this. It's simple, confidential, and allows employees to share their thoughts openly.
Plus, it'll give you insights into other employee perks you can offer to motivate them.
5. An easy-to-use, integrated technology platform
Paper. Spreadsheets. Email chains. Manual payments.
These are all things you should never use for employee referral programs. It's a waste of time and resources, and can create serious mistakes in the process.
To enable your program, you need a platform that tracks eligibility and makes it easy to approve and pay out bonuses.
You also want a platform that integrates with:
- Human resource information systems (HRIS)
- Applicant tracking systems (ATS)
- Communication systems (e.g., Slack)
- Payroll software
That way, whenever employees refer candidates, you have a way of tracking them, attributing them to the specific employee, and paying them out with just a few clicks.
Compt's 100% tax-compliant employee bonus software works well for any type of referral bonus program. Whether you offer them all the time or just want to fill a few open positions, the Compt platform makes it easy to manage all your bonus payments in one place (plus the rest of your benefits).
Best practices for implementing your employee referral bonus program
There's a right way and wrong way to offer referral bonuses. It's a balancing act between offering enticing bonuses to motivate your employees and setting up a sustainable program with the right incentives.
Here are a few tips to make sure you get the most out of employee referral bonuses:
1. Choose incentives that motivate employees.
The key to engagement in any sort of incentive program is offering rewards employees care about. This is often a financial bonus, but it doesn't have to be.
Cash payouts typically work well because they're tied directly to performance and employees can use it however they want.
You could also consider offering the following:
- Tickets to major events (e.g., concerts, festivals, sporting events)
- Travel reimbursem*nt
- Extra paid vacation days
- Professional development opportunities
- High-value merchandise (such as a new laptop)
- health and wellness rewards like gym memberships or a spa day
- Employee giving opportunities
Offering referral bonuses is also about getting the amount right. The average employee referral bonus is $2,500, but the payout should be more or less depending on the impact of the role and how difficult it is to recruit qualified candidates.
Pro tip: If you decide to offer cash for your referral bonus, it's best to use a tiered system. Give higher rewards for difficult or high-value positions, such as an exec team member. Offer a flat rate (e.g., $2,500) for roles that are easier to fill.
2. Promote your referral program companywide.
You'll never fill positions with referrals if your employees don't know the program exists. You have to tell them when you launch it. Then, you have to tell them again. And again.
Promote the program across all the channels you normally use:
- Internal communication platforms. Slack groups, forums, and portals are the perfect place to shout out employees who referred people. These messages will serve as a reminder to others.
- Company newsletters. Highlight success stories of employees who received bonuses for referring successful hires. And take the opportunity to mention the fact a high-performing employee was a referral if you're spotlighting them.
- Events and gatherings. At company events, it doesn't hurt to mention the program. You don't have to make it your whole personality, but you should take the opportunity to mention it if you can.
- Physical flyers. Hanging a poster or dispersing flyers around the office is an old-school way to get the word out, but it still works. Include a QR code that makes it easy for employees to read up on the program if they're interested.
- Something your employees couldn't possibly forget. For the creative HR professionals — why not put your referral program on the company t-shirt? Or have lunch catered from a specific region of the world your employees are referring people from?
3. Clearly explain your job requirements.
If you want high-quality candidates, you need to be clear with what you're looking for. You can't just use buzzowrds like "culture fit" or tell employees to refer someone "they think would be a good fit."
Especially if they're working in different departments or job functions, this is ambiguous at best.
Don't even make them ask. Include a link to the job description whenever you're promoting a new role to fill. And highlight what you don't want in a candidate.
Above is an example of a creative digital flyer natural gas company DCP Midstream used to remind everyone the employee's choice should have the required credentials and experience to bring value to the organization.
4. Keep your employees in the loop throughout the hiring process.
Your employee doesn't just care about the referral bonus. They also want to help their friend get a job.
Existing employees will be reluctant to refer others in the future if you don't communicate with them. That's the type of mistake that undermines the entire referral program.
You probably shouldn't tell them every little detail about the hiring and deliberation process. But — depending on how close you are to the referring party and the type of role it is — it can't hurt to drop a hint if they crushed their interview.
Whatever the case, let them know as much as you can at each stage of the process. Even if they don't land the position, send your employee a 'thank you' email and encourage them to send other employees in the future. Just don't make them feel underappreciated.
5. Acknowledge those who refer great candidates.
There's huge value in employee recognition. Positive reinforcement makes those who send employee referrals proud of their work. And it sets an example for the type of candidates you want to see from other referring employees.
Send a Slack message. Congratulate the referring employee. Publicly mention you're excited to give them their referral bonus.
It's that simple.
6. Make the referral and application processes as easy as possible.
Nobody wants to jump through a bunch of hoops just to apply to work for you. Fewer people will want to spend 30 minutes doing it for somebody else.
The fewer clicks, the better.
It's also a good idea to minimize how many forms your employees need to fill out. Consider which information is essential to tracking the referrer and which can be obtained from the candidate's application.
For example, you could include a field for them to enter their employee ID, the job ID, and basic candidate information during the initial referral submission process.
Then, the candidate can fill in the gaps when they apply.
7. Try multiple types of referral bonuses and tactics.
When Google doubled its referral bonus from $2,000 to $4,000, it failed. Money isn't the ultimate motivator for everyone.
Money is a popular incentive (especially for younger, entry-level employees), but experiences, gift cards, and charitable donations are other forms of motivation.
Either way, you might not get it right the first time. Even if it seems to be a hit, how do you know it's reached its full potential?
Here are a few tactics we love:
- Gamify your referral program. Enter everyone who submits someone into a monthly or quarterly raffle. The winner receives a spot award.
- Help candidates get referrals themselves. Accenture's recruitment strategy includes allowing candidates to request a referral from someone in their network who works there.
- Nudge employees in the right direction. Ask questions like, "Who's the best seller you know?" instead of telling them, "We're looking for a sales rep." It gives them a better idea of who to refer.
- Get creative. Create bonus tiers that increase when employees refer top talent. Or do something funny like naming a conference room after an employee who referred someone important.
No matter what you try, remember to be consistent and transparent. Employees won't trust your program if you change the rules every month.
Automate referral bonuses with Compt.
With Compt, you can build a referral program that's fair, equitable, and automated. Employees can make a purchase in a pre-designated lifestyle category and submit their receipts for reimbursem*nt.
Request a demo to learn more.
