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Why Employee Referrals are the Best Way to Hire?
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Nov 17, 2023

Why Employee Referrals are the Best Way to Hire?

Discover the unbeatable hiring advantage: employee referrals.

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The more you research it, the more it becomes clear: the first step of any hiring process should be asking your existing employees if they know someone good for the role.

Why? Research shows getting a referral is a cheaper way to hire, a faster way to hire, generally produces a better hire and lowers the turnover rate at your company.

According to Kara Yarnot, founder of Meritage Talent Solutions, 'A great referral program allows you to turn your entire workforce into recruiters'.

1. A referred candidate is faster to hire than a traditional candidate

Intuitively, this makes perfect sense. Rather than having to craft a job posting, receive resumes and screen through them all, all you have to do is interview a referred candidate to hire them.

It has been found that there are significant time savings by hiring via referral. According to a study by JobVite, on average it takes 29 days to hire a referred candidate, compared to 39 days to hire a candidate through a job posting or 55 days to hire a candidate through a career site.

2. A referred candidate is cheaper to hire than a traditional candidate

For all the reasons mentioned above, a referred candidate is cheaper to hire than a traditional candidate. You don’t have to pay traditional recruiting costs to source them – an advertisement on a job board, agency fees, etc. – and, because they are faster to hire, it also means spending less on your internal labor costs.

Even after factoring in a referral bonus, the savings can be on a much higher side. For example, if a typical agency charges a fee of 20 percent of a hire’s first-year salary, that could be $20,000 for a single $100,000 hire. Even if you gave your employee a $2,000 referral bonus for successfully recommending a new hire, that’s an $18,000 savings, compared to hiring through an agency.

3. Quality of a referred hire will be more than a traditional hire

One of the most important statistic people look at is the quality of a hire. Data shows that referral candidates can be five times more likely to get hired than other candidates. This is because educated employees know that their role is to seek out individuals with superior skills and experience. And because referral candidates are proactively sought out and prescreened by your employees who know the job and the company, the candidate pool is of a higher quality.

Well-designed referral systems also produce a high percentage of candidates that fit the culture. This is because your employees know your corporate culture and they are able to screen out those who are a weak fit. This means that hiring managers waste less time on candidates with the right skills but the wrong 'fit'. New hires who are a better fit may require less onboarding time, less training, and they may reach minimum productivity levels faster because they are instantly a better fit with the team.

A successful referral makes an employee feel better about the company they work for. Not only do such employees stay longer in the company, but also they are more engaged.

Specifically, one study by JobVite found that 46 percent of referred hires stuck around for at least one year after they were hired, which was far above the 33 percent of people hired through career sites and 22 percent hired through job boards.

4. A strong employer brand and superior messaging

Because your employees live the job every day, what they say to candidates is likely to be viewed as more authentic and believable than messages on your corporate website or even sales pitches by individual recruiters. In addition, because they know the job and the managers better, your employees can often provide more detailed and current information about the job and the team than standard recruiters can. All combined, this will greatly strengthen your employer brand while simultaneously increasing the percentage of prospects who are willing to apply for and eventually accept jobs.

Employee Referral Disadvantages:

The disadvantages of employee referrals do not outweigh the benefits, but there are still some to consider. Here are few employee referral disadvantages to keep in mind when making a hiring decision:

1. You may get a recommendation based on bias.

While in most cases an employee’s motives should be 'pure' there may be circumstances where a person wants to just work with their friend or receive the referral bonus. This can result in the candidate not being as qualified as either the referrer or referee said they were. The referrer may think that they can make up for the candidate’s shortcomings or give them a crash course to level-set their skills. This can impact their own production in a negative way. And now your company may have two underperforming employees and you may have to look to fill both of these positions in the not-so-far-off future.

2. Employee referrals can invite opportunities for negative company politics. 

While an advantage of employee referrals is that they can positively impact peer morale, they can also cause unnecessary tension. The twosome can be negatively received by their peers especially if the external hire was chosen over an internal promotion. Further, the referrer may be afraid to offer critique to the person they referred to. This kind of dynamic can negatively impact their work.

Conclusion:

Employee referrals stand as the pinnacle of effective hiring strategies. Their ability to bring in quality candidates, foster a positive company culture, and enhance retention rates makes them an unparalleled method in the recruitment landscape. Harnessing the power of existing employee networks not only streamlines the hiring process but also cultivates a sense of trust and commitment within the workforce, ultimately leading to sustained success for organizations.

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