Create an Employee Referral Program in 6 Steps [+ Free Template]

An employee referral program involves asking your employees to refer candidates who may not have otherwise applied to your open roles and rewarding them for their referral efforts. It gives you access to higher-quality applicants—and may reduce hiring costs and time to hire—as most employees will only refer individuals they believe could excel at the job. Your ultimate goal is to get quality referrals from your employees through a simple and straightforward process.

Download our free employee referral policy template below. You can customize it to your exact policy requirements and incentives.

Employee referral program policy template.

For help creating your employee referral program policy consider using Homebase. It offers everything you need to manage and pay your team–from scheduling to full-service payroll–all in one place.

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Establish your own employee referral program by following these steps:

Bulleted steps to create a referral program.

Step 1: Determine Your Company Goals

When determining company goals for your employee referral program, it is important to consider the desired outcome. Your goals should be concrete and measurable, so you can accurately track progress throughout the process.

The first goal you should consider is how many referrals you would like to receive from each employee. Setting realistic expectations will ensure that everyone is working together toward the same goal.

Knowing what you want to achieve is key to developing an employee referral program that fits your needs. Here are some common outcomes you should expect:

Reducing your company’s cost to hire
Reducing your company’s time to hire
Targeting passive job seekers
Gaining access to a larger pool of qualified applicants

Step 2: Establish a Process & Rules

When you establish the employee referral process, keep it straightforward. If it takes employees too much time, or if they have to submit endless paperwork or online forms, they won’t do it—and you’ll miss out on potentially excellent referrals.

Keep it simple by using an online form to collect only relevant and necessary information:

Employee’s name
Referral’s name
The open job title or requisition number
The referral’s resume
An open box for the employee to provide information about the referral

Within minutes, you can create a Google Form and a unique link you can share with employees that will send all responses to your email. The responses can get automatically populated in a Google Sheet, so you can easily track referrals and any rewards that need to be paid out.

You will also need to create some rules around the program to eliminate confusion. For instance, if an employee refers someone your team has already contacted about an open position, they can’t claim a reward if that person gets the job. Additionally, if an employee makes a referral and then quits before the referral is hired, they should not be eligible for any incentive.

Step 3: Identify Eligibility

Generally, any full-time employee will be eligible to participate in the program, except hiring managers and HR representatives directly involved in the hiring process. Executives and part-time or seasonal employees may also be ineligible; however, you may want to offer an incentive to those with longevity and/or in certain positions within the company. Additionally, consider adding a clause to your policy that only employees in good standing will be eligible for any incentive.

Besides employees, you have another source of referrals—vendors and contractors. They are familiar with your business and will be more inclined to refer candidates if you reward them. While this should be a separate policy so as not to blur the employment relationship line and to ensure higher employee incentives, an external referral program can be a good supplement to your recruiting toolbox.

Step 4: Decide on Rewards

This is where you get to have some fun. You might naturally think of cash bonuses for referrals—and many employees will like that idea—but you can expand to other rewards. Examples include:

Additional paid time off (PTO)
Gifts or gift cards
Random drawings for larger prizes
Company outings

Ultimately, most employees will want a cash reward. How much you decide to pay may depend on several factors, although the average payout is $2,500, according to LinkedIn. Generally, the amount of cash rewarded would depend on how difficult the role is to fill or the type of position (i.e., an entry-level hire may have a referral bonus of $1,000, whereas an executive level position may carry a higher referral bonus of $2,500). If that’s the path you choose, make sure you include tax information in your policy so that employees know any reward they receive will be taxed as a bonus.

Your policy should also stipulate when rewards are paid. Employees may want their reward as soon as a referral is hired. However, you’re better off making sure the referral meets your expectations. We recommend you pay referral bonuses only after a referral has been on the job for at least 90 days.

This period strikes a good balance between keeping your employees incentivized to give referrals and get paid quickly with your company’s need to hire the right people. However, if you think three months might be too long, you could offer a smaller incentive for any referral that gets an interview. This incentive is in addition to any larger bonus paid out after the referral hits their 90-day mark. You will notice wording for both types of incentives in our free downloadable employee referral policy template.

Giving employees an initial bonus for making the referral provides more incentive for them to submit referrals because they get rewarded for taking the time, even if the referral is not hired. Incentives ultimately benefit your company, even though you may need to increase your referral bonus budget.

