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5 Benefits of an Employee Referral Programs

Updated: 5 days ago

Recruiting. A challenge indeed. Hiring the right person for a position of a job is a difficult, stressful and a long lasting process which can take for days or even months. Furthermore, HR professionals face another problem. Potential hires should be drawn to an enticing atmosphere and culture. To make the same job a bit easier, there are employee referrals. Employee referral programs are a great approach to locate the best candidates for your open positions. You want your employees to recommend new hires instead of using standard hiring tactics like classified ads or job boards. If their proposal is a good fit, you can reward them for their help. They can refer a friend, family member, or anyone who suits the job best. They will tell their personal experience about working for the same company which will benefit not only the company but the potential new employee.

In this article, you will find the pros of an Employee Referral Programs.

Saving Time & Money

Recruiting candidates takes a lot of time and effort, therefore it may be costly to a firm both in terms of time and money. It was found in one study that referred candidates are 55% faster to hire, compared with employees sourced through career sites. (Staff Writer, 2018.) Employee referrals have the advantage of allowing your current team member to make the connection, which saves the recruiter time in locating the candidate. Furthermore, compared to other applicants that apply externally, the individual may be a superior match. This will also help to speed up the procedure and reduce the need to look for other choices. To add, it takes an average of 29 days to hire a referred candidate compared to 39 days to hire a candidate through a job posting or 55 days to hire a candidate through a career site. In other words, referred employees speed up the process by up to 47%. (Ronen Shetelboim, 20212.)

Better Retention Rate

After two years, retention of referred employees is 45% compared to 20% from job boards. (John Sullivan, 2012.) Employee referrals have a higher retention rate, possibly because they are intimately connected to their coworkers. Not to mention the fact that the referrer may feel more respected and valued after their advice is accepted by the organization. When an employee feels appreciated and valued, they are more likely to be dedicated. You may also consider rewarding an employee who refers a colleague with a bonus to show your gratitude. Also, 46% of referred hires stuck around for at least one year after they were hired. This is a much higher rate compared to the 33% of people hired through career sites and 22% hired through job boards. (John Sullivan, 2012.)

Higher ROI

At the end of the day, firm executives are concerned with the return on investment of the programs they are funding. Almost 83% of employers rated employee referrals above all other sources for generating the best return on investment (ROI). Employees who were hired through referral programs produce 25% more profit for their companies than new hires hired via other sources. (Kristina Martic, 2018.) There are several possible reasons for this. Employees can recommend people who do a good job and believe they are fit for a good culture because they reflect themselves. Alternatively, the recommended candidate may have a strong desire to improve performance because they are welcomed by friends.

Cut Recruiting Cost

Dividing time and effort into hiring new employees also reduces the amount of money required. Remember that you don't pay anything to get your employees to promote jobs to friends and family. Also, if employees do this for free, they can reduce traditional job listings. Employees can also reduce external recruitment costs by better understanding your company and your culture anyway and selling better through personal relationships. This is usually just a fraction of the amount you paid for hiring and advertising. To put in numbers: A large chunk of the money saved comes from not using traditional recruiting agencies, which usually charge a fee of 20% of the hire’s first-year salary. That means an agency could ask for $20,000 for a hire who has a salary of $100,000. (Kara Yarnot)

Receiving Qualified and Quality Candidates

Employees will want to work with someone who improves their performance and daily workload. Therefore, in most cases, you can be confident in your candidate's ability to complete the required assignments. Nearly three in ten employers have caught a fake reference on an application. So, a personal recommendation that is already within the company can instill confidence that the reference is in fact valid and reputable. (Zao, 2021.)

As one HR professional put it, implementing a recruiting program that celebrates employees’ personal connections is a great way to "build glue in a company."


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