Companies often use employee referral programs to recruit new workers. These programs lead to less employee turnover, happier workspaces, and the company spends less money to onboard and train new employees. Understanding how these programs work and how they benefit you as an employee helps you get as much from these referral programs as possible. In this article, we discuss how employee referral programs work, the components of a referral program, and the potential challenges and benefits of using one.

How do employee referral programs work?

Employee referral programs are when a company requests the help of its employees to recruit new staff. Referrals are people who know you, have worked with you, and will recommend you as an employee. A referral program provides an added benefit or incentive for working with a company or for being recruited by an established employee. These incentives and benefits vary depending on the company, but as a recruitment tool, they’re a great way to build company culture and a more positive work environment for everyone. 

Components of an employee referral program

While referral program vary by company, there are usual components that they often have:

Performance measuring

Performance measuring is how a company collects and interprets data about their employee’s productivity. For example, in a call center, this might mean how many calls customer service representatives are conducting each day. A company might collect customer surveys about employee performance and correlate that with other information. This helps them see how an employee can improve or which incentives they might qualify for. A lot of companies call this their QA, or quality assurance, and they often have a team whose job it is to understand and report these statistics. 

Rewards and incentives for the employees

Incentives, or bonuses, are used to motivate you to perform better or to help them recruit by providing rewards. Some companies offer tangible incentives to motivate employee loyalty. For example, telemarketing call centers often use an incentive like commission. This means that for any phone call where you make a sale, you get a small percentage of that sale.

Feedback for the company

The third component most companies offer in referral programs is feedback. This is your opportunity to tell the company your thoughts about their program. They want to know how you think they may improve. This might mean expressing that the percentage of commission is too small to motivate you to sell more of their product. You might think most things are great about the program, but the probationary period is too long, making the benefits of recruiting too far removed from the reward. Providing honest but professional feedback gives the business an opportunity to improve their program for future onboarding. 

What are the potential challenges?

Employee referral programs may encounter some challenges for you to consider, including:

Challenges with probationary periods

Long probationary periods create a challenge when employees have the opportunity to consider another job with more instant rewards, such as a sign-on bonus. If the employee is part of an employee referral program, them leaving for another company might mean the loss of recruitment perks. As an example, some call centers use a referral program which promises a onetime pay bonus after an employee’s recruit works with the company for 90 days. A recruit can leave within the first 90 days, and the employee loses their bonus. This can cause a fall in the usage of the referral program.

As an employee, if you’ve recruited someone to work with you, make time to check-in with them. This follow-up shows the recruit that they have a support network within the company. This can help them feel more secure in the new position and may make them less likely to leave. 

Hired pairs leaving as pairs

Hiring employees in pairs through a referral program can present a challenge. If one person from the pair quits, the other person is also likely to quit. As an example, a company hires you and another person as a pair, and promises a bonus if you both work with them for the next thirty days. If your hire-on partner leaves, you lose your bonus. Talking with your fellow new employees and keeping an open dialogue about your new work environment can empower your co-workers to stay in a job. 

Benefits of an employee referral program

There are many benefits of employee referral programs to help you decide if it is right for your company, including: 

Increased employee satisfaction

Finding a job you enjoy and a workplace with a lot of positivity comes a lot faster if you’re recruited by a friend. According to a 2016 study from The Society for Human Resource Management (SHRM), over 70% of employees cite relationships with their coworkers and feelings of recognition as key to stay engaged with their jobs. With this information, it’s easy to see why an incentive program designed with employees in mind is a big step toward employee satisfaction. It provides recognition and encourages consistent network building.

More engaged employees

Engaged employees are happy employees. Relationships with your co-workers are easier and more light-hearted and genuine if the people you’re working with are happy to be there. By encouraging their employees to help them recruit, companies are innately asking their employees to reach out to their friends. When you enjoy being around your co-workers, you’re more likely to stay with the company long term and engage with the company more often. 

Better teamwork

With every person you and your friends recruit, that’s one more person who sees things similarly to how you see them. This makes team projects easier because everyone is already prioritizing similar things and familiar enough with their teammates’ strengths and weaknesses. It builds a foundation from which everyone can start a job with similar advantages and help one another learn and improve as they grow while also strengthening the company. 

Increase in employee growth

Constructive criticism is easier to take when it comes from someone you know. They know how to give you feedback in a way that you can process and use it without feeling discouraged. This is another benefit of recruiting like-minded individuals. Employee growth can only happen with employee review and open, honest, professional communication. When your co-workers are also your friends, it’s easier to perceive these criticisms as places to improve instead of a personal attack.