Should You Start an Employee Referral Scheme?


When it comes to tracking down the right candidate for a role, it’s a good idea to explore lots of different avenues. From utilising social media sites like LinkedIn, to putting adverts in the local paper, the more ways you have of attracting qualified candidates, the better your chances of success.

One great way of finding new employees is to start up a referral scheme. An employee referral program is where your current staff recommend people for any job openings your business has. Usually this will be a friend or family member, though it may also be someone your employee has simply worked with previously. As an incentive for suggesting suitable candidates, most businesses will give a bonus to the person who made the referral, usually after their hiring recommendation passes a probationary period.

While this may sound like a mutually beneficial arrangement in concept, does a referral scheme actually work? The short answer is yes – and it can actually be one of the best ways of bringing in new staff! We’ve explored five of the main advantages of a referral program below:

1. Save Money on Hiring Costs

One of the best things about a referral scheme is that you can cut back your hiring costs. Recruiting someone externally can cost a lot of time and money. According to Glassdoor, the average time it takes to hire a new employee is 27.5 days, while the average cost is £3,000. These expenses will include things like the time of the hiring manager, as well as the job listing itself.

While you probably won’t be able to cut these costs entirely, as not all your new hires are likely to be referred, you may be able to reduce how much you spend on recruiting. The time it takes to fill a position should also be reduced, as you won’t need to do as much legwork with a referred candidate.

2. Get Better Retention Rates

Another benefit of a referral program is that you should get higher retention rates with your new employees. Evidence suggests that referral hires will stay working for a business 70% longer than a non-referral candidate. Perhaps this is due to the fact that referred individuals will already have connections within the business, and will probably have an idea of what the culture is like before they start working.

Generally speaking, a referred candidate will be happier, more productive, and stay with the organisation longer than someone who is hired completely externally. Having good retention rates can furthermore save your company money, as you won’t have to pay hiring costs on such a frequent basis.

3. Get Qualified Candidates

As a referred employee will have undoubtedly spoken to their friend working within your business about their employment, they should already have a good idea of what your company culture is like, and what’s expected of them. They should therefore be ready to hit the ground running as soon as they start.

The employees who referred candidates will also know what sort of staff you’re looking for, and thus will probably only recommend individuals who have the right skills and experience. They will essentially be screening candidates on your behalf, putting you in touch with higher quality candidates. This means that onboarding and training can be a quicker process.

4. Reach a Wider Network

With referrals, you can often find people you would not have done otherwise. The individuals recommended tend to be ‘passive talent’, which means that they were not actively looking for a new job, but were interested in your vacancy when they heard about it. When you reach out to passive talent elsewhere, such as on professional networking sites like LinkedIn, the reception isn’t always great.

When a current staff member asks their friends if they’d like to interview for a role, they will be able to vouch for your business at the same time. They wouldn’t invite people to work at the company if they weren’t happy there themselves.

5. Improve Employee Engagement

Did you know that referrals can increase the engagement of your current staff members? When you ask your employees for hiring recommendations, they will feel more valued, and see themselves as a part of the hiring process. You’re recognising the sound judgement of your staff, which can improve both engagement and performance.

Essentially, by encouraging employees to refer their friends, you’re allowing them to have a stake in the success of the business. They are actively contributing to the future of the company.

Introducing an Employee Referral Program

In terms of setting up an employee referral scheme, the first thing you’ll need to do is determine your processes. For example, will all employees be able to recommend people for a bonus, or would senior executives be exempt? What bonus would you be offering – would this be cash, or some other incentive? When would the bonus be given – would the new hire have to pass a probationary period first? Give these questions some thought, as you don’t want to be making it up as you go along!

Once you have clear processes in place, you need to let your employees know that you’re looking to implement the scheme. Share with them the advantages of the program, and be clear about the reward system. This should encourage staff to recommend people they think are likely to become a successful referral.

And if you find that your referral program is not as successful as you’d hoped, there are things you can do to encourage engagement. Perhaps start up a referral leaderboard, incentivising staff to recommend more people. Or you can simply adjust your reward system – this could mean offering more money, or trying out rewards like vouchers or an additional paid holiday day.

The idea is to adjust the process until your employee referral program is as successful as possible! And if you’d like further support on setting up your scheme, Pineapple Recruitment are here to help!


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