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Pros and Cons of Creating an Employee Referral Program

An employee referral program is a recruiting strategy that encourages current employees to recommend qualified candidates for open roles in their organization. Many referral programs are incentive-based and offer the current employee a reward for recommending a new hire.

Employee referral programs can benefit your organization by finding high-quality candidates and reducing time to hire, but there are a few downsides to consider as well. Learn about the pros and cons of offering an employee referral program to determine what’s best for your organization. 

The Benefits of Creating an Employee Referral Programan employee referral program can get you access to high-quality candidates and save you money

1. Reduces time to source candidates

Between combing through LinkedIn profiles, sorting through CVs, and setting up phone calls, sourcing candidates can be a time-consuming process. Let alone ensuring your strategy is optimized for finding the highest-quality candidates.

Encouraging your current employees to recommend candidates allows you access to a pool of, ideally, qualified and reputable candidates without the time it takes to search for them.

2. saves you money in the long run

Employee turnover can be expensive, but hiring recommended candidates can help you save in the long run. In fact, the cost of replacing an employee can amount to somewhere between one-half to two times the employee’s annual salary. But there’s good news – the retention rate of referred employees is 45%, compared to just 20% for those sourced from online job boards.

3. access high-quality passive candidatesHiring manger checks off the boxes of an impressive candidate's resume.

Creating an employee referral program can be a great way to tap into a pool of passive candidates. A passive prospect is not actively searching for a new job but is open to considering a new role. These types of candidates are a challenge to acquire, but the companies that win them over find themselves with valuable, high-performing, and long-term employees.

Although these workers are not proactively on the job hunt, an opportunity presented by a trusted connection may be enough to pique their interest.

Additionally, referred candidates are a direct reflection of the employee that referred them. Most workers aren’t willing to risk their career or reputation and will only recommend candidates they feel are qualified and fit within the company culture.

4. attract like-minded candidates

Cultural fit is essential to building camaraderie in the workplace, and it’s key to employee performance, productivity, and engagement. By nature, human beings tend to gravitate toward like-minded individuals, so it’s fair to assume the recommended employee gets along with the referrer. Therefore, if your current employee is well-fit for the company’s existing culture, the referred candidate is likely to fit in as well.    

The downsides to creating an employee referral program

1. lack of diversity

Attracting like-minded candidates may create a team that meshes well together, but it also creates a homogenous workforce, which can be a danger to your organization’s growth. Life experiences and perspectives influence thought processes and ideas, so team members from similar backgrounds may face difficulty innovating beyond their shared experiences.

If you do choose to create an employee referral program, rather than hiring for like-mindedness, hire based on shared core values.

2. changes in your referrer or their team

Two businessmen sit across a table from each other while smiling big

A downside to hiring a recommended candidate is that it could change how your current employee operates at work or the dynamic with their team.

Your current employee may be less inclined to speak up or offer ideas for fear of embarrassment. Their existing relationship could result in cliques forming among the team or department, leading to some members feeling isolated.

The benefits of creating an incentive-based employee referral program are clear. However, there’s much to weigh before implementing a program at your organization.

Consider the difficulties of pinning down the details of the initiative. Will you reward the referrer with a monetary bonus, or maybe additional paid time off? What stipulations will you enforce for rewarding your employee?

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