Employee Referral Scheme – The Advantages and Disadvantages
Have you considered using a referral scheme in your business to support your recruitment activity?
In this blog we’ll talk you through some of the advantages and disadvantages of implementing one, to help you decide whether a referral scheme is right for your business.
Let’s start with the basics.
What is an employee referral scheme?
An employee referral scheme, sometimes known as an ERP (employee referral program), is when you encourage your existing staff to find talent within their own networks. An incentive is given to the employee for every successful hire from their network. To receive the incentive, the successful hire must give the name of the employee who has recommended them. They also must stay in the role for a set period of time, usually until after probation.
Some businesses rely heavily on referral schemes, whereas others don’t see a place for them within their recruitment strategy.
So, let’s dive into the pros and cons of implementing an employee referral scheme.
Employee Referral Scheme: Advantages
Like-minded staff
If you have a strong team of like-minded employees who hold similar values and work ethic, then it’s likely the people they recommend will be the same.
When an employee is happy in their work place, they wouldn’t jeopardise their working environment by introducing someone who isn’t a good fit for the team or the business.
According to research, roughly 70% of employers felt that referred employees are a better fit for their company than those who come through traditional hiring methods.
Increased retention
As we mentioned above, referred hires are often a good fit in terms of company culture and values. When employees feel that they ‘belong’ within a business it’s likely they will stay for longer and therefore increase your retention rate.
Widens your talent pool
By introducing an employee referral program, you’re likely to get a number of staff who will happily share the role within their networks with the aim of receiving an incentive. With 4.95 billion people across the world using social media, it’s likely that your role will be shared there by employees. This already opens up a wider talent pool of possible candidates which you may not have reached using traditional methods.
Time to hire
Depending on the role(s) you have available it can sometimes take a significant amount of time to hire. An employee referral scheme will usually reduce your time spent on the recruitment process. On average, compared to a hire from a job board, hiring through an ERP can save up to 10 days in the process.
Employee Referral Scheme: Disadvantages
Culture change
While you may find that referrals have the same values and fit your company well, this could actually change company culture. Introducing a friend to the rest of the team could cause upset with existing working relationships, affecting the culture of the business.
Lack of diversity
In some instances, an employee referral program could lead to a decrease in diversity within the team. If everyone in your team is taken from the same ‘circles’ you could lose your diverse range of individuals and their different opinions, ideas and backgrounds.
Your current workforce
It’s only worth implementing a referral scheme if you have trust in your current workforce. Employee referral schemes only work when you have a good company culture in place, otherwise you’ll end up receiving referrals from people who are the wrong fit. If you’re unhappy with your existing team, you may also receive employees putting people forward purely for the incentive, rather than those they are happy to work alongside.
It’s not the only way
Employee Referral programs are a great way to fill the odd role, but you shouldn’t rely on them as your only method of recruiting. If you implement one, you’ll need to continue with other recruitment strategies too.
What next?
If after reading the disadvantages and advantages you’re still unsure, here’s a couple of other things to consider:
Incentive
The amount of incentive you offer is something to factor in. If you offer too high, this could cause an increase in referrals for the wrong reasons. If you offer too low, it’s likely that your ERP could get ignored.
Other companies get around this by removing money from the equation and offering additional annual leave as an incentive.
According to research the average referral incentive in the UK is £700.
Cost implications
With the average employee referral scheme incentive being £700, how often can you afford to pay out?
For large businesses with greater cash flow, £700 may not be an issue. However, for smaller businesses or those needing to cut costs this could be unsustainable.
When you decide to implement an ERP, you’ll need to establish some T&Cs. Here’s some tips on what you may want to include:
- How long the scheme is open for, does it run continuously or are you looking at windows of opportunity?
- Will the scheme only be present for certain roles, such as hard to fill?
- Will you cap the number of referrals an employee can submit?
- At what point will the incentive be paid?
- What if the referring employee leaves?
- How will you promote the ERP to your employees and get them onboard.
We hope this blog has been helpful in assessing whether an employee referral scheme is right for your business. For advice on other areas of recruitment or employer branding, check out our other blogs.