When employees submit referrals, you gain access to a large supply of passive candidates, who make up the vast majority of the workforce. What’s more, you get to keep that contact information for the referral. The job you’re hiring for today might not be the right fit, but maybe a future job will be.

Step 5: Communicate With Your Team

Your team must understand the referral process and how it benefits them. If you don’t properly convey the program, it may not give you the results you seek. Whether you, HR, or individual managers roll out the new policy and process, you need to determine how you will communicate the initial plan and keep employees updated on referrals they have submitted.

Show employees the benefits (gift cards, cash bonuses, or whatever you choose).
Explain why the program benefits the company (better and more skilled hires, less turnover, and lower hiring costs).
Keep forms to receive referrals in a place that’s easy for employees to find such as a shared folder.
Send an email with a descriptive subject line, and put the link on your company intranet or electronic message board.
Create an internal marketing drive to promote your employee referral program. This will help keep the program front of mind for your employees and ensure they always have the relevant information near the top of their inboxes.
Send a quick but informative email several times per quarter to keep employees engaged in the referral program.

Step 6: Review Program Metrics Regularly

Data is key to any business venture. Your employee referral program is no exception. You should track:

How many employees have been hired as a referral
The time to hire for referrals vs applicants from job boards
The number of employees who have submitted referrals
The retention rate of referrals vs employees from other sources
How many referrals has been interviewed
The level of candidate diversity
The total sum paid out to employees as a referral bonus
Employee satisfaction with the referral program

One reason employee referral programs fail is that employees don’t know what happens to a referral once they submit the name. Especially when the employee knows the referral well, sending a referral into a black hole does not inspire confidence in the employee that the program is efficient.

Transparency is key to overcoming this challenge and making sure that employees are updated on where their referral is in the process. Through your regular internal marketing of the program, you can keep employees informed of how many referrals have been received and interviewed for each open position.

Benefits of a Good Employee Referral Program

One of the most important recruiting statistics you need to know is that a referred candidate is 85 times more likely to get the job. That’s because referrals are generally higher quality candidates than you’ll find by advertising a job on job boards. Employees will only submit a referral if they are confident the individual can excel in the position. Here are the three biggest benefits you’ll see from an effective employee referral program.

A referral will often better match your company culture, along with the job duties, which in turn will create increased employee engagement. An existing employee who is already a good fit for your culture is more likely to refer someone similar. When a referral is hired, the referring employee has a sense of ownership and accomplishment, making them more likely to remain loyal to and engaged with your organization.

One of the biggest challenges hiring managers face when reviewing applicants from a job board is the sheer number of people who apply. Sorting through all of the unqualified candidates takes time and focus. Referrals, however, are in the unique position of understanding your company’s values, mission, and culture, as well as the intangibles for the open role. This makes employee referrals higher quality and more likely to be successful if hired.

Hiring is expensive, and anything you can do to cut down on the time and money spent on hiring is a prudent business decision. With referrals, you will not have as many candidates as with a public job posting, making it easier to quickly review each and determine whether you want to conduct an interview. This saves your internal HR team time in finding quality employees and lets them focus on maintaining your company culture and benefits, like your employee referral program. With this reduced time to hire, your company saves money on talent acquisition while giving your new hires a more enjoyable and faster hiring experience.

Need help with hiring? Check out our guide on hiring new employees for step-by-step instructions.

Legal Considerations

An employee referral program can provide you with a great additional source for talent acquisition and reduce your costs to hire. Making sure that you establish clear guidelines and criteria, however, will help ensure compliance with local employment laws and regulations. Specifically, a big legal issue you need to be aware of is making sure that you’re not discriminating against protected classes. The best way for you to avoid unintentional discrimination is to keep using multiple sources to hire, adopt blind hiring techniques, and not rely only on your employee referral program.

You need to track your employee referral diversity. If you find that 95% of your referrals are white men, you need to reevaluate your program, making adjustments to ensure diversity.

Learn more about why it’s important to hire for diversity.

Bottom Line

Employee referral programs can give your company a boost in the quality of employees while improving employee morale and engagement. Providing incentives for employee referrals will inspire your team to become your best ambassadors. Monitoring your program and tracking specific data will ensure your employee referral program remains a key pillar of your success.

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About the Author

Jennifer Hartman