What is a Referral Bonus in Recruiting and Should You Offer it to Employees

Finding new ways of recruiting top-quality talent for your organization can be tough. Recruiting doesn’t only have to be a recruiter’s job, however. You can also incentivize your regular employees to help you by using a referral bonus.

Plenty of organizations have found success in their recruiting practices after offering a referral bonus to employees. What exactly is a referral bonus though? Let’s dive into what this is and whether or not you should use a referral bonus in your recruiting practices today.

What is a Referral Bonus in Recruiting?

A referral bonus can also be known as an employee referral program. Employees receive an incentive when they refer a candidate whom the organization ends up hiring. Usually, this ends up being a monetary bonus, but it can also be extra PTO or gift cards.

By offering a referral bonus, employers can motivate their employees to tap into their networks. As these employees know your organization best, there is a strong chance they’ll recommend high-quality candidates. As well as this, they will tend to be a solid fit for your organization.

The Benefits of Offering a Referral Bonus

Offering a referral bonus as a recruiting method has many benefits. Not only does it make sense, but it can also elevate the quality of your workforce. Here are some of the benefits:

• Increase in the Quality of Your Candidates

The people who are best positioned to speak positively about your work environment are your employees. They won’t just refer anyone; they will recommend who they think will be a good fit for the role. If a candidate is successful, then it may also be easier for them to integrate into a team if they already know someone at the organization.

• Faster Recruiting Process

A referral bonus can speed up the recruitment process as your employees have already vetted out candidates that they refer to an extent. When this happens, you can move to interviews and negotiations quickly. This helps your organization save time and resources.

• Higher Retention Rates

Employees who refer candidates tend to have a higher retention rate. If an employee wants to recommend someone they know to join them at their organization, there is a high chance that they enjoy what they do. As well as this, referred candidates will already be familiar with the company and the role while also having a connection with someone who works there already. This leads to them being more likely to stay in the role for longer too.

• An Increase in Employee Satisfaction

Offering a referral bonus indicates that you value and trust your employees’ input and judgment when it comes to recruiting. If a referred candidate is successful, the employee who referred them will feel that they have effectively contributed to the team. As this is the case, you can expect higher levels of work satisfaction and loyalty.

Potential Drawbacks of a Referral Bonus

A referral bonus doesn’t only have benefits. There are also drawbacks to this recruiting method though. Here are some potential drawbacks:

• Costs Can Add Up Quickly

When you offer a monetary reward as a referral bonus, the money needs to come from somewhere. If a referral bonus is generous, the costs can accumulate quickly if many successful employee referrals occur. This means that organizations need to appropriately budget for this.

• Poor Referrals Can Be Made

Some referrals may not be exactly what an organization is looking for. The case for this could be that some employees are seeking to get a referral bonus, even if who they refer isn’t a good fit. Employers shouldn’t be afraid to turn down a referral if they aren’t what they’re looking for.

• Fraudulent Referrals

There is also a chance that some people may try to take advantage of an employee referral program. For example, they may refer fake candidates in order to receive a referral bonus. To avoid this happening, employers must be alert about this being a possibility. They can also require candidates to formally apply to verify that their identity is real.

How to Structure an Effective Referral Bonus Program

Recruiting top-quality candidates depends on how you structure and promote your employee referral bonus. It begins with making sure that you offer meaningful rewards that are enough to motivate employees. Depending on the role in question, this means choosing between whether a monetary or non-monetary reward is best.

Once you consider this, you need to make sure that you focus on key positions. Making every single position open to referral might mean you have bit off more than you can chew. Focus instead on critical positions that need filling.

Once the employee referral program is in place, it is time to promote it. Send an email announcement, pin a notice to the noticeboard, or do whatever you need to do to get the word out. Explain how the program will work and the role the employee will play in recruiting. Highlight the benefits and remember to keep promoting.

From here, all you need to do is track and reward a referral bonus if someone is successful. Providing the reward is a positive reinforcement that may encourage more people to participate in the program. Continue to monitor the success of the program and don’t be afraid to make adjustments if improvements are necessary.

It’s Up to You

It is now up to you to decide whether offering a referral bonus will be a good recruiting opportunity. While they have pros and cons, they can be a win-win for an organization and its employees when implemented effectively. Go in with realistic expectations, however, as you still need to finalize the vetting and hiring of strong candidates. Learn what works and build an employee referral program that benefits your business today.