6 steps to building an effective referral scheme
Employee referral schemes are designed to incentivise current employees to recommend qualified candidates for vacancies. Here we look at how you can build a referral scheme that widens your talent pool and provides greater access to top talent.
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, an approach our research found 66% of employees feel is effective, is just one method many organisations are using to bolster their hiring.
In this article, we’ll look at why referrals are now so important in recruitment, and how you can build a recruitment referral scheme that works.
What is a recruitment referral scheme?
A recruitment referral scheme is another way of sourcing candidates, 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.
Employees are usually incentivised using a recruitment referral bonus, making these schemes a cost-effective way to find and recruit top talent. As part of a broader reward strategy, referral schemes can help to improve employee morale and engagement, as employees feel that their opinions and contributions are valued.
The benefits of employee referral programs
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 the majority of your budget will go towards the referral bonus amount, with our research showing 44% of employees are satisfied with the incentives offered by their employer’s referral scheme.
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. With an employee referral scheme, you can 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.
Reduce time to fill roles
According to Aptitude Research, a human capital management research and advisory company, 62% of companies reduce the time it takes to fill a role when they introduce a referral scheme as part of their wider recruitment strategy.
Improve quality of hire
As your employees are incentivised to refer suitable candidates, they will likely do their own filtering to ensure they are putting forward high-quality candidates. This allows you to improve quality of hire, with candidates more likely to be a good fit for your company culture. In fact, our research shows the most likely reason employees will referral someone are:
- Relevant skills and qualification (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. 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 for 2023 revealed that:
- 68% are looking closer at the benefits listed in job ads.
- 52% are more likely to look a company reviews and performance.
As a result, offering enticing employee referral schemes with attractive bonuses can foster positive discussion of your 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.
2. Find a way to incentivise staff
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 bonus programs 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 or 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 competition 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 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 recruitment referral scheme to ensure it’s effective. You can utilise several different metrics, 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.