A Step-by-Step Guide to Setting Up a Successful Referral Program

In times of a shortage of skilled workers, the “employee-recruit-employee” concept is becoming increasingly popular, as it allows companies to save important resources and time. With this approach, it is easier to find qualified employees who also tend to stay with the company long term.

We'll show you the benefits of this type of recruiting and how to successfully implement an employee referral program. In addition, we answer a few frequently asked questions about employee recruiting.

The employee referral program is a successful recruiting strategy that more and more companies are introducing and implementing.

According to a study by Haufe, two-thirds of all companies in Germany, Austria, and Switzerland already use referral-based applications and 19% are planning to introduce such a program.

The concept is relatively simple: Employees suggest acquaintances, relatives, or friends as a new fit for an open position and receive a bonus if they are successful.

The bonus can be more than just a cash reward; it can also be perks such as vouchers to certain events or extra vacation days.

With efficient employee recruiting, the recommendation of new employees is not limited to the company's own workforce; some companies even consult external networks to suggest candidates as future hires.

For example, new employees are recruited and hired through referrals from friends, the company's colleagues or partners.

Advantages of the “Employee-Recruit-Employee” Concept

The concept holds a number of benefits from which companies can profit. To get an overview of how successful employee referrals really are for your company, you should implement a system to analyze recruitment methods and keep track of success rates.

Benefits include:

Employees know their own company better than any recruiting firm or headhunter. They know exactly what candidates can expect at your new workplace and how well they will fit into the company culture.

With realistic employee recommendations, the risk of new employees quitting after a short time because the job doesn't meet their expectations drops.

Screening candidates usually takes a lot of time. When applying by recommendation, a pre-selection is already made and companies do not have to deal with unqualified candidates. Job interviews are thus also quicker, as the recommended candidates have already received a briefing from employees.

A study by Jobvite shows that recommended candidates were hired after just 29 days, whereas the hiring process via job boards and career portals typically takes 39 to 55 days. So you have the new talent available earlier than with other recruiting methods.

A short recruitment process saves the company a lot of costs and the new employees can join earlier. Furthermore, with a good pool of employee referrals, companies can save on other recruitment measures and close less promising channels.

Job ads are costly and don't always result in a hire. However, if a candidate is suggested by employees, they can be approached in person right away.

When candidates are recommended by employees, the chance of a suitable fit increases. These candidates agree to the job offer more quickly and are therefore ready to work sooner.

According to an international study by Glassdoor, the chance that the jobseeker will accept the job is 7% higher with employee referrals than with other recruiting channels.

In addition, Jobvite's analysis also proves that referred candidates tend to stay longer at their jobs (47% stay longer than three years).

Better matching leads to increased job satisfaction while increasing employee retention. Referred talent is supported in the onboarding process by the employees who referred them, and team spirit is strengthened. Happy workers are more efficient and increase your company's productivity.

In addition to the advantages that clearly outweigh the disadvantages with this concept, there are also a few problems that can arise from employee referrals. These include:

• Diversity in the workplace being reduced: Employees usually refer acquaintances or friends who are the same age and have similar interests. This reduces diversity in the workplace and new input is lost. For better diversity, recruit candidates of different ages and from different cultural backgrounds.
• Employees only aiming for the bonus: If employees are only looking to get a bonus, matching can suffer. This increases the risk of recommending candidates who are not sufficiently suited for the job or who quit after a short period of time.
• Family favoritism: If a company only hires candidates who are related to employees, they are quickly accused of nepotism. This demotivates young talent, who then look for other job opportunities.

For the program to bring the desired success, it should definitely run on a voluntary basis. Employees who are satisfied with their employer will pass on credible recommendations to acquaintances and so on.

Here, good employer branding and a great corporate culture also play an important role, as only attractive workplaces are recommended to others. On the flip side, employees who are only interested in the bonus pass on false promises and the risk of a bad hire increases.

Tips For The Ideal “Employees-Recruit-Employees” Campaign

To ensure that your company can also initiate and run a successful employee referral program, there are a few important points to keep in mind:

1. Make sure there is transparency

Open positions should be visible to every employee so that everyone has an equal opportunity to refer candidates. If certain employees are informed earlier, the working atmosphere and motivation will suffer.

2. Measure the success of the concept

With the help of KPIs, you can determine how successful your program is and how many new talents were actually hired. This also allows you to calculate the costs saved for your company as a result.

3. Set guidelines before launching

Before launching the program, it is important to establish who is eligible to make recommendations and when bonuses will be awarded.

4. Provide feedback when referrals are not hired

To avoid frustration if the proposed candidate is not hired, the employer should briefly consult with the employee and provide feedback on the candidate.

5. Information must be made accessible

In order for employees to share information about job openings more quickly, it must be easily accessible.

The bonus serves as a clever incentive system for employees, but should not be the decisive reason for a recommendation. Companies are free to determine the amount of the bonus and the timing of payment.

Some companies pay the bonus after the candidate has been successfully hired, some wait a while after the hire until they reward employees for the referral.

As a company, you have a choice of monetary rewards or non-monetary rewards. The first category includes one-time payments, a raise, or an amount based on salary. The second category includes extra vacation days, vouchers, company-paid training, or a discretionary company budget.

What should be the amount of a monetary bonus?

The amount of the bonus depends largely on the position to be filled and the qualifications of the candidate. If the position is a managerial position, more should be paid, just as it would be for a professional with experience.

Are employee referrals really successful?

Several large corporations such as Deutsche Bahn, Targobank or Porsche have already been relying on employee recommendations for years, and with success! At Targobank, 30% of new hires come from employee recommendations every year.

Are bonuses tax-free?

Bonuses are not tax-free and are paid in gross. However, monetary bonuses up to 60 euros per month are tax-free.

For which jobs is the program useful?

Startups, small companies as well as large corporations can benefit from the employee referral program at the same time. Beforehand, you should think carefully about the jobs for which you would like to use this concept and for which a headhunter would be suitable. Especially for niche jobs employee referrals are extremely beneficial.

How to best structure the concept?

To ensure that all employees have the same opportunity, referrals should be made via online platforms. Notify employees of job openings by email or by posting notices that are visible to everyone.

“Employees-recruiting-employees” is a proven and successful concept that saves companies a lot of time and effort in recruiting new talent. Employees know best about the positions to be filled and can accurately assess the suitability of friends, relatives or acquaintances. This significantly shortens the hiring process and makes new qualified personnel available to you immediately. Many small to large corporations already benefit from this concept.

At TieTalent we also offer you the opportunity to refer friends to our tech recruitment platform and of course you will be rewarded for this. If you successfully accept a job offer, you will receive 500 CHF/Euro for each friend.

TieTalent specializes in IT and Digital Marketing jobs in Switzerland, Germany, and France. Whether you are a company looking for qualified talent or a candidate looking for a new job, you can register on our platform at any time.