Employee Referral Programs: 6 Pros and Cons

Hiring the right employees can be tricky. You may spend ample time screening potential candidates to find the perfect fit for your organization, only to find that they don’t live up to expectations. This is why many companies turn to employee referral programs to recruit top-tier talent. Fortunately, if you know how to create one, an employee referral program could prove helpful when it comes to finding great new hires quickly and easily.

In this post, we’ll explore the advantages and disadvantages of establishing an employee referral program. We will also explore some best practices for setting one up in order to have as much success as possible.

What is an employee referral program?

An employee referral program is a system that encourages existing employees to refer job candidates they know and trust. Referred employees are more likely to be qualified for the job. They can be hired faster than those sourced from job boards or career sites. An employee referral program is often used during the hiring process to reduce the time and cost of hiring new team members.

Employee referral programs are a great way for companies to tap into their employee’s network of potential job candidates. This type of program provides rewards for employees who successfully refer and recruit new hires, usually through offering monetary incentives.

These programs give employers access to a bigger pool of potential hires. At the same time, they provide referrals with a better understanding of the job applicants than other methods. By utilizing employee referrals, organizations are able to improve their overall hiring process, employee retention rates, and company culture.

Employee Referral Program

How do you create a good employee referral program?

There are several key steps to setting up a successful employee referral program, whether for new hires or existing employees.

1.  Get management on board

Before you can initiate any internal employee referral program, ensure that management is in full agreement. They must comprehend the value of these programs. Also, they must be enthusiastic and encouraging toward employees to contribute their part. If leadership takes it seriously, then so will the entire organization.

To create a successful referral program, you should have the support of management and access to resources. If your company budget does not cover the expenses for this program, consider offering employees non-financial rewards such as extra vacation days, special gifts, or recognition from their peers.

2.  Set realistic goals

It can be easy to get carried away when creating an employee referral program. Setting unattainable goals can ultimately lead to failure. Setting reasonable goals is a great recruiting strategy, as it helps you to clearly define the expectations of your program and track progress along the way.

Try to set goals that are measurable, such as a specific number of referrals per month or quarter. It helps identify how many qualified candidates to hire, and when each goal should be achieved.

When setting objectives, consider the target audience and the available resources. Depending on your company size, location, and industry, you may want to adjust your goals to ensure that they are attainable.

3.  Develop a structured program

When creating a program, it is important to consider the referral process. This includes deciding how employees can refer candidates and how much time they get to refer. Additionally, you have to decide what incentives will be offered for successful referrals.

Hiring teams should also consider which team members or departments would be in charge of organizing the program and managing referrals. This includes who will review resumes, interview candidates, and make hiring decisions. If your team is spread out, consider using referral software to streamline the process.

4.  Offer meaningful incentives

Incentives should be both meaningful and motivating. There are several ways to incentivize employee referrals, such as offering an employee referral bonus or an additional vacation day for successful referrals. Additionally, you should consider offering incentives for all employees who participate in the program, even if their referral is unsuccessful.

When providing incentives, hiring managers should consider how much time and effort the employee spent in order to refer a candidate. This could include offering them extra recognition or awards for every referred candidate.

5.  Remind employees of the program

Once the recruitment team has established a successful employee referral program, it is important to remind existing and potential employees about it. The recruitment team could send out emails or post reminders on social media, as well as share any updates about successful referrals or incentives that were awarded.

For a successful hire, it is also important to continuously evaluate and adjust the program in order to ensure that it is helping you reach your desired goals. Consider collecting feedback from employees about their experience with the program and implement changes where necessary.

What are the advantages and disadvantages of employee referral programs?

Employee Referral Programs


Reduced time to hire

Referrals dramatically expedite the hiring and onboarding process, saving precious resources. With fast access to prospective candidate information, expensive job postings become unnecessary. The selection of candidates is faster when they are referred by someone already familiar with your company culture.

Higher quality of hires

Referred candidates tend to possess higher quality skills and fit better into the team, as they are chosen by someone familiar. Moreover, their transition into productive team members usually goes smoother because they have prior knowledge of what to expect. By decreasing time-to-hire you can lower costs related to talent acquisition while also boosting productivity in regard to your recruitment tactics.

Increased employee retention

Referrals tend to bring in loyal employees that stay with the organization longer. Referred applicants are more likely to stay with the company because they already feel connected to their future employer. Referral programs help to promote a sense of belonging in an organization, which in turn increases employee retention and engagement.


Limited reach

Referrals are limited to the pool of current employees and their acquaintances. This means that employers may miss out on potential candidates that do not have a connection to the company. Furthermore, referral programs often have limited diversity and fail to attract applicants from minority groups or those outside of the organization.

Competition for incentives

Employees may focus on referring friends and family members instead of the best candidate for the position. This can lead to costly referral bonuses and disrupt the onboarding process. Employers should clearly explain the criteria for successful referrals in order to avoid employees referring people that are not qualified for the position.

Difficult to track progress

Measuring the effectiveness of referral programs can be difficult since it is hard to track how many jobs are filled through referrals. Employers can use referral software or employee tracking systems to help them better understand the performance of their programs.

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A word from SublimePeople

Employee referral programs are a great way to attract high-quality talent, but they can also have some disadvantages. It’s important to carefully consider all of the factors involved before creating an employee referral program at your company. By taking the time to do this upfront, you can create a successful employee referral program that brings in top talent and helps your business reach its goals.

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