6 steps to building an effective referral scheme

In a tight labour market where employers are struggling to find the right blend of skills and experience, the competition for talent is fierce. According to the Chartered Institute of Personnel and Development (CIPD), between April 2021 and April 2022, 77% of companies had difficulty attracting candidates.

As a result, the tools recruiters and hiring managers have at their disposal are more important than ever. Recruitment referral schemes have emerged as a powerful method many organisations are using to bolster their hiring efforts.

These schemes not only tap into existing employees’ networks but also often result in higher quality candidates and improved retention rates, making them an increasingly valuable asset in the modern recruitment landscape. Furthermore, our research found that 66% of employees feel referring people through recruitment referral schemes is effective.

In this article, we’ll look at why referrals are so important in recruitment and how you can build a successful employee referral programme.

What is a recruitment referral scheme?

A recruitment referral scheme is another way of sourcing candidates when it’s time to hire, alongside traditional streams such as advertising on job boards and working with agencies.

Essentially, it’s a programme where existing employees are incentivised to recommend people from their networks for open roles. The referred employee can then be contacted directly by the recruitment team and go straight to the interview stage if their profile is a good match.

Employees are usually incentivised using a referral bonus, making these schemes a cost-effective way to find and recruit top talent. As part of a broader reward strategy to motivate employees, referral schemes can help to improve employee morale and engagement, as employees feel that their opinions and contributions are valued.

Example of a recruitment referral scheme

Let’s say a software company needs a new senior programmer with experience in a specific development tool. Their employee referral scheme might work like this:

1. Employees know they get a £1,000 referral bonus if someone they refer lands a role
2. Current developers at the company have their own networks of friends and former colleagues, and they know their capabilities
3. They can either pass the contact details of the referred candidates straight to the hiring team, or the candidate can name the referring employee on their application
4. The candidates put forward are likely to have the required capabilities with the required tools, meaning the hiring team now has a pool of pre-screened, suitable candidates
5. Once a candidate is hired, the employee who referred them receives a bonus

The benefits of employee referral programmes

Let’s delve deeper into why employee referrals are an effective means of recruitment in an increasingly competitive hiring landscape.

Cost-effectiveness

Recruitment can be expensive, with the CIPD suggesting the cost of recruiting for senior and skilled roles can be around £3,000. If you factor in labour costs while a position is unfilled, these numbers can rise significantly.

Using referrals in recruitment can bring that cost down because much of your budget will go towards the referral bonus amount, with our research showing 44% of employees are satisfied with the monetary incentive offered by their employer’s referral scheme.

This doesn’t only reduce direct recruitment costs, it can also lead to significant savings in terms of time and resources. HR teams spend less time screening unsuitable candidates, and hiring managers can focus on a more targeted pool of potential hires. The faster recruitment process means less productivity is lost due to vacant positions.

Reach passive candidates

Making numerous job postings after writing a job ad will bring in a stream of job seekers actively searching for a role, putting the onus on your recruitment team to find out if any of them are suitable. Building an employee referral scheme meanwhile allows you to tap into a huge network of passive candidates who will only be recommended if they are likely to be a good fit for the role. And your current employees will do the work of sharing the job with the right people in their own networks.

Reduce time to fill roles

According to Aptitude Research, a human capital management research and advisory company, 62% of organisations reduce the time it takes to fill a role when they introduce a referral scheme as part of their wider recruitment strategy. This is because there are various steps skipped from a traditional recruitment process, such as posting job ads, waiting for candidates to apply, and then sifting through potentially hundreds of candidates to find suitable ones.

Improve quality of hire

With employees incentivised to refer suitable candidates, they will likely do their own filtering to ensure they are putting forward those with not only the right skills but also those who are a good cultural fit.

That’s because they know the hiring team will be assessing candidates on both their abilities and their behaviours. Our research shows the most likely reasons employees will refer someone are:

• Relevant skills and qualifications (73%)
• Work experience (60%)
• Trustworthiness and reliability (56%)

Optimise employee retention

This one is for both current employees and new hires. Current employees who are incentivised to recruit for open positions will feel more engaged and valued within your organisation, and we found 67% are likely to refer someone in future.

Furthermore, 62% of workers want their employer to offer a more diverse array of benefits, and an employee referral scheme could be a part of that package. Meanwhile, Aptitude research found employee referral schemes can bring in a two-time improvement in first-year retention, helping to reduce your turnover rate.

Enhance your employer brand

Even with salary remaining the top priority for UK workers, many are also looking for roles that support their lifestyle. Our research on UK workers plans and priorities revealed that:

• 68% are looking closer at the benefits listed in job ads
• 52% are more likely to look at company reviews and performance

As a result, offering enticing employee referral schemes with attractive bonuses can be a big part of creating an employee value proposition (EVP), ultimately enhancing your employer brand.

Building your employee referral scheme

So, the benefits of a well-structured recruitment referral scheme are clear, but how do you put one together? Here are some steps you can follow to create an effective referral scheme.

1. Set yourself goals and objectives

At the outset of the process, ask yourself what you want to achieve with this scheme. It could be to increase the number of hires, improve the quality of hires, or even increase the candidate pool for a specific role.

Once you’ve outlined what you want to get from the scheme you can start to tailor it accordingly and figure out how to make the referral programme work.

2. Find a way to incentivise existing employees

Your staff will need a reason to take part in a referral scheme. According to our findings, one of the main reasons employees don’t participate in these schemes is that they aren’t enticing enough.

You’ll therefore want to offer referral bonuses that promote successful referrers while helping you save on hiring costs.

3. Clearly define the process

Before your scheme is ready to go, you need to define the conditions. This should include:

• Who can make referrals
• How much will be provided as an incentive
• When bonuses will be paid

For example, you could choose to only provide incentives for referrals once the new employee passes their probation, or half the incentive once they start and the other half on completion of their probation.

4. Create an easy and effective referral process

Once you’ve crafted your referral scheme you’ve got to make it easy for your employees to take part. This could be as simple as providing a referral form on your company’s website, using an online referral platform, or tracking referrals on your applicant tracking system by asking candidates to mention if a current employee referred them on their job application.

5. Launch comms for the scheme

We found that 73% of employees were unsure if their current workplace has a referral scheme in place. Some 62% said they hadn’t participated in one before because they weren’t aware of the scheme at their current or former workplaces. Only 19% of the employees we surveyed said that they didn’t take part because they didn’t have any suitable candidates to refer.

This shows how crucial it is to launch a communications strategy to promote your scheme. This can be done through company-wide emails, via managers, or through your intranet.

6. Track and measure results

Once it’s up and running, you’ll want to track and measure the results of your referral scheme to ensure it’s effective. You can utilise several different metrics to do this, including:

• The number of referrals you’re getting
• The number of hires completed via a referral
• The cost per referral hire – and compare that with your cost per hire through other means of recruitment
• The quality of the hire, and whether they stayed past the first year