Employee Referrals

“I’d like to implement a plan that rewards employees for recommending people they know to our company. What do I need to consider?”

Your HR Survival Tip

Employee referral plans can be a huge benefit to your company and for your employees. When a current employee recommends someone to apply, they want the reward. As a side benefit to you, they often feel responsible for the success of that person and won’t recommend people they think might make them look bad.

When planning to offer a referral bonus, there are more things to consider than you might think:

  • What is the value of receiving a recommendation from an employee? Recruiting time and money can often cost you far more than paying a referral bonus. We see plans paying $300-$1000, depending upon the position.

  • When does the current employee receive the bonus? Consider how long it takes a new hire to start doing well in the job. Or look at your turnover and determine when most of it happens. If you have a lot of turnover in the first three months, then you want to wait until after that to pay out any bonus.

  • What process needs to be in place? Make sure you have a system that captures who referred each applicant and reminds you when to pay out the bonus. Also, what happens to the bonus if the current employee is no longer working for you when the payout date arrives?

  • What will you do if the new employee isn’t really that great but is still around long enough to force you to pay the referring employee? New hires don’t learn new jobs at the same pace and you have to accept that. Either make sure your payout date allows for this or just remember you’re paying for the recommendation, not for a guarantee this will be the best employee you’ve ever had.

If you decide to implement this type of plan, make sure the details are in writing and/or added to your Employee Handbook. When money is involved, employees tend to have a very good memory of what was promised. You don’t want to undermine the benefit of offering this plan by not paying as promised.

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