The top-performing employee referral programs are hiring 40%+ of their annual hires from employee referrals.
On average, Eqo customers source 35%+ of hires from employee referrals. Significantly improving the results you’re getting today (we’re talking 2x-4x) is actually achievable with the right strategy and execution. So let's explore some options and see how we can make it happen.
Hate to break it to you, but your leadership and executive team will not care that the current employee referral process is manual or complicated. Their primary focus is on saving money and improving efficiency, both of which are achievable outcomes with a robust employee referral program.
You will need executive buy-in to roll out successful employee referral program. What they’re going to ask you for? A strong business case on why starting or revamping your employee referral program will benefit the business and how it translates from a financial perspective.
As we mentioned, “I spend too much time manually managing referrals and payouts” unfortunately isn’t going to get you the buy-in you need when you’re framing it as something that will only save time for talent acquisition teams. You will need to tie the outcomes to a bigger picture - drive home the message that with a successful employee referral program, you can save your company hundreds of thousands, if not, millions of dollars every year. But how are millions of dollars saved you ask?
This leads us to our next section. When proposing changes regarding your employee referral program, it should be positioned as a strategic effort that will deliver a measurable Return on Investment (ROI).
To calculate your organization’s Return on Investment (ROI), see next section.
The Eqo team can help you put a business case on your behalf and share it with you to edit. As a starting guide, below is an outline of how we calculate ROI.
A successful employee referral program will drive a clear return on investment (ROI) through four pillars:
The Formula
ROI = (Hiring Cost Savings) + (Turnover Reduction) + (Efficiency from Filling Positions Faster) + (Time Saved from manual efforts)
The average cost-per-hire in 2023 was about $4,700 (source). The average employee referral bonus amount is only $2,500, therefore, that’s $2,200 in savings per employee referral hire. Tailor this to your organization's CPH and average referral bonus.
Employees who are referred stay 70% longer at the company and those who refer stay 20% longer (source). On average turnover costs the company 6-9 months’ salary per employee. For healthcare, the average cost of turnover for a staff RN is $52,350 (Becker’s Hospital Review).
According to SHRM, unfilled positions cost your company $340 per day (source). The average number of days it takes to fill a position only through job boards is 42 days. Successful employee referral programs fill positions in 13 days faster on average.
Here are a few things you can remove from your team’s workload by automating your referral program: dealing with spreadsheets, checking eligibility, making sure employees are actively employed before paying them, and working with payroll to get each bonus manually processed. The one most of our customers love not having to do anymore…. Answering the same question from employees on when they will get their payout! Employee referral software removes almost all administrative time.
💡 Cost Per Hire = Total Recruitment Costs* / Total Number of Hires
*Recruitment Costs include: Job advertisement fees, External recruiter fees, Recruiting agency fees, Staffing agency/firm fees, Recruitment software, Recruiting event costs, Travel expenses due to recruitment, Employer branding
Typically this should be at-least $500-$1,000 less than your calculated cost-per-hire – as employee referrals are a way to effectively reduce your recruiting costs.
Typically, if you’re a large organization your roles will probably be already categorized according to seniority.
If not, there are multiple options for categorization:
There’s two ways to do so.
The easy way is to distribute your average referral bonus amount across your categories. For example, let’s say your your average referral bonus amount is $1,500, you would distribute it as such:
The second and even more-accurate way is to use your past referral data and distribute the bonus amounts accordingly. Here’s an example
To determine if your bonus amounts are distributed accurately, calculate how much your average referral bonus amount would be if your percentage of referrals remained the same as last year and you met your expected hires for the current year.
Keep editing the proposed referral bonus amounts until the average equals your target one calculated above.
What is a an Employee Referral Policy?
An Employee Referral Policy is a formal set of guidelines for employees to refer candidates. It includes eligibility, referral process, rewards, and program administration. Below are some do’s and don’ts when it comes to creating your policy.
It's important to set realistic expectations for the program's success. Don't promise unrealistic rewards or make the process too complicated (ie. payout time frames that are too far away from hire date, too many rules, etc.) This could discourage employees from participating. Be transparent about the program's limitations and keep your promises. We’ve heard instances where payout rewards end up not even paid out because they fell through the cracks. Don’t be that company!
When developing your employee referral strategy, it is crucial to align it with your specific objectives. Begin by determining the desired outcomes you aim to achieve. These objectives may involve boosting employee engagement, attracting high-caliber talent, minimizing recruitment expenses, or enhancing retention rates. Understanding the purpose behind implementing a new employee referral policy will guide the structure and functionality of the program, ensuring that it effectively serves your intended goals.
You can also request a free Policy Template here - but we added some starting points below.
The [Company] Employee Referral Program is a value-based program designed to motivate and reward employees for referring qualified external candidates for hire. Employee participation in this program assists [Company] with sourcing top talent, decreasing cost per hire, time to fill, and turnover.
