As a small business owner, recruiting talented employees is as important as acquiring loyal customers. This is where a successful employee referral program can help.
In fact, without a high performing team, it’s nearly impossible to run a successful business. Luckily, you can rely on your existing employees to recruit new staff members!
Many business owners offer employee referral programs so that they can fill open positions with the help of their trusted personnel.
In turn, these employees are rewarded for their service through a monetary bonus or another type of reward if their referral is hired and remains employed by your company for a certain length of time.
Still, this isn’t the right hiring tactic for every company, and you should consider the pros and cons of offering employee referral programs prior to starting one.
What are the pros and cons of an employee referral program?
Pro: A Referral Program Could Increase Employee Loyalty
One of the most notable reasons to introduce a referral program is to increase loyalty amongst your existing employees.
When you offer a referral program, your employees will appreciate that you trust them enough to consider their candidate recommendations.
In addition, they’ll be happy to know that this could lead to a cash reward.
For the referrals, this could lead to increased retention as well.
In fact, companies that utilize an employee referral program have an average retention rate of 46 percent.
In comparison, companies that recruited through traditional methods like career websites have a 33 percent retention rate.
Another reason that referrals lead to increased employee loyalty is that most people enjoy working with their friends.
In fact, some people choose to stay in their jobs long-term because a friend recruited them, and they enjoy knowing a familiar face in the workplace.
Clearly, professionals take referral programs into consideration when weighing their career moves!
Con: Employees May Be Too Focused on Incentives
To have an employee referral program, you’ll need to provide your current employees with some sort of incentive to entice them to recommend candidates.
Typically, it’s a cash bonus, although some companies provide gift cards, prizes, or additional vacation days instead.
Regardless, you should ensure that your employees are recommending candidates that they believe will truly be a beneficial addition to your team.
If they are simply recruiting people in hopes of receiving a bonus or other type of reward, this program could prove to be a waste of your time and resources.
If you plan to consider employee referrals, you should ensure that you have a screening program in the process.
Employees will need to provide information about their referral to nominate them, such as their past career experience, relation to the individual, and other relevant details about why they’d be a good fit for your organization.
If the candidate passes your initial screening, you can then contact them for an interview.
By meeting with any person that your team recommends, you might waste time on family members or friends who aren’t actually the right fit for your open role.
Pro: Could Reduce Time and Money Spent on Recruiting
By implementing an employee referral program, you could decrease hiring costs. According to recent studies, hiring a referral can decrease costs by 40 percent.
This makes sense; with the help of your existing employees, you can spend less working with recruiters, job sites, and other common hiring methods.
In addition to saving money, you could spend less time on recruiting.
For instance, if you partner with a recruiter, you won’t be the only client they need to find applicants for.
Due to this, it could take weeks or even months before they find candidates that are the right fit for your role.
With the help of your employees, you can fill open roles faster, so that you can focus on other important tasks.
Con: Can Create Uncomfortable Situations
Although receiving an employee recommendation can be beneficial, it can also cause awkwardness if the situation doesn’t work out.
For instance, if you decide to hire one employee’s referral candidate over another’s, there could be hurt feelings.
This could even lead that employee to look for a new job because they’re offended by your decision.
Or, if you hire a recommended candidate that is eventually fired, it may be uncomfortable for the individual that recruited them.
You should consider the potential that these situations could occur prior to offering an employee referral option and be prepared to handle them accordingly.
Decide if an Employee Referral Program is Right for Your Organization
Now that you’ve considered the advantages and potential issues that stem from having an employee referral program, we hope that you can determine if it’s right for your business.
Of course, every business is different, which is why we encourage you to consider both the pros and cons prior to unveiling your own employee referral option.
Does your business offer an employee referral program?
How has it helped (or hindered) your hiring process? Tell us about it in the comment section below!
Katie Alteri is the content marketing coordinator at Fora Financial, a company that provides small business loans to businesses across the U.S.