Employee referrals were formerly considered a somewhat risky practice — an invitation to nepotism and favouritism. But, in reality, having a strong employee referral program can be a very reliable recruiting tool for small businesses. Most employees would rather walk across a bed of hot coals than recommend a friend or relative who is a bad fit for a role. The evidence suggests, too, that the turnover rate among employees recommended by other staff is typically low.

Are you marketing your firm as the best place to work?

To attract the best and brightest, you’ll need to convince potential recruits that yours is great company to work for. You need to represent your company as professionally as possible.

  • When the time comes to choose the person or people who meet with referred candidates on your company’s behalf, forget about seniority and look instead for individuals who have good people skills and consistently generate positive energy.
  • Pay attention to the impression your company website sends and the experience applicants have when they call your company for information or show up for interviews.
  • Make it clear to everyone in your business who may interact with a candidate how important it is to be warm and courteous.
  • At a time when a candidate can spread news of his or her poor experience at your company like wildfire via social media, your reputation can be affected overnight. The last thing you need when you’re searching for top talent is a bad reputation.

How to create an employee referral program

Given the evidence of lower turnover rate among recruits found through employee referrals, and the added benefit of increased staff engagement, it's no surprise that more small companies today have instituted employee referral programs. Most effective employee referral programs include rewards (e.g., extra vacation days, trips, cash bonuses) for employees who recommend someone whom you eventually hire, and who stays with the company for a specific period.

Before you launch an employee referral program, make sure you consider the ramifications and establish a systematic process for administering it. Some questions to consider include:

  • What incentives are you going to offer for employee referrals, and are you going to vary the incentives based on the importance of the job?
  • How long does a referred employee need to remain with your company before the person who made the referral becomes eligible for the incentive? (The norm at most companies is between three and six months.)
  • What procedure must an employee referral follow?

Publicizing your employee referral process

After you set up an employee referral program, don't keep it a secret. Publicize it in every way you can — through posters, email, employee newsletters and the company intranet. Keep in mind that your objective is to generate as many quality employee referrals as possible. Remind staff about the program and make sure everyone knows when someone receives a bonus for an employee referral.