This is a [Company Legal Name] policy and applies to active salaried and non-bargaining employees working for [Company Legal Name] in the [Countries this policy applies to e.g USA] with the exception of the groups listed below:
Employees who wish to participate in the Employee Referral Program must submit their referral by texting REFER to 67000. The message chat will guide you on how to proceed. (See how you can use Eqo to make this possible)
Referrals must be for external candidates who are not currently employed by our organization and have not been previously referred for the same position. Referrals must meet the minimum qualifications for the position and must be eligible to work in the country where the position is located.
The position in which the candidate is being referred to is posted as an eligible position to receive a referral bonus reward within the Employee Referral Platform. If the position is not listed in the Employee Referral Platform or has a $0 dollar reward in the Employee Referral Platform, a referral bonus reward will not be granted.
Referral bonuses will be paid out in accordance with the company's regular payroll schedule. The referral bonus reward payment is subject to taxation and legally required deductions. The reward will not have 401k deductions and is not pensionable. Referral bonuses are subject to change or termination at the company's discretion.
Employees who participate in the Employee Referral Program are expected to maintain the confidentiality of any information they receive about referred candidates, including contact information, and other personal details. Sharing such information with unauthorized parties or using it for any purpose other than the referral program is strictly prohibited.
The company is committed to a fair and equitable referral program and prohibits discrimination based on race, color, religion, sex, sexual orientation, gender identity, national origin, age, disability, veteran status, or any other legally protected status. Referrals will be evaluated based on their qualifications and fit for the position, regardless of the referral source.
The talent acquisition team will administer the Employee Referral Program and reserves the right to interpret and enforce the program policy. The company may modify or terminate the program at any time without prior notice.
By participating in the Employee Referral Program, employees acknowledge that they have read and understood this policy and agree to comply with its terms and conditions.
Employees participating in the Employee Referral Program are expected to comply with all other company policies, including but not limited to the company's code of conduct, data privacy policies, and anti-harassment policies.
This policy is effective from the date of issuance and supersedes any previous policies or practices related to employee referral programs.
This Employee Referral Program Policy is intended to provide general guidelines and is not a contract of employment. The company reserves the right to modify, interpret, or terminate the program at any time, with or without notice.
Some examples of questions to think through and how to align your strategy based on what outcomes you’re looking for.
For example: lower amount, quicker payments (30 days from the hire date) are great for high-turnover hourly positions. Bigger, split payments (paid 90 days to 1 year from the hire date) are great for hard-to-fill high-paying jobs.
If it’s pretty low, then focus on having an easy-to-understand policy and put more emphasis on a consistent socialization strategy to your employees. If it’s already a high amount, are there any “super-referrers” in your organization that make repeat quality referrals? If so, give them extra appreciation!
Expensive-to-fill roles should have bigger bonuses.
Dig deeper into why you don’t have more results and address that in your new policy. Oftentimes this is grounded in poor internal socialization of the program (ie. they don’t know it exists or how to refer), poor employee referral experience or misaligned incentives.
Make sure your policy directly addresses each metric you are trying to improve. You should be able to identify what in the policy specifically is there to improve each poor metric.
Ensure consistency in your policy throughout the entire organization and maintain a standardized process for all individuals involved. While employees in various regions or organizational units may have diverse incentives (varying in currency and amounts), the methods of participation, referral tracking, and compensation should be identical for everyone. By adhering to this approach, you can streamline communication and foster increased levels of engagement.
Many employees may not fully understand the benefits of employee referrals or may not realize that they are eligible to participate in a referral program. Companies can address this by making sure that all new employees are aware of the referral program and its benefits during their onboarding.
Annual bonuses, promotions, raises, company excursions – these are all times that employees are at their happiest working at your company. Remember to remind your employees about your referral program when they are feeling most valued and appreciated.
New hires are the best source of employee referrals. They are still closely in touch with colleagues they had in their previous organization and can easily refer a few folks to the new company they just joined. 30 days is a good time for them to get a feel of your company and still remember who they used to work with at their previous employer.
Eqo allows every employee to have a Referral score and position on your companies leaderboard. Some of our clients are using this and saying any employee with a 4.8 referral rating score at the end of the quarter receives a FIGS Scrubs – on top of any cash bonuses they’ve earned. Reward your top employee advocates!
Book a demo with the Eqo team today → Book demo
See how Eqo allows you to access this information via single dashboard → Book demo
See how Eqo allows you to send internal recruiting campaigns to a specific group of employees → Book demo
It’s critical that you monitor your program's progress by setting up a system to track referrals. This will help you identify what's working and what's not, and spot any leaks in your referral process so you can continue to improve. Of course, that’s going to mean a certain set of KPIs you need to measure:
Referral Rate: The number of referred hires divided by the total number of hires in a given period
Total Referrals: The number of referrals made in a given period
Employee Engagement & Participation: The number of employees that have made a referral
Retention/Turnover rate of referrals: The number of employees that have been referred and are still at the company at the end of the year / all new hires who were referred
Retention rate of employees who refer: The number of employees referred a new hire and are still at the company at the end of the year / all employees
Offer-acceptance rate of referrals: The number of referred candidates who accepted your offer / all candidates who were referred and given an fofer
See how Eqo can help you see all this via a single admin dashboard → Book demo
Eqo is the employee referral solution that saves you time and helps you attract and retain top frontline talent.